Financial Crime World

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Learning by Doing: Lawyers Must Adapt to Money Laundering and Terrorism Financing Risks

As the legal profession continues to evolve, lawyers must stay ahead of the curve in identifying and mitigating money laundering (ML) and terrorism financing (TF) risks. A new guideline from the relevant authorities emphasizes the importance of “learning by doing” and allocating necessary resources to gather and interpret information on ML/TF risks.

Allocating Resources

According to the guideline, lawyers are encouraged to pay close attention to their practice and apply defensive measures proportionate to the risk faced at any given time. This requires a thorough understanding of:

  • The nature and scale of the business
  • The complexity, volume, and size of transactions
  • The type of client (e.g., ownership structure, employment income)
  • Delivery channels (e.g., internet banking, wire transfers)
  • Geographical area (e.g., jurisdictions with high levels of drug trafficking or corruption)
  • Value of business and frequency of transactions

Risk Identification and Assessment

To identify potential ML/TF risks, lawyers must assess clients at the inception of a relationship and conduct ongoing monitoring and review. This may involve considering factors such as:

  • Press articles
  • Public information
  • Guidance from international organizations like the Financial Action Task Force (FATF)

The guideline categorizes ML/TF risks into three main categories:

Country or Geographic Risk

Jurisdictions with AML/CFT regimes that fall below acceptable standards, support terrorist activities, or are known for significant political corruption pose a higher risk. Lawyers should be wary of doing business with individuals from such countries and take greater care in establishing and maintaining relationships.

Client Risk

Determining the potential ML/TF risks posed by a client is critical to developing an effective risk-based framework. Lawyers must consider factors such as:

  • Ownership structure
  • Employment income
  • Public information about the client

By following these guidelines and allocating necessary resources to gather and interpret information on ML/TF risks, lawyers can better protect themselves and their clients from the threats of money laundering and terrorism financing.