Money Laundering Red Flags for Lawyers: A Guide to Compliance

As a lawyer, it is crucial to be aware of the warning signs of money laundering and terrorist financing in order to ensure compliance with anti-money laundering (AML) regulations.

Unusual Funding Methods

Borrower/Debtor Providing Funding without Logical Explanation: Be cautious when a borrower or debtor provides funding for a transaction without a clear reason.
Third-Party Funding without Apparent Connection or Legitimate Reason: If third-party funding is involved in a transaction, ensure there’s a legitimate connection between the parties.
Request to Send Funds to Foreign Country with No Apparent Connection: Be wary of requests to send funds to foreign countries without a clear link to the transaction.

Red Flags in Client Relationships

Multiple Bank Accounts or Foreign Accounts without Good Reason: Verify clients’ bank accounts and foreign accounts, especially if there’s no legitimate reason for multiple accounts.
High-Risk Countries Involved in Transactions: Be cautious when dealing with transactions involving high-risk countries.
Instructions from a Client with No Experience in the Relevant Field: Ensure that clients have sufficient expertise in the relevant field before accepting instructions.
Substantially Higher Fees Paid by a Client without Legitimate Reason: Investigate unusual fee payments to ensure they’re justified.
Changes in Advisors or Engagement of Multiple Legal Professionals without Justification: Verify the reason for changes in advisors or engagement of multiple legal professionals.

Conducting Customer Due Diligence

Identify and Verify Customers, including Initial Directors and Shareholders: Thoroughly identify and verify customers, including initial directors and shareholders.
Hold Customer Information on File for at Least 6 Years: Maintain customer information on file for a minimum of 6 years.
Conduct Simplified Due Diligence for Foreign Enterprises with Full Disclosure: Conduct simplified due diligence for foreign enterprises that provide full disclosure.

Reporting Suspicious Activity

Report Any Unusual or Suspicious Activity to the FIU under Section 47: Report any unusual or suspicious activity to the Financial Intelligence Unit (FIU) under section 47.
Cash Transactions Equal to or Greater than $10,000 NZD Must be Reported in the Required Form and Manner: Report cash transactions equal to or greater than $10,000 NZD in the required form and manner.

FIU’s Approach to Compliance Monitoring and Enforcement

Examine Compliance with Legislative Requirements under the Financial Transactions Reporting Act (FTRA): The FIU examines compliance with legislative requirements under the FTRA.
Request Information, Conduct On-Site Examinations, and Provide Reports for Monitoring Purposes: The FIU may request information, conduct on-site examinations, and provide reports to monitor compliance.
Enforce Compliance through Legal Proceedings and Penalties: The FIU enforces compliance through legal proceedings and penalties.

Penalties for Non-Compliance

Failure to Comply without Reasonable Excuse May Result in Penalties of Up to $250,000 or Imprisonment of up to 5 Years for Individuals, or Penalties of Up to $1,000,000 for Body Corporates: Failure to comply with AML regulations may result in significant penalties.

Additional Resources

FATF Report on Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals: The Financial Action Task Force (FATF) report provides guidance on money laundering and terrorist financing vulnerabilities.
United Kingdom Law Society’s Guidance on AML: The United Kingdom Law Society’s guidance offers best practices for anti-money laundering compliance.
International Bar Association’s Guide to Detecting and Preventing Money Laundering: The International Bar Association’s guide provides practical advice on detecting and preventing money laundering.

By being aware of these red flags and conducting thorough due diligence, lawyers can help prevent illegal activity and ensure compliance with AML regulations.