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Preventing Money Laundering in Law Firms

Money laundering is a serious crime that poses significant risks to law firms, their clients, and the legal profession as a whole. It is essential for law firms to be aware of the warning signs and take proactive steps to prevent money laundering.

Warning Signs

The following behaviors or transactions may indicate an increased risk of money laundering:

• Secretive or suspicious behavior by clients: Clients who are secretive about their financial affairs or display unusual behavior may be involved in money laundering.
• Formation of shell companies without a legitimate commercial purpose: Shell companies can be used to hide the true ownership and source of funds.
• Interposition of entities in transactions without clear need: The use of multiple entities or intermediaries in a transaction may indicate an attempt to conceal the true nature of the transaction.
• Unnecessarily complex corporate structures: Complex corporate structures can be used to hide the true ownership and source of funds.

Conveyancing

The following behaviors or transactions may indicate an increased risk of money laundering in conveyancing:

• Rapid succession of property transactions: A series of rapid property transactions may indicate an attempt to launder money.
• Use of cash or third-party intermediaries without explanation: The use of cash or third-party intermediaries in a transaction may indicate an attempt to conceal the true nature of the transaction.
• Use of overseas trusts or companies to conceal property ownership: Overseas trusts or companies can be used to hide the true ownership and source of funds.

Client Accounts

The following behaviors or transactions may indicate an increased risk of money laundering in client accounts:

• Instructions to act as a bank or escrow agent: Clients who instruct law firms to act as a bank or escrow agent may be attempting to launder money.
• Return of overpayments to clients or third parties: The return of overpayments to clients or third parties without explanation may indicate an attempt to conceal the true nature of the transaction.
• Payments at intervals without clear reason: Payments made at regular intervals without a clear reason may indicate an attempt to launder money.
• Presence of large amounts of cash in transactions: Large amounts of cash in transactions may indicate an increased risk of money laundering.

Cash Policy

Law firms should adopt a cash policy to mitigate the risks associated with cash transactions. This may include:

• Not accepting cash payments above the specified limit

Responding to Warning Signs

If warning signs are identified, law firms should take immediate action by:

• Asking clients for information and recording answers and supporting material
• Documenting questions, answers, and support material
• Following internal reporting procedures and considering SARs (Suspicious Activity Reports)

Preventing Money Laundering

To prevent money laundering, law firms should:

• Stay alert to warning signs
• Ask questions
• Document answers and supporting material
• Follow firm’s internal reporting procedures

Best Practices

The following best practices can help mitigate the risks associated with money laundering in law firms:

• Having a cash acceptance policy to mitigate insurance risks and reduce staff risk when carrying large amounts of cash
• Being cautious about who is given account details
• Requesting electronic transfers to provide an audit trail
• Monitoring bank statements for cash payments into client accounts
• Matching cash payments to retainers and reviewing the retainer in light of the risks posed by the cash payment