The Financial Intelligence Unit (FIU) issues guidelines to Law Practitioners

Introduction

The Financial Intelligence Unit (“FIU”), set up under section 9 of the Financial Intelligence And Money Laundering Act (“FIAMLA”) has in September 2014, pursuant to section 10(2)(ba) of the FIAMLA issued a document entitled “Guidelines on the measures for the prevention of money laundering and countering the financing of terrorism for law practitioners (the “Guidelines”). Failure to comply with the Guidelines entails a penalty not exceeding MUR 50,000 for each day such breach occurs. The law already empowers the FIU to request a law practitioner to furnish such information and produce such record or document as the FIU may require. Furthermore, the law practitioner is already under a legal obligation to report any suspicious transaction, which includes funds that may be linked to financing of terrorism to the FIU. Following a Suspicious Transaction Report (“STR”), the law practitioner is prevented from disclosing the contents of such STR or even disclose that he has made a STR or that the FIU has requested information from him. The legal obligation to report is however subjected to the legal professional privilege which a law practitioner may enjoy. Law practitioners are under a duty to keep the affairs of their clients confidential and the circumstances in which they are able to disclose client communications are strictly limited.

Rationale of the guidelines

The rationale behind the Guidelines is that law practitioners, who fall within the DNFBPs definition (Designated Non-Financial Businesses and Professions)play a key role in the detection of money laundering and financing of terrorism schemes. Law practitioners have often been characterised as the gatekeepers who are responsible to protect the gates of the financial system in view of the wide range of services they provide in relation to transactions impacting on the financial system. These transactions range from the selling of real estate to managing the client’s money, assets, savings and securities and law practitioners can be misused by money launderers and those involved in dubious transactions. For instance, the law practitioner can be called to carry out transactions on the client’s behalf to give them a legitimate appearance. In addition, the law practitioner’s professional services can be used to channel illicit funds.It therefore becomes important to set out the Guidelines which are intended to assist the law practitioner in the prevention, detection and reporting of money laundering and terrorist financing offences.

What do the guidelines provide?

Law practitioners cannot be expected to detect all wrong doings by clients but they are required by the guidelines to have in place such policies, processes, systems, internal controls and procedures as are necessary to ensure that their services are not being misused to commit a money laundering or a financing of terrorism offence and to promote high ethical and professional standards in the legal profession. As such, they are required to identify, assess and take effective action to mitigate these risks. They are expected to adopt a risk-based approach whereby the measures and processes in place are commensurate with and proportionate to the risks that have been identified. As such, more efforts should be concentrated on and more resources should be allocated to higher risk areas inasmuch as not all aspects of the law practitioner’s practice present the same level of risks. The measures which are expected of the law practitioner are:

  • Verify the true identity of all customers and other persons with whom they conduct transactions (customer due diligence) and check on the list of people on whom sanctions have been applied;
  • Keep such record, registers and documents and upon a court order, to make available such record, registers and documents;
  • Put in place appropriate screening procedures to ensure high standards when recruiting employees and further deploy training, formal or otherwise and keep a training log;
  • Monitor suspicious activities and where appropriate to make a STR.

The Guidelines go further to explain the risks which exist with the client base of the law practitioner. For instance, stable long-term clients present less risk than new clients who may be looking for an opportunity to exploit the law services of a law practitioner to launder criminal property. Similarly, trusts, charities and other such structures can be used to conceal the source and control of funds and it may be difficult to identify the ultimate beneficial owners. Politically exposed persons, persons whose assets have been frozen under the Dangerous Drugs Act, and non-face-to-face clients, are considered as high risk clients. There are also a number of business activities which are considered as high-risk and they range from casinos to travel agencies and from cash-intensive businesses to dealers in securities. It is therefore important for the law practitioner to scrupulously apply “know your client” (“KYC”) principles, irrespective of whether he is dealing with face-to-face clients or otherwise. Such KYC verification, should as far as possible be obtained from a reliable and independent source. KYC principles should be applied when entering into a transaction or when dealing with a one-off client or whenever the law practitioner has suspicions to believe that a money laundering office might be committed or when the veracity of previous KYC documentation is compromised. The law practitioner can rely on customer due diligence (“CDD”) carried out by other licensees like for instance, a management company but such reliance should cease when the law practitioner has reasons to suspect that the transaction is being carried out to launder money or to finance terrorist activities. The law practitioner is encouraged to develop a sound  program with transaction and activity profile of his clients and further assess and grade the risks that each client poses to the law profession.

Another essential element in the assessment of risk is a thorough review of the existing and new services which the law practitioner is offering. These services can be used to conceal the ownership or source of property or to aid the movement of illicit funds. The geographic location of the client is also considered as a factor contributing to the level of risk. As such, it is important for law practitioners to assess the jurisdictional risk involved using the risk-based approach.

Law practitioners are further encouraged to have internal reports in relation to the procedures to identify potential suspicious transactions or activity, a formal procedure to evaluate such suspicious transactions and lastly to keep a record of all such suspicious and/or unusual transactions whether or not a STR has been filed. The other salient feature of the Guidelines is to keep record of all transactions and KYC documentation for at least 5 years after the business relationship has ended. Lastly law practitioners are required to monitor and evaluate the framework they have put in place to combat money laundering and terrorist financing. Such an evaluation will ensure that the processes in place are adequate, effective and comprehensive.

By Arvin Halkhoree – Barrister