The sector in brief
Lawyers and notaries help clients buy property, set up companies, manage trusts, structure deals and move money. In doing so they give transactions legal form and a measure of respectability. That is useful to honest clients and equally useful to those who want to hide what they are doing.
Not all legal work is within the AML regime. The rules apply to particular activities, such as buying and selling real estate, managing client money or assets, setting up and running companies and trusts, and similar transactions. A lawyer who acts only in a court case is generally outside the regime, but one who handles a property sale for a client is generally inside it. The first task for any practice is to work out which of its activities fall within the rules.
Confidentiality matters. Information covered by legal professional privilege is treated differently under the rules, and a practice should take advice on exactly where the limits lie. That does not remove the duty to know the client and to refuse work that looks like laundering.
Where the risk sits
Property transactions
Buying and selling real estate for clients, especially where funds come through the firm's client account, is a classic route for placing illicit money.
Company and trust formation
Setting up companies, trusts and foundations that hide ownership, or acting as nominee, can help conceal who controls assets.
Use of client accounts
Passing money through the firm's account with little legal work to justify it gives the money the credibility of the firm.
Clients seeking secrecy
A client who values secrecy over a commercial reason, or who wants the firm to act without knowing the real principal, is a warning.
Cross-border structures and complex transactions
Layered deals across countries can be designed to defeat checking by any single adviser.
Who supervises you
It depends on where the practice is based. Lawyers and legal businesses onshore, and notaries within the AML remit, are supervised by the Ministry of Justice. Law firms and notary firms in the DIFC fall under the DFSA's regime for designated businesses and professions, and lawyers in Abu Dhabi Global Market under the ADGM Registration Authority. Check your licence and ask your supervisor where it is unclear.
The supervisor decides the detailed rules for your licence category, so always read its current guidance alongside this page.
What supervisors expect
- A named compliance officer with authority to refuse instructions, and a practice-level programme.
- A practice risk assessment covering clients, matters, countries and the way money moves through the firm.
- Client due diligence before work begins, including the real owner of a corporate or trust client and the purpose of the matter.
- Understanding of the source of funds where the practice handles or moves money, and a refusal to use client accounts as a bank.
- Sanctions and politically exposed person screening of clients, with a record of review.
- Reporting of suspicion in line with the rules, taking account of legal professional privilege, and care not to tip the client off.
- Training, record keeping and independent testing proportionate to the practice.
Red flags to watch
- A client who wants to move money through the firm's account without a legal matter behind it.
- A client who refuses to identify the person for whom they act.
- Transactions with no sensible commercial or legal reason.
- Funds from or to third parties who have nothing to do with the matter.
- Instructions that change the buyer or payer at the last minute.
- A client who pressures the lawyer to work quickly and skip the checks.
A worked example
A property purchase funded by several unrelated payers
A client instructs a firm to buy a property through a newly formed company. The purchase funds arrive in the firm's client account from three different companies and an individual, none of whom is named in the instructions. The lawyer should not simply pass the money on. The practice should ask who the real buyer is, why several third parties are paying, where each of them got the money and whether the structure has a legitimate purpose. If the client cannot answer, the practice should decline to act, return nothing without advice and consider with the compliance officer whether any report can and should be made.
How Adventant helps
Questions answered
Does all legal work fall under the AML rules?
No. The rules apply to specified activities, such as dealing in real estate, managing client money or assets and forming or running companies and trusts. The practice should map its own work against the rules and confirm any doubt with its supervisor.
How does legal professional privilege affect reporting?
Privileged information is treated differently, and the extent of the protection depends on the facts and the rules. A practice should take advice on this point and record how it applies the position. It does not remove the duty to know your client.
Can we hold client money?
You can, but a client account is not a bank account. Money should pass through only when there is a genuine legal matter behind it, and you should know where it came from and where it is going.
Do notaries have the same duties?
Notaries who carry out activities within the AML remit have duties of the same kind, including identifying parties and reporting suspicion. The Ministry of Justice sets out which activities are in scope.
What if a client is a long-standing one?
Familiarity does not replace due diligence. Keep files up to date and notice when the type of work or the pattern of payments changes.