Know your client: identity is a key issue for solicitors
Many conveyancing law firms are ill-prepared to comply with anti-money laundering (AML) obligations despite property being the number one target of criminals seeking to invest the proceeds of crime, a leading expert in the field told an AML conference in London last week.
Peter Rodd, chairman of the Law Society’s property section executive committee and a member of its money laundering task force, said that “building a successful conveyancing practice and complying with the ML legislation doesn’t actually fit very well together”.
Property is a major risk area for solicitors, said Mr Rodd, managing partner of Kent law firm Boys & Maughan. Criminals laundered an estimated £15 billion in the UK each year and committed £700 million of mortgage fraud, yet too many firms know very little about money laundering.
Practical training in AML geared specifically to conveyancers is hard to find, Mr Rodd added. Only conveyancers truly understand the nature of their work: “You spend, in my case, 30 years developing a conveyancing practice, building up a good rapport with clients… and yet because of the ML regulations you have to start being suspicious about those clients.”
The pressure involved in a conveyancing transaction also makes AML especially difficult – pressure from the client, the mortgage broker, the estate agent, other parties in the chain, all of which encourage decisions to be made quickly, he said.
Despite these problems, conveyancers have to take steps to protect themselves. Risk assessments are required of every new instruction and training is essential, Mr Rodd said. Frequent repetition of information about AML might be necessary before fee-earners take it on board.
Fee-earners need to make sure client due diligence (CDD) continues throughout the conveyancing process. Suspicion has to extend even to long-standing clients, well known to the firm. “You probably never know your client as well as you think you do,” he warned.
The identity of the client and the source of funds are the two main areas of concern, Mr Rodd said. All transactions need to be risk assessed according to the baseline of each particular firm. Anything out of the ordinary from normal activity for that firm should raise the level of suspicion; for instance, if the client is unknown or does not attend the office in person.
The identities of the instructing person, the beneficial owner and the other party in a conveyance are crucial questions that have to be answered, he cautioned. Corresponding by mail or document exchange at least once rather than relying solely on e-mail is an essential part of CDD. Documentary proof of sources of funds is also vital, he added: “You cannot afford to take what is said to you at face value.”
Numerous warning signs could tip off lawyers that a fraud is being attempted, Mr Rodd said. These might include the initial reason for instructing the firm, a last-minute change to a funding source, a client who rushes to send money, or conversely one who appears disinterested in a transaction. Other signs include a property transaction for below – or above – market value, a property being turned around quickly, or a request to forward the sale proceeds to a third party.
Firms should make sure that staff involved in identification checks are properly trained, said Mr Rodd. For instance, front desk staff might be responsible for checking passports and signatures and they should be made aware of just how important this function is in the firm’s AML strategy.
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