There is a risk that the reputation of the organisation will be damaged in such a way that it will be regarded less positively. A lawyer’s reputation is everything; no lawyer wants to be known for time immemorial as having unwittingly facilitated financial crime. Disclaimer: This is an opinion article; the authors do not work directly or indirectly for any screening software provider company, nor do they provide legal advice to them. This more rigorous approach should continue throughout the client relationship. Any event that taints the firm’s reputation in the form of regulatory and legal sanctions can cause serious direct as well as indirect losses to the firm. The best advice for lawyers or firms seeking to shore up their reputations against potential client risk is to conduct regular due diligence. Even though compliance – and AML in banking, in particular – may seem to be expensive programs, evidence shows us that they are not at all costly when compared with the outcomes of not having the required AML measures and not complying with local and regional rules and regulations. EU withdraws Nigeria’s listing as ‘high-risk country in money laundering, terrorism financing. However, painful examples such as 9/11 and the growth of ISIS demonstrate that terrorists depend on financial institutions as much as non-criminal groups do. Local authorities trust that financial institutions are following the directives imposed by law and that they are constantly policing their customers to make sure they do not facilitate the execution of financial crimes. The ABA, in fact, has stated that it would be “prudent” for lawyers to undertake customer due diligence, and has published guidance, as recently as 2014 (Formal Opinion 463), which provides a good starting point for an attorney considering these issues. For example, if the AMLCO realizes our potential client has been involved in corruption scandals, he or she will reject the relationship to safeguard the institution’s reputation. Bottom line: Next time you are trying to open an account and find it is taking more time than expected, remember that your bank is also at work attempting to avoid the heartbreaking consequences of financing criminal activities. lawyers are not subject to an AML reporting requirement, despite frequently playing a key role in handling financial transactions on behalf of clients. Imagine that a regional dry cleaning chain—for which a law firm has done only labor and employment work for years—suddenly seeks help setting up a trust in the British Virgin Islands, or with a precious metals transaction in Eastern Europe. Lawyers are comfortable with their age-old role as outward risk advisors, giving sage counsel to clients on how to avoid or mitigate risks. The Bloom graph visualizations below depict circular payments. In the world of money laundering, there are a number of requirements common to all players, with convenience and anonymity possibly the two most important of these.Since both are offered by often anonymous digital currencies, it is unsurprising that these digital currencies hold a natural appeal for money launderers.Many people have heard of Bitcoin, but the list of perhaps lesser-known cryptocurrencies is extensive — Litecoin, Dash, Ethe… In today’s enforcement-minded environment, financial institutions face scrutiny from Regulators and are challenged to demonstrate that the necessary controls are in place to address money laundering and broader financial crime risk. In conclusion, although U.S. lawyers have no AML reporting obligation, as FATF recently highlighted, they have strong reason to proactively identify and avoid becoming associated with money laundering. Trust and integrity are the keys to success for any financial services institution. It decreases legitimate global opportunities because foreign financial institutions may decide to limit their transactions with money laundering haven institutions, since the necessary extra scrutiny will make … When fines are levied, they are usually large. As criticized in a December 2016 report of the Financial Action Task Force (FATF)—focused on the United States’s anti-money laundering (AML) and counter-terrorist financing measures—U.S. Afterward, AML authorities in each country monitor each institution’s efforts to safeguard the financial system. High value products or services increase the risk of money laundering occurring.Enhanced due diligence should be considered for high value products by verifying the source of funds or wealth of the customer.AML/CFT risks: High value products or services offer those seeking to undertake money laundering and the financing of terrorism the opportunity to move illicit funds in large amounts with … In case you are questioning whether this is common procedure for financial institutions, it is – even when players involved vary in quantity, shape and structure. Deviations that may serve as red flags will always be unique to the particular client in question, but could include a client engaging in a transaction inconsistent with its prior practices or industry type. Remember we spoke about reputation? Negative publicity… damage to corporate reputation and loss of goodwill… legal and regulatory sanctions … an adverse effect on the bottom line. Nightclubs and financial institutions alike must maintain a positive reputation to make sure their businesses are deemed respectable. Part and parcel of these processes, moreover, is the establishment of thorough and instructive written procedures. In short, those are the lines of defense in which financial institutions yield their reputation and business to defend themselves against ML/FT. Reputation is paramount in the financial services industry. Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions.The overall scheme of this process returns the "clean" money to the launderer in an obscure and indirect way. Stimulus Fund Fraud During a Pandemic “Perfect Storm”. Hong Kong, China : Money Laundering and Terrorist Financing Risk Assessment Report - 2018. Traditionally, a law firm’s decision to accept a client has turned on a familiar list of factors, from whether the firm has subject matter expertise matching the client’s needs or a potential conflict of interest from a past representation, to an assessment of the client’s ability or willingness to pay any resulting legal fees. We must make sure that our financial institutions take matters into their own hands to avoid unnecessary customers. The following may suggest a high risk of money laundering or terrorist financing: 1. undue client secrecy (e.g., reluctance to provide requested information); and 2. unnecessarily complex ownership structures (including nominee shareholders or bearer shares); 3. business activities: cash-based businesses; money service bureaus; arms dealers; and property transactions with unclear source of funds; 4. foreign politically exposed person; 5. new clients carrying out one-off transactions; 6. rapid rate of turnover (i.e.… Kindly Share This Story: Between all the risks underlying the reputational risk, the one paramount is the anti-money laundering risk. Ireland : National Risk Assessment for Ireland - 2016. Still, there is much work to be done. Deviations of this magnitude should trigger additional scrutiny by the law firm of both the client and the relationship. These industries include any financial institution like banks, currency exchange houses, check cashing facilities, and payment processing companies. The party doesn’t have to end soon, but we must make sure that everybody stays safe. In this regard, we could see further developments on the beneficial ownership front, including a greater focus on defining cryptocurrencies and the risk they pose, limits on pre-paid cards and, most importantly, a greater focus on high-risk third countries. Following are several unhappy examples of banks’ failings: The aforementioned led to modifications in screening processes, serious adjustments in KYC protocols and an expansion in compliance departments, where qualified professionals are needed now more than ever. Attorneys should also be on guard for any deviations from the anticipated baseline of client activity. While money laundering and terrorist financing is a risk anytime money is exchanged, there are industries where the risk is significantly higher. Particularly the 4th and 5th Directives (the 6th is to be implemented by December 2020). To comply with AML regulations, banks around the world use various technology-based products and solutions. Attorneys, particularly those who handle transactions for clients or otherwise hold their money, should zealously protect their professional reputations by implementing prescriptive client due diligence measures. But in this day and age, legal practitioners who handle financial transactions for their clients would be remiss not to delve deeper at the client-intake stage and gather more extensive diligence. Only when equipped with timely and relevant due diligence can an attorney, within his or her own sound judgment, decide to narrow or curtail the transactions in which they engage on a client’s behalf. Anti-Money Laundering in Financial Services: A Primer, Remote Compliance: Managing InfoSec Audits from a Distance, Risk Management and AI: A Regulatory Path Forward, Implications of India’s New Labor Law Codes, 4 Ways to Fight U.S. Taking a peek into the extensive – and most probably unfinished – list of money laundering scandals involving financial institutions leaves us thinking about the need for strict screening and transaction monitoring controls; robust, flexible and adaptable processing management systems/engines; and qualified compliance professionals (all down the line) to defend the institution’s and stakeholders’ interests. In 2019, US and UK regulators handed out fines totalling $8.14 billion for anti-money laundering violations.. Second, good risk detection systems put banking customers at ease and improve the bank’s reputation. Indonesia : Indonesia National Risk Assessment on Money Laundering - 2015. A critical step for an organization in combating money laundering is to assess its AML Program. Reputation risk is the current and prospective impact on earnings a… However, banks must also be concerned with their reputation with regulatory bodies (the “watchdogs”). To that end, these lawyers should take a page from the playbook of financial institutions’ compliance programs. He or she will – most of the time – be joined by a committee to determine whether the institution is comfortable receiving such a client or whether the transaction appears to be legitimate. To identify abnormal transactions, a lawyer or firm must first understand what kind of transactions will be normal. Characterizing this as a notable gap in the U.S. AML infrastructure, the report juxtaposed this situation with many western countries that do have such reporting requirements, such as the UK and France. Money laundering is a serious financial crime that is employed by white collar and street-level criminals alike. Timothy C. Stone is a Director based in Exiger's New York office, where he focuses on the firm’s anti-money laundering and financial crime compliance efforts. © 2020 EXIGER TERMS & CONDITIONS|PRIVACY NOTICE|PRIVACY SHIELD POLICYHUMAN RIGHTS & MODERN SLAVERY STATEMENT, Business Intelligence & Investigative Due Diligence, Cyber Investigations & Computer Forensics, Financial Investigations & Forensic Accounting, Intellectual Property Theft Investigations, Construction Integrity Monitoring Program, Immigration, Citizenship, & Visa Practice, Reputation is Everything: Why Lawyers Should Take a Closer Look Inward at Money Laundering Risk. As having unwittingly facilitated financial crime that is employed by white collar and street-level criminals alike more rigorous approach continue... 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