Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) obligations are a critical part of the legal and conveyancing landscape in Australia. For legal professionals, these responsibilities are not just about ticking boxes; they are about protecting your practice, upholding the integrity of the financial system, and combating serious crime. This practical guide will walk you through the essential AML checks, focusing on two core components: verifying the source of funds and conducting client due-diligence.
The Core of Your AML Obligations
At its heart, AML compliance for lawyers and conveyancers revolves around a central question: Do you really know your client and the origin of their money? While the full scope of the AML/CTF Act is extensive, for many in the property and legal sectors, the practical application boils down to these key areas.
1. Asking the Right Questions: Source of Funds
Understanding the source of a client’s funds is paramount. It’s not enough to simply see that the money has arrived in the trust account; you need to be reasonably satisfied that its origins are legitimate.
Key Questions to Ask:
- “Where are the funds for this transaction coming from?” This should be one of the first questions you ask a new client.
- “Can you provide documents to support this?” Verbal confirmation is not enough. You need a paper trail.
Common Sources of Funds and How to Verify Them:
- Savings: Request bank statements showing a pattern of savings over time. A large, sudden deposit should be a red flag that requires further questions.
- Sale of an Asset: If funds are from the sale of a property, shares, or a business, ask for the contract of sale and a settlement statement.
- Inheritance: Request a copy of the will and correspondence from the solicitor handling the estate.
- Gift: This can be a high-risk area. You should ask for a statutory declaration from the person giving the gift, stating the source of their funds. You may also need to conduct due diligence on the gift-giver.
- Loan: Obtain a copy of the loan agreement.
Red Flags to Watch For:
- Vague or evasive answers about the source of funds.
- Unusual transaction patterns, such as multiple small deposits into an account.
- Funds coming from high-risk countries.
- A reluctance to provide supporting documentation.
2. Due Diligence: Is Your Client Who They Say They Are?
The second critical component of AML is knowing your client. This means more than just meeting them; it means taking reasonable steps to verify their identity and ensure they are not a “bad actor.”
Practical Steps for Client Due Diligence:
- Identity Verification: For individuals, this means sighting and recording details from a primary photographic identification document (like a driver’s license or passport). For companies, you will need to conduct a search of the ASIC register to verify the company’s existence and identify its directors and beneficial owners.
- Web Searches: A simple web search can be a powerful tool. You should search for your client’s name, and the names of any associated entities, looking for:
- Adverse Media: Are they mentioned in news articles related to criminal activity, investigations, or regulatory breaches?
- Sanctions Lists: Check the Australian government’s consolidated list of sanctioned individuals and entities.
- Politically Exposed Persons (PEPs): A PEP is an individual who holds a prominent public position, which can make them a higher risk for bribery and corruption. Searches may reveal if your client is a PEP.
What to Do if You Find Something:
If your searches reveal adverse information, it doesn’t automatically mean you can’t act for the client. However, it does mean you need to undertake enhanced due diligence. This could involve:
- Asking more detailed questions about the information you’ve found.
- Seeking additional documentation.
- Considering whether you are comfortable with the level of risk involved.
Conclusion: A Common-Sense Approach to Risk
AML compliance doesn’t have to be an overwhelming burden. By integrating these practical steps into your client onboarding process, you can meet your obligations and protect your practice. Remember to document all the checks you have undertaken. A clear record of your inquiries and the information you have gathered will be your best defence if your client’s transaction is ever questioned.
Ultimately, AML is about applying common sense and professional scepticism. If something feels wrong, it probably is. By asking the right questions and doing your homework, you can play your part in keeping the proceeds of crime out of the Australian financial system.
Disclaimer: This blog post provides general information only and does not constitute legal advice. You should seek professional advice tailored to your specific circumstances.