Economic instability can alter the risks faced by firms and legal practitioners.
It also has the potential to reduce economic viability or revenue streams – which can in some cases increase risk appetite, increase the risk of money laundering or lead to a reduction in required controls.
Examples of risks
Here are non-exhaustive examples:
- deprioritization of compliance work, in particular:
- place more competing burdens on those with compliance responsibilities, either due to a lack of resources (other staff to fulfill compliance responsibilities) or because the existing staff need to split their time with more emphasis on paid work
- less financial capacity to use technology and other compliance support services (e.g. external training providers)
- seeking to alleviate financial pressure by accepting higher levels of risk from customers and integrated business in order to seek increased income
- accepting sources of capital into the business to ensure financial viability, without undertaking the necessary checks on the source of that funding
- engage in or transact in areas of legal practice with which you are unfamiliar and where therefore anti-money laundering risks are less understood or mitigated by existing policies, controls and procedures
Customer red flags
When the economy enters a period of uncertainty, practitioners and practices should be particularly alert to the following red flags among new or potential clients:
- being asked to work with unusual types of clients or on unusual types of topics
- resistance from a client regarding compliance with due diligence checks, for example pressure to waive necessary due diligence checks or to “speed up” the process
- engaging in work that falls outside the firm’s or practitioner’s normal area of experience/expertise – without a full understanding of the money laundering and counter-terrorism risks associated with the new area of work
- any attempt to access your client account not accompanied by the provision of legal services
- transactions where the business rationale for the transaction is unclear
Always make sure you are comfortable with your understanding of the case, including its purpose and why it is happening in the particular way it is happening.
Recording risk assessments and documenting the due diligence undertaken is crucial at all times.