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Money laundering signs – Law Society guidance

Money laundering is a constant spectre for law firms and a regular topic, most recently in our December 2019/January 2020 edition (p2). With the official guidance on 5MLD some months away, the Law Society’s updated practice note is timely (‘Money laundering warning signs’ 20/01/2020). Many of the points made in the practice note look familiar – but firms must ensure that this does not breed contempt.
 
Common warning signs of money laundering
  • Unusual and secretive clients – why has the client chosen this particular firm?
  • Unusual transactions – clients trying to launder funds will often try to carry out an unusual transaction.
  • Unusual source of funds – see ‘Professional’ section below.
  • Third-party funding – why are the funds coming from a third party?
  • Sudden changes in instructions – consider whether there is a reasonable explanation for any changes to the retainer.
Practitioners will not be surprised to note the services considered to be high risk are:
 
Trust and company formation. Take care where trust and company services are provided in conjunction with the other services identified as high risk and involve high-risk jurisdictions. Warning signs include:
  • secretive or suspicious behaviour by the client;
  • formation of a shell company in an offshore jurisdiction without a legitimate commercial purpose;
  • interposition of an entity in a transaction without any clear need; and
  • unnecessarily complex corporate structures.
Conveyancing – warning signs include:
  • rapid succession of transactions relating to the same property;
  • use of cash or third-party intermediaries without adequate commercial explanation;
  • use of overseas trusts or companies to conceal property ownership; and
  • unexpected early repayments, for example of a mortgage.
The operation of a client account – warning signs include:
  • instructions to act as a bank or escrow agent, or pay bills unrelated to the matter;
  • instructions to return overpayments to a client or a third party;
  • instructions to pay out funds at intervals;
  • transactions aborted for no clear reasons; and
  • the presence of cash in a transaction.
The practice notes goes on to consider steps to reduce the chance of money laundering happening and the need to make suitable enquiries before making a report to the MLRO or NCA. The practice note concludes with the reminder that ‘You cannot have money laundering if there is no existing criminal property.’ It is vital for firms to ensure that regular training to all staff is given on these issues – staff can unwittingly become complacent about the warning signs and action to take. Reinforcement is key to mitigating the risk for a firm of falling victim to money laundering. Source: www.lawsociety.org.uk.
 

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