Customer Due Diligence and Record Keeping for Lawyers

The Financial Action Task Force 40 Recommendations (Version adopted on February 2012 and updated on November 2017) set out preventive measures that address “customer due diligence” and “record keeping” requirements.

Lawyers are mainly concerned with Recommendation 22 which stipulates that the customer due diligence and record keeping requirements apply to lawyers (referred to as “designated non-financial businesses and professions”) when they prepare for or carry out transactions for their client concerning the following activities:

  • buying and selling of real estate;
  • managing of client money, securities or other assets;
  • management of bank, savings or securities accounts;
  • organisation of contributions for the creation, operation or management of companies;
  • creation, operation or management of legal persons or arrangements, and buying and selling of business entities.

The customer due diligence and record-keeping requirements are detailed in Recommendations 10, 11, 12, 15 and 17. We will discuss each Recommendation in a separate article. However, the due diligence measures recommended to be taken by lawyers with regards to such requirements can be summarised as follows:

  1. Identify the customer and verify customer’s identity using reliable, independent source documents, data or information.
  2. Identify the beneficial owner, and take reasonable measures to verify the identity of the beneficial owner, such that the lawyer is satisfied that he/she knows who the beneficial owner is. For legal persons, this should include understanding the ownership and control structure of the customer.
  3. Understand the purpose and intended nature of the business relationship.
  4. Conduct ongoing due diligence on the relationship and scrutiny of instructions given throughout the course of that relationship to ensure that such instructions are consistent with the lawyer’s knowledge of the customer and their business, including, the source of funds.

If the lawyer is unable to apply the above-mentioned measures, FATF recommends that he/she should not commence the business relations or perform the legal services. He/she should even be required to terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer, if necessary.

These measures should apply to all new customers, although lawyers should also apply them to existing customers and should conduct due diligence on such existing relationships at appropriate times.

With regards to the record keeping requirement, FATF recommends that lawyers maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities.

Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.

In accordance with local laws, FATF recommends that lawyers keep all records obtained through the above-described measures (e.g. copies or records of official identification documents like passports, identity cards, driving licences or similar documents), account files and business correspondence, including the results of any analysis undertaken (e.g. inquiries to establish the background and purpose of complex, unusual large transactions), for at least five years after the business relationship is ended, or after the date of the occasional transaction.

Source: ACAMS.

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