Enhanced Customer Due Diligence
The Law Council of Australia put together useful AML/CTF guidance for lawyers. I found particularly interesting ‘Guidance Note No. 9 – How Do I Ascertain Source of Funds?’ Here are my takeaways from the guidance.
The purpose of determining the source of the client’s funds is to help you be satisfied that the instructions related to a transaction/activity are lawful.
Circumstances in which you may determine that you should seek an explanation, and potentially proof, of the source of funds, include where you have detected any red flags in connection with the matter or the client, or where the matter or client are high risks. Some examples of potentially higher-risk situations are:
companies, trusts, partnerships and similar types of legal persons or arrangements that are personal asset-holding vehicles;
companies with nominee shareholders;
companies with an ownership structure that appears unusual or excessively complex; and
client or transaction associated with high-risk countries (i.e., countries identified by the Financial Action Task Force as having none or insufficient AML/CTF measures; countries subject to United Nations sanctions and embargoes; countries having significant levels of corruption or other criminal activity; and countries from which funds or support are provided to terrorist organisations).
The source of funds for a proposed transaction may be linked with the way the client’s wealth has been generated (that is, their source of wealth). Most clients can inform you easily and quickly about how they made their wealth. This may be verified by making contact with the client’s accountant or reviewing income taxation returns. If the client withholds consent to review this information, it may be prudent to reassess the business relationship with the client. In addition, you can also conduct internet searches on the client’s wealth.
Understanding the source of the client’s funds does not equate to simply knowing the client’s account number and payee details. Instead, it entails understanding how the funds have been generated.
