It is natural, amongst all the Covid-19 uncertainty, to wonder whether the ‘new normal’ will become the status quo. Undoubtedly, there are elements of the profession that will change permanently or will be left behind altogether. But, in the midst of these most unusual times, law firms must continue to adhere to all Anti Money Laundering (AML) provisions, just as stringently as ever.
Many analysts have predicted an economic slowdown over the next number of months. This will naturally place a very high premium on new business which, in turn, will present a number of AML challenges to firms and practitioners.
Firms may be asked to work with unusual types of clients or matters which are outside its practitioners’ normal area of expertise – without a full understanding of the money laundering and counter terrorism risks associated with the new area of work.
Firms may encounter resistance from a client when it comes to compliance with due diligence checks – perhaps being pressurised to forego necessary due diligence checks or to “speed up” the process. In addition, even the most basic requirements of AML, meeting new clients face to face and obtaining the relevant documentation, has been substantially hampered by the current working conditions. Aside from AML risk, there is also the heightened risk of fraud or identity theft.
Lost in all the restrictions and temporary measures is how best to balance the new risks with the commercial realities of running a business.
The Law Society of Ireland (“the Law Society”) has published some guidelines on how best to deal with some of the Covid-19 – specific AML issues, and has advocated a three-step approach.
Step 1 – Risk Assessment and Document
Although there is a statutory duty to complete a risk assessment for certain specific AML regulated legal services (such as in asset transfers), the Law Society has recommended that during the current crisis it may be beneficial to carry out and document some form of risk assessment on all new clients and matters. This will allow solicitors to demonstrate their level of knowledge and the rationale for proceeding with a client (or matter) should the need arise.
This Risk Assessment is recommended to be a ‘living process’ which should be observed and updated during the life cycle of the legal service. It should not simply end with the prerequisite customer due diligence.
The Risk Assessment should be focused on all the traditional AML red flags, including transactions involving multiple foreign jurisdictions or foreign currency, wire transfers or transfers to nonresident accounts and sudden instructions for name changes or unexpected settlements. Ultimately, the practitioner should focus on asking whether the task that he/she is being asked to do could ultimately be used to facilitate a crime. Where red flags exist, a healthy level of skepticism is advisable.
The responsibility, however, is not intended to be overly intrusive. The mere existence of a supposed red flag does not mean a legal service cannot go ahead, particularly where reasonable explanations are provided. The Law Society has provided two forms where concise documentation of the risk assessment can be recorded.
Step 2 – Take a Pragmatic Approach to the ‘non-face-to-face’ red flag
Traditionally, non-face to face contact between a solicitor and a new client has been a significant red flag when assessing the risk in a new client relationship. This could elevate a legal matter that would ordinarily be low or zero risk to a much higher risk category. However, electronic or telephone instructions are, and will remain, the new normal for some time. The question of how to deal with this increased risk is to be cautious but pragmatic.
The best approach a practitioner can take to address any AML red flag issue is to engage with the client. If the social distancing guidelines and/or the travel restrictions are the only reason why the solicitor is unable to meet the client then, in the absence of other red flags, the assessed risk may be significantly reduced.
Step 3 – Adopt new ways to verify client identity
One of the core fundamentals of legal AML compliance is to maintain up to date identity and current address documentation for all clients. The Law Society has continuously recommended that these documents must be verified, typically during the initial face to face meeting. As discussed above, this may be no longer possible.
The Law Society has recommended the following process to address this issue:
- Request the client to email a high-resolution image of their identity document and address documentation;
- Schedule a video conference with the client to verify that the documents are authentic, up to date, and are those of the client;
- During the video conference, ask the client to show the original identity document; and
- Document the reason why the solicitor was unable to verify the client’s identity in accordance with the usual requirements together with the method used in its place.
It is of crucial importance to keep in mind, if you are recording video chat or using other electronic means to assist with verifying client identity, or indeed obtaining other personal information via non traditional means, that you must obtain consent from the client for the capture and storage of this information and have due regard to GDPR and other personal information legislation. Similarly, you must ensure that all personal information is transferred via encrypted email servers and stored in a secure manner.
The Covid-19 virus and restrictions may be with us for some time, but the ordinary course of business must also endure. The increased risks in AML and fraud will inevitably increase the burden on practitioners, both in initial customer due diligence and in maintaining vigilance throughout a relationship, but this increased burden can be managed.
By adapting good AML and Risk Assessment policies, keeping all firm employees updated and aware of the risks involved, managing client expectations, and maintaining pragmatism and vigilance, “business as usual” can be maintained, even in the most unusual of circumstances.
For further advice, please do not hesitate to contact our office by email at [email protected].
Written by Sean Creed, Trainee
Dated 13 May 2020
Crowley Millar Solicitors LLP Disclaimer: This is a general information note and is intended for information only. It does not constitute legal advice and should not be regarded as a substitute for legal or other professional advices. Such advice should always be taken before acting on any of the matters referenced in this information note.