Legal
Next Generation AML/CFT screening and monitoring for financial institutions
Anti Money Laundering and Know Your Customer for Law Firms & Legal Professionals
The legal industry is one that never sleeps and it is an important part of every sector of the economy. Because of this, there is a significant amount of money that flows throughout this industry. This also makes the legal industry a target for money laundering
In money laundering, a criminal is going to try to take his or her dirty money and clean it by using the accounts of law firms and legal professionals. This will make his or her money indistinguishable from that of the law firm. It is critical to prevent this from happening.
At Truth Technologies, we are committed to protecting businesses, such as law firms, against illegal financial transactions. We are one of the top companies for anti-money laundering (AML) protection.
What is Money Laundering?
Money laundering is closely tied to the business world; however, this is becoming an issue in the legal industry as well. When someone is trying to carry out money laundering, the goal is to make his or her money look identical to the clean funds of the unsuspecting victim. Then, when the money is withdrawn, it looks clean. Dirty money can be cleaned using the legal industry in multiple ways.
Why Law Firms and the Legal Industry
Money laundering activities take place in the legal world for a handful of reasons, including:
- A Widespread Industry: Nearly every business has to have legal counsel ranging from the smallest mom and pop shops to Fortune 500 companies. This makes the legal industry a common target.
- A Reputation of Trust: Lawyers take an oath to uphold the constitution, giving them a positive reputation. Therefore, few people suspect law firms of being involved in money laundering.
- Attorney-Client Privilege: Money launderers might try to take advantage of attorney-client privilege to shield his or her transactions from the eyes of investigators, making this even harder to detect.
- Large Sums of Money are Common: Lawyers are expensive. Between legal fees, hiring experts, and investing in other services, it is not uncommon for large sums of money to flow through law firms. This makes it easier to launder large sums of money.
To prevent money laundering from taking place in law firms, there are strict regulations that lawyers need to follow.
Rules and Regulations in the Legal Industry Regarding Money Laundering
All firms and practices in the legal sector need to comply with the established regulations when it comes to financial protection. The regulations have been put in place by FINRA and the United States government. These include anti money laundering (AML) rules, including
- Law firms need to establish an anti money laundering program that includes a clear leadership structure
- Legal providers should furnish continuing education to make sure employees can spot red flags that indicate money laundering
- The program should be tested regularly to ensure it operates as intended
- Programs should furnish contact information for their compliance officers and provide it to the FINRA contact system (FCS)
Law firms need to make sure they understand these requirements clearly to avoid hefty fines and sanctions. These regulations are meant to protect the firm against financial crimes.
Red Flags for Money Laundering in Law Firms
When it comes to the legal industry, there are a few red flags that might indicate money laundering is taking place. Some of the examples are:
- Someone is attempting to deposit more money in the account than should be required to resolve the legal issue
- An individual is eager to hire expert witnesses that don't appear to be related to the case at hand
- Someone is unwilling to divulge necessary information regarding his or her funds despite the presence of attorney-client privilege
Know Your Customer (KYC) regulations meant to make sure law firms know who they are dealing with. Not only is KYC a key regulatory requirement but it also keeps the firm safe.
What is KYC?
KYC services help law firms know where the money is coming from. The goal of KYC is to verify the source of the funds. Lawyers tend to know how much someone will be able to spend in his or her defense. If the customer appears to be coming up with large sums of money out of thin air, this is a problem. The source of the funds must be verified to prevent the law firm’s business account from getting tangled with dirty money.
With regulations increasing in the legal sector, anti money laundering (AML) requirements are only going to become more important. At Sentinel, we provide high-quality KYC services to protect our clients, including law firms, from money laundering and other fraudulent activities.
Why KYC is Important in the Legal Industry
In the legal industry, KYC is important because large sums of money flow through this industry frequently. Money launderers will attempt to deposit large sums of money into the law firm’s account. Then, if this money is not spent in his or her case, he or she will expect this money back. In this quick transaction, dirty money might have been cleaned using the law firm’s account. This cannot happen.
Some of the information that law firms need to acquire include:
- The client’s source of the funds
- Background on his or her total portfolio
- A history of the client's prior legal dealings
- A general background check on the client
This information must be collected before any money is taken from the client. This will protect the law firm against unknowingly engaging in financial crimes.
Sentinel's KYC Services
At Sentinel, our top priority is to assist our clients, including law firms, in managing their financial risk and liability. Our AML and KYC policies help make this goal happen. We provide KYC as a service to all of our clients to protect them against potential financial criminals. You need to protect your firm against money laundering with robust KYC practices. Reach out to us to find out more about how our exceptional services can protect you from money laundering.
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