Be prepared for dirty money
15 May 2000
New legislation is placing the onus on law firms to play their part in beating the money launderers, says Andrew Clark.
New anti-money laundering developments will significantly affect the legal profession. The Financial Services Authority (FSA) has new responsibilities to regulate certain activities of firms involved in investment business. This should focus the minds of lawyers to ensure that they have adequate anti-money laundering measures in place.
We are all aware of recent cases where solicitors have knowingly conspired to launder funds. While these cases may be useful in raising awareness of money laundering, they are not a true reflection of the state of affairs in the legal profession. Instead, we should look at how lawyers can avoid becoming unwittingly involved in money laundering activities, where the consequences can be very serious.
My advice to clients on money laundering is to look beyond checklists and aides-memoir. Any successful money launderer will work out what checks are in place and simply develop a plan that operates outside the areas monitored. In the banking sector, increased controls over cash handling and account openings have driven some money laundering activities into businesses such as casinos and bureaux de change.
Lawyers need to be constantly vigilant for unusual activities - large cash payments are not the sole preserve of the banks.
One corporate client recently took delivery of a significant sum of cash in payment of a trade debt that its bank subsequently refused to accept on the grounds of suspected money laundering. Similar situations may arise in the legal profession in instances such as payment of conveyancing fees.
Additionally, most lawyers naturally provide an added respectability to business dealings - something that can be misused by unscrupulous clients further into the relationship.
Recent clarification such as the inclusion of fiscal offences in the context of money laundering, has shown that the environment is dynamic and changes will continue in the way anti-money laundering activities are regulated.
Lawyers must keep abreast of these changes and take appropriate action. New rules from the FSA and a proposed second EU Money Laundering Directive are two such developments. Lawyers should ask themselves who in their organisation is responsible for monitoring and compliance in this regard.
The danger is that in a law firm, knowledge of anti-money laundering procedures and responsibilities is restricted to the money laundering reporting officer. This officer should be up-to-date, but colleagues may be largely unaware of their responsibilities and be putting themselves and their firm at risk.
A sensible option, used by a number of law firms, is to initiate a comprehensive programme of anti-money laundering training. Such training raises awareness and communicates procedures to a wide audience within the firm. It has the added incentive of eligibility for Certificate of Professional Development points when provided by an accredited organisation.
The law firms which will adapt best to new money laundering regulations will be those which understand the importance of the legal profession's responsibilities and have a serious anti-money laundering culture.
Firms of lawyers and accountants are not renowned for their internal communication processes, but in this instance, failure to disseminate information effectively could have severe consequences.
We all need to make sure that in the rush to get online, standards and procedures are not compromised. The increased difficulties in successfully identifying clients using an electronic medium make it more imperative to ensure adequate "know your customer" and anti-money laundering measures are taken at all stages of a client relationship.
Money laundering will continue to be high on the agenda of the regulators and other relevant authorities. The FSA will focus on six issues in 2000-2001 on an industry-wide basis - customer identification will be one of them.
Ultimately, money laundering is a symptom of a wider environment of crime, fraud, corruption and senior management impropriety. The responsibilities of lawyers and fellow professionals will continue to provoke debate and new developments. Overcomplicating the issue will not help. Hopefully, by taking the establishment of practical conventions seriously, the profession as a whole will not be caught wrong-footed in the future.
Andrew Clark is a partner in the dispute analysis & investigations practice at PricewaterhouseCoopers.