Here is the article in markdown format:
Risk Mitigation: A Crucial Aspect of Compliance for Legal Practices
============================================================
As the legal profession continues to evolve, the importance of risk management and compliance cannot be overstated. Inherent risks are those that exist before any control measures are put in place, while residual risks remain after such measures have been implemented. It is crucial for legal practices to identify, assess, and mitigate these risks to avoid unwanted consequences.
Strategies for Mitigating Residual Risks
In an effort to address residual risks, legal practices can adopt one of four strategies:
- Treat: Introducing control measures to reduce the likelihood and impact of a risk materialising.
- Tolerate: Accepting a known risk.
- Transfer: Passing it on to a third party.
- Terminate: Ceasing an activity that poses too great a risk.
Identifying Risks
In identifying risks, legal practices must consider various databases and factors, including:
- Product and service indicators
- Delivery channel indicators
- Geographic location indicators
- Client indicators
- And others
Client due diligence is a critical aspect of risk management, particularly in the case of legal persons, trusts, and partnerships.
FATF Recommendations
The Financial Action Task Force (FATF) has issued recommendations on transparency and beneficial ownership, customer due diligence, and other related matters. According to FATF, a beneficial owner is a natural person who ultimately owns or controls a client or transaction, regardless of how complex the structure may be.
Risk Management Programme
An accountable institution’s risk management and compliance programme must:
- Describe the measures it applies to individual clients, legal persons, trusts, partnerships, and hybrid structures.
- Outline how these measures are intensified based on money laundering and terrorist financing risks.
Conclusion
Each legal practice faces unique risks that require a tailored approach to mitigation. By understanding its own strengths and weaknesses, a legal practice can implement effective risk management strategies to protect its reputation and contribute to the global fight against money laundering and terrorist financing.
Recommendations
- Implement effective client due diligence measures for legal persons, trusts, and partnerships.
- Intensify control measures based on money laundering and terrorist financing risks.
- Monitor FATF recommendations and lists of countries and jurisdictions of concern.
- Conduct ongoing customer due diligence to ensure consistent application of risk management strategies.
By implementing these measures, legal practices can mitigate residual risks and contribute to the global effort against money laundering and terrorist financing.
About the Author
Simthandile Kholelwa Myemane is the Practitioner Support Manager at the Legal Practitioners’ Fidelity Fund in Centurion. He holds various certifications in forensic auditing, fraud risk management, and other related fields. This article was first published in De Rebus in 2019.