Risk management

Beware of dirty money

Against the backdrop of the new money laundering regulations and the advent of the Proceeds of Crime Act, here is updated advice on the subject.

The legislation means that if one of your clients is found guilty of money laundering the partner dealing with that client has to prove that he had no idea of any criminal behaviour.

Therefore, the onus is on the partner to convince his peers that he had no knowledge of any illicit dealings.

The Act also stipulates that the partner will have to prove not only that he did not know that the client was laundering money, but that he had no suspicions or doubts about the client.

For a solicitor to prove that he had no knowledge or inkling of money laundering is difficult.

Here are some simple checks, which all partners and lawyers should regularly carry out to keep abreast of a client's business interests and minimise potential damage.

Do a detailed check on a new client as soon as possible before agreeing to undertake any work, by:

- Making sure that you deal with real people or organisations, not aliases or fronts, and;

- Ensuring that the new business has an obvious source of funds.

Where does your client carry out most of its business? High-risk areas could be:

- Offshore banking centres;

- Countries with high levels of organised crime, drug production or terrorism, and;

- Countries with exceptionally sophisticated financial systems.

Be aware of:

- Unusual and complex transactions;

- Unusual requests or a change in the way a client normally manages his affairs;

- Clients who do not necessarily have to use your practice as these clients might simply be trying to hide behind your good reputation, and;

- Clients that are reluctant to provide information or who are overly secretive.

Make sure everyone in the practice knows:

- What money laundering is and what to look for;

- What to do if they become suspicious, and;

- That even current clients, who have seemingly always behaved impeccably, could suddenly become involved in money laundering.

Your practice should have someone to whom all staff can talk should they have misgivings about any client.

Whoever is allocated this job needs to develop an open-door policy, so no matter how trivial the suspicions of the partner or assistant solicitor might be, they are comfortable discussing it.

If it is then decided that the client is involved in some strange dealings, your firm has a duty to notify the relevant authorities (the Financial Services Authority or the Law Society).

With regard to new business, if you have any apprehension about a potential client, then turn the business away.

It is never worth the risk to the practice's reputation.

This article was prepared by AFP consulting's risk management team.

AFP Consulting is a division of Alexander Forbes Risk Services UK