AML compliance can feel like walking a tightrope, right? Especially when it comes to a client’s source of funds and wealth. It’s a balancing act: you need to be flexible enough to handle all sorts of clients, but you also need a rock-solid strategy for managing risk.
At Teal Compliance we hear that it can be hard to have the conversation around source of funds and source of wealth with a well paying existing client, or those who have a high net worth.
If you haven’t downloaded already, our Guide to Source of Wealth & Funds for Law Firm Compliance is a must have.
Here are my thoughts on how law firms should nail the risk-based approach to source of funds and wealth verification, keeping you compliant without slowing things down.
Think of your clients and transactions like a deck of cards – some are higher risk than others. Maybe you’ve got clients from countries with shaky AML rules, or maybe their business structure is a bit of a maze.
Whatever the reason, I suggest you begin by categorising them.
Once you’ve sorted them, decide what level of due diligence each category needs. Basic checks for some, the full nine yards for others. And don’t forget to keep your toolkit updated! Regulations change, the market shifts, and new risks pop up all the time.
If you don’t already have a TOOLKIT then you can get hold of our TEAL TRACKER HERE which will get you off to a great start.
Certain transactions, like residential conveyancing (a classic money laundering route as you will know) and corporate acquisitions, just scream “high risk.” For these, you need clear, standardised policies.
Within your AML Policy, you should spell out exactly what you consider is acceptable proof of source of funds and wealth. For example, if funds are coming from somewhere from a sale being handled by another law firm you may want your fee earners to get a completion statement from the law firm along with a bank statement from the client to show the funds being deposited. You should also build flexibility into your policy too because what happens when a transaction throws you a curveball? Your policy should tell you how to handle it.
Our SORTED Programmes can help you spot the gaps in your compliance and fix them.
Step 3: Train Your Team – Make Them Risk Detectives!
Handling High-Risk Transactions
Your team needs to be sharp when it comes to risk. I can’t emphasise enough how your training should be FIRMWIDE.
From your MLROs and COLPS to your receptionists, each one should be able to spot risk at the start a new client onboarding process and a new transaction, whilst keeping an eye on it during ongoing monitoring, and double-check everything whilst having the confidence to ask for help or back up if they need it. No fear culture is seriously important.
And here’s my pro tip: document everything. Why did they assess the risk the way they did? Write it down. It not only protects your firm but also shows you’re serious about compliance. Your PII firm will appreciate your documented communications and it will help should you ever get a visit from your regulator.
HOW WE CAN SOLVE YOUR COMPLIANCE HEADACHES
- AML SORTED Programme (for medium to large sized law firms) CLICK HERE
- AML SORTED Programme (for small law firms) CLICK HERE
- Regulatory SORTED Programme (for medium to large sized law firms) CLICK HERE
- Regulatory SORTED for Small Firms Programme (for small law firms) CLICK HERE
The UK Bank Account Myth: Don't Get Caught Out!
Let’s bust a myth that’s been doing the rounds for way too long: just because money’s in a UK bank account doesn’t mean it’s clean. Big banks have been in hot water for money laundering, so don’t assume anything.
Myth #1: UK Bank Account = Clean Money
Nope. Even the most reputable banks can have dirty money flowing through them. Just because it’s in a UK account doesn’t automatically make it legit.
- Action: Always do your own due diligence on the source of funds, no matter where they’re held. Trace the money back to its origin and make sure the client’s story matches the documents.
Myth #2: The Bank’s Already Checked It
Maybe the bank did file a Suspicious Activity Report (SAR), but they might still have to release the funds. It doesn’t mean you’re off the hook.
- Action: Treat every transaction like it’s brand new. Even if a bank has cleared the funds, your firm needs to verify the source and make sure everything is AML-compliant.
Bottom Line: Don’t fall for the UK bank account myth! It’s a trap. By understanding the limitations of relying on bank checks and doing your own thorough due diligence, you can keep your firm safe.
In conclusion....
If you find you are procrastinating from having that awkward conversation with a client (or indeed that well paying existing or high net worth client) about having to do some comprehensive checks as to where their funds are coming from, you can simply blame it on legislation! Come what may, you, as a solicitor, compliance officer, CILEx lawyer, paralegal, Senior Partner…have to adhere to the AML regulations by performing comprehensive checks to authenticate identities, proof of address, and source of funds and wealth.
Would you rather have a short, possibly tricky conversation with a client, or potentially face a serious consequence (no one wants a huge fine or go to prison).
As an example, if you are a conveyancer, you have to follow the rules to make sure the money used to buy a property isn’t from the proceeds of crime. It’s not just about ticking boxes for your law firm, you have to be smart and proactive in the fight against financial crime.
Let’s be honest, nobody wants their firm involved in money laundering. That’s where risk assessments come in. They’re like a health check for your business, helping you identify potential vulnerabilities so you can take action. By understanding the risks, you can put smart controls in place and keep things running smoothly (and legally!).
It’s never too late to get compliant, and it’s definitely never too early to begin the process.
You can email me directly, or any of my team to find out how Teal can help support you, your reputation and your clients.
Please remember that Teal Compliance is your go-to AML and Risk Management Partner and we have a variety of packages available to support you, your colleagues and of course, your clients!
To find out more, click HERE and come what may, we look forward to supporting you soon.
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