Explaining Anti-Money Laundering to Your Clients

When you’ve been working with a client for many years, it can make for a difficult conversation when requesting proof of funds or identification verification as part of your customer due diligence (CDD) procedures. Your client will probably argue that you should know who they are after all this time, or query with you whether it’s enough that their name is on a title deed to a property. This can be anger-inducing and can become a painful activity for both parties.

Getting clients to comply with anti-money laundering (AML) requirements needn’t be a heavy and difficult undertaking, and the way the conversation is formed must be carefully considered to get the least onerous outcome. We explore ways that you can explain the reasons behind AML requirements and (hopefully) remain in favour with your clients.

Do You Understand Why CDD Is Required?

Before you try explaining AML requirements to your clients, it may be prudent to make sure you are au-fait with the legal requirements and also the reasons behind the stringent measures.

Firms most at risk of being used for money laundering are those that handle consumers’ money, those that do conveyancing work and those that create and manage trusts and company structures. Many firms made compliance roles redundant due to COVID-19 which has, in turn, increased the risk of criminals being able to take advantage of less rigid checks, many of which have had to be done remotely due to the pandemic.

In incidences where firms have been involved in money laundering, it has had implications for the reputation of the industry in which they operate. Therefore, your firm should have in place policies, controls and procedures in regards to AML. These will highlight the risks to your firm and the threat of money laundering exposure to your firm. You will have a responsibility to be familiar with these policies, controls and procedures and understand the reasons behind them, so make sure you know where to find them, what they contain, and what is required of you.

The simplest thing to say to clients who are querying why you are undertaking CDD may be: “It’s a legal requirement and our compliance team requires it.” While this is true, it is likely to make them believe they are being suspected of criminal activity and therefore incite their rage. It also doesn’t explain the reasons behind the need for AML measures; such as county lines drug dealing, funding terrorist activities and the firearms trade, people trafficking, and vendor fraud – all activities that remove money from the economy and from good, honest and hardworking people.

Another factor to consider is that changes to business relationships can be a red flag to look out for in respect of money laundering, particularly with long-standing clients. It may be that they have a high-value transaction that is unusual or they become involved in something that sits outside of their usual sector. Therefore, it’s imperative to be able to suitably explain the reasons for the checks, and get them on-side with the requirements.

Five Ways to Explain Why AML Measures Are So Important

If you are able to explain the reasons why AML measures are so important, away from the obvious “because it’s a legal requirement,” clients will be given a better understanding of the reasons why they are being checked so closely and the consequences of not doing so. Talking to your clients this way and taking this softer approach should bring clients on board, stressing to them that it’s part of a bigger picture.

Try emphasising some of the following points:

• There is not one part of the UK that has not been infiltrated by county lines drug dealing gangs and there is rarely a day that goes by that this isn’t mentioned in the news. Organisers of these criminal groups will often exploit children and vulnerable adults (those with learning disabilities or addiction problems) to move and store narcotics and money. They will also use coercion, violence, weapons and intimidation to get what they want.
• Human trafficking is a consequence of money laundering activities. Vulnerable individuals are brought to the UK from foreign countries to work in businesses (i.e. nail bars, car washes) which are apparent ‘legitimate’  fronts to launder money that has been illegally obtained.
• Innocent people are targeted via vendor fraud. This is where criminals offer properties for sale without the knowledge or consent of the legal owners. Often, the genuine homeowners are vulnerable or elderly people whose documentation has been forged or identities stolen.
• Stringent AML practices can literally save lives. Discovering who the criminals are and stopping their activities in their tracks will reduce the number of deaths due to drug consumption or trafficking.

• There is a widespread threat to the UK – its national security, national prosperity and international reputation. On a closer level, local economies suffer, taking money from good, honest and hardworking people.

In explaining the above, you may still be faced with resistance from long-standing clients who have been using your firm’s services for a number of years. It’s important to reinforce that the actual criminals make the processes necessary and that these checks would be faced wherever they go; not only from law firms but also from banks, accountants and estate agents.