Money Laundering red flags for lawyers
Countries around the world have been putting responsibilities on lawyers due to their ability to either block or facilitate the entry of illegitimate money into the financial system.
The responsibilities of lawyers include requiring them to identify clients, to conduct due diligence on their clients, to maintain records about their clients, and to report suspicious client activities. Some of these rules also prohibit lawyers from informing or tipping off clients who are the subject of the suspicious transaction reports. Violations may subject those lawyers to prosecution, fines, and even imprisonment.
In the European Union and several other countries, mandatory anti-money laundering duties already apply to lawyers. In Lebanon, the Council of the Beirut Bar Association has issued on 20/4/2017 a guide of lawyer’s obligations with regards to AML/CFT (دليل موجبات المحامين لمكافحة تبييض الاموال وتمويل الارهاب – نقابة المحامين – بيروت).
The following legal services that may be provided by lawyers are the most useful to a potential money laundering criminal:
Creating and managing corporate vehicles or other complex legal arrangements.
Such arrangements may serve to obscure the links between the proceeds of a crime and the perpetrator.Buying or selling property.
Property transfers serve as either the cover for transfers of illegal funds (layering stage) or the final investment of proceeds after they pass through the initial laundering process (integration stage).Performing financial transactions.
Sometimes lawyers may carry out various financial operations on behalf of the client (for example, making deposits, withdrawing funds from accounts, engaging in retail foreign exchange operations, buying and selling stock, and sending and receiving international funds transfers).Providing advice.
Criminals with large amounts of money to invest may pose as individuals hoping to minimise tax liabilities or seeking to place assets out of reach in order to avoid future liabilities.Undertaking certain litigations (see below).
Setting up and managing a charity.
In many cases, criminals will use legal professionals to provide an impression of respectability in order to dissuade questioning or suspicion from financial institutions and to create an added step in the chain of any possible investigations. Additionally, legal professionals may deliberately misuse a client’s legitimate accounts to conduct transactions without the client’s knowledge.
Below are some red flag indicators of money laundering and terrorism financing that a lawyer should take into consideration with regard to the client who:
Is evasive or unusually guarded in communications.
Uses an agent or intermediary, or avoids direct contact, without a plausible justification.
Is reluctant to provide, or refuses to provide, information or documentation ordinarily required to complete the matter.
Holds or has held senior public office, or maintains professional or family ties to such individuals.
Is known to have been the subject of investigation for a predicate offence or acquisitive crime.
Is known to maintain ties to persons engaged in criminal activity.
Exhibits disproportionate interest in the firm's compliance procedures or the thresholds at which ordinary due diligence applies.
Maintains persistent and unexplained distance from the transaction without legitimate or commercial justification.
Retains a lawyer who lacks demonstrable experience in the services requested.
Proposes fees substantially above market rate without legitimate justification.
Changes legal advisors frequently, or retains multiple advisors simultaneously, without coherent rationale.
Seeks services previously declined by another professional.
Instructs transactions that are atypical in nature, size, frequency, or execution pattern.
Instructs transactions inconsistent with known business activities and demonstrates unfamiliarity with their nature, purpose, or commercial rationale.
Requests complex ownership structures or multi-jurisdictional arrangements without legitimate commercial or legal justification.
Cannot produce documentation evidencing the historical activities of a company involved in the matter.
Provides instructions containing material inconsistencies or unexplained last-minute amendments.
Has no discernible commercial, financial, or fiscal rationale for the transaction, or introduces complexity that unnecessarily increases cost or tax exposure.
Abandons a transaction with no regard for fees incurred or financial losses sustained.
Grants a power of attorney for the management or disposal of assets in circumstances that are unusual or inadequately explained.
Seeks to settle litigation with a speed and ease disproportionate to the nature of the dispute, with minimal engagement from the legal advisor.
Requests payments to third parties without a substantiating transaction or corresponding legal basis.
Is domiciled, resident, incorporated, or otherwise connected to a high-risk or non-cooperative jurisdiction.
Maintains a connection to the opposing party that lacks an apparent commercial rationale.
Has a relationship with the opposing party that raises doubt as to the genuine adversarial character of the matter.
Structures the engagement in a manner designed to obscure true beneficial ownership.
Is not the directing mind of the transaction — instructions originate from a person who is not a formal party to the matter.
Does not present as a plausible or suitable representative for the transaction in question.
Provides funds through atypical or non-standard payment arrangements.
Draws funds from accounts or sources located in high-risk jurisdictions.
Cannot provide a coherent explanation for a material and recent increase in the capitalisation of a newly incorporated entity.
Controls entities whose capitalisation is disproportionate to comparable businesses in the same sector.
Derives funds from the transfer of securities at a price that is manifestly excessive or undervalued.
Generates business revenues from large financial transactions that cannot be justified by the entity's stated corporate purpose.
Source: FATF. BBA. ACAMS.