Why Are Lawyers Captured Under Anti-Money Laundering Compliance Laws?

The constructive process of the money laundering cycle is commonly referred to as having three stages known as (1) Placement, (2) Layering and (3) Integration. Placement refers to the movement of the original dirty proceeds into the economic market. Layering, the second stage, has the purpose of creating an apparent legitimate trail so that the launderer can explain how the funds were derived. The final stage, Integration, occurs when the launder is confident that the layering cycle has sufficiently transformed or ‘cleansed’ the original illegal proceeds into what now appears to be legitimate transactions or activity. In doing so, the integration cycle brings the funds back to the launderer.

Criminals, whether an individual or an organised criminal group, will seek the path of least resistance to being identified with laundered proceeds. A common method to achieve this objective is to utilise the services of professional third parties. Professional third parties in the money laundering cycle are known as ‘Gatekeepers’. Gatekeepers include accountants, real estate agents, brokers and lawyers. By placing a professional third party between the launderer and the resulting transaction flows, the launderer’s activity has greater likelihood of remaining undetected.

Lawyers however have a key credential that makes them more vulnerable to exploitation – Legal Professional Privilege (LPP). LPP obligates the lawyer to treat the affairs of their client in strict confidence. In turn, this provides greater protection to the launderer by making it more difficult for law enforcement agencies to examine transaction flows and account activity. Consequently criminals utilise legal services for: (i) buying and selling of real estate, (ii) managing of client money, securities, or other assets, (iii) management of bank accounts, (iv) establishing complex business structures and (v) acting as nominees for management of legal persons or arrangements, including the buying and selling of business entities. Without anti-money laundering compliance obligations, lawyers are more likely to remain oblivious to the crimes they are facilitating.

The laws of anti-money laundering attempt to close this loophole by requiring lawyers to verify the identity of their clients and to understand the nature and purpose of the client relationship. In doing so, lawyers are in a better position to detect when the affairs of their client is unusual or suspicious.

This is the basic objective of anti-money launder compliance – to obligate the business community to know their customers, to understand the nature of the client’s underlying relationship and to report to law enforcement when unusual or suspicious behaviour occurs. This good governance practice exists to try and lessen harm to society. Any country excluding lawyers from its anti-money laundering compliance framework will undermine the efforts of all other countries that have closed this regulatory gap.

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