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 functions that may be provided by lawyers are the most useful to a potential money launderer:

  • 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 may take into consideration with regards to the client who:

  1. Is overly secretive.
  2. Is using an agent or an intermediary or avoids personal contact without a good reason.
  3. Is reluctant to provide or refuses to provide information or documents usually required to enable the transaction’s execution.
  4. Holds or has previously held a senior public position, or has professional or family ties to such individuals.
  5. Is known to have been the subject of investigation for an acquisitive crime (i.e., one where the offender derives material gain from the crime, such as theft or embezzlement).
  6. Is known to have ties to criminals.
  7. Shows unusual interest and asks repeated questions on the procedures for applying ordinary standards.
  8. Is constantly at a significant distance from the transaction without a legitimate or economic reason.
  9. Hires a lawyer who does not have experience in providing the particular services needed.
  10. Suggests paying substantially higher than usual fees without a legitimate reason.
  11. Frequently changes his lawyers, or the client has multiple legal advisors without logical reason.
  12. Requests services previously refused by another professional.
  13. Executes transactions that are unusual with regards to the type of operation and the transaction’s typical size, frequency or execution.
  14. Executes transactions that do not correspond to his normal business activities and shows that he does not have a suitable knowledge of the nature, object or the purpose of the professional performance requested.
  15. Requests the creation of complicated ownership structures or structures with involvement of multiple countries when there is no legitimate or economic reason.
  16. Does not have documentation to support historical company activities.
  17. Exhibits inconsistencies and unexplained last-minute changes to instructions.
  18. Has no sensible commercial/financial/tax reason for the transactions or increased complexity that unnecessarily results in higher taxes or fees.
  19. Abandons transactions with total disregard for fee level or potential losses.
  20. Provides a power of attorney for the administration or disposal of assets under unusual circumstances without logical reason.
  21. Requests to settle a litigation too easily or quickly with little or no involvement of the lawyer.
  22. Requests for payments to third parties without substantiating reason or corresponding transaction.
  23. Is native to, or resident in, or is incorporated in a high-risk country.
  24. Is connected to the opponent without an apparent business reason.
  25. Is tied to the opponent in a way that generates doubts as to the real nature of the transaction.
  26. Attempts to disguise his real ownership of the business.
  27. Is not directing the transaction. Rather, the person directing the operation is not one of the formal parties to the transaction.
  28. Does not appear to be a suitable representative for the transaction.
  29. Provides funds using unusual payment arrangements.
  30. Withdraws funds from a source located in a high-risk country.
  31. Does not provide a logical explanation to a significant increase in capital for his recently incorporated company.
  32. Owns businesses that have unusually high capital in comparison with similar businesses.
  33. Derives funds from a security transferred with an excessively high or low price attached.
  34. Generates business income from large financial transactions that cannot be justified by the corporate purpose.

Source: ACAMS.

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