New tools make anti-money laundering easier for lawyers

by Dr Markus Hülper, lawyer

Lawyers take their duty of confidentiality seriously. That is as it should be. But what if their silence enables criminals, perhaps even terrorists, to launder money? The legislator says that this is where the duty of confidentiality ends. The German Anti-Money Laundering Act (GwG) requires lawyers, notaries and tax advisers alike to screen their client base accordingly. In suspicious cases, they must immediately contact the customs authority’s Financial Intelligence Unit (FIU). Yet little reaches it — at least from law firms. In 2022 (more recent figures are not yet available), the FIU received 337,186 suspicious activity reports. Of these, 50 came from tax advisers, 13 from auditors and accountants, 92 from lawyers and at least 7,223 from notaries. Together, these account for 2 per cent of reported suspicious cases; lawyers’ share is not even one per thousand. Are lawyers, notaries and tax advisers perhaps taking their duty of confidentiality too seriously?

The supervisory authorities evidently harbour this suspicion. They are considering stricter inspections to determine whether law firms are actually complying with the requirements of the German Anti-Money Laundering Act. These requirements include taking certain preventive measures, such as conducting a risk analysis of all current and future clients. These risk analyses take considerable effort. Knowing that suspicious cases are unlikely to arise anyway, law firms are reluctant to implement them. They are playing for time. Or hoping for a tool that makes the work less demanding. That tool now exists — and it comes from Clarius.Legal.

Anti-money laundering made straightforward

The simple and compelling feature of Clarius.Legal’s anti-money laundering tool is that the structure for the risk analysis is already in place; only the gaps in the tool need to be completed. To relieve law firms of as much work as possible, Clarius.Legal takes on the task of completing them.

What is required first, however, is an audit lasting around two hours. During this audit, Clarius.Legal collects the data needed for entry into the tool. This concerns the number of mandates, the revenue generated from them, an overview of the sectors in which represented companies operate, and contacts with high-risk countries or “politically exposed persons”. Does the mandate concern property, the sale of goods or asset management? Who are the beneficial owners of the companies? All of this is recorded. Sometimes additional information has to be provided later. It then depends on how digitised the law firm is: some software provides very good, almost automated support; otherwise, human effort is still required.

KYC: Know Your Customer

It makes sense to link the risk analysis with a KYC check. The abbreviation stands for “Know Your Customer”. This process verifies the identity of clients — private individuals and companies alike — before the business relationship begins. While KYC checks for private individuals are usually straightforward (an identity card is sufficient), they can be extensive for companies. Potential business partners are examined for connections, beneficial owners, ownership structures, creditworthiness and other factors in order to meet the requirements of the German Anti-Money Laundering Act and, more recently, the German Supply Chain Due Diligence Act.

Every law firm should implement both the KYC check for new clients and the risk analysis for existing clients through an internal policy. To prevent this policy from gathering dust in a drawer, employees should be trained to take risk analyses and KYC checks seriously and implement them responsibly. That said, the practical implementation of both the risk analysis and the KYC check can readily be delegated to Clarius.Legal, saving the law firm time, stress and costs internally.

Money laundering: take prevention seriously and implement it

As sensible as the German Anti-Money Laundering Act and its obligations for lawyers, notaries and tax advisers are, developing an in-house matrix for risk analyses and KYC checks is often barely viable financially for law firms. Lawyers, tax advisers and notaries are well aware that anti-money laundering requires action from them. The only reason they keep postponing the issue is the effort involved.

That reason no longer applies, thanks to Clarius.Legal’s tools for risk analysis and KYC checks.

If you would like to find out more about our services, please contact us.

Request a demo