Lawyers’ trust accounts pose major AML Compliance risks
Warned by the international Financial Action Task Force (FATF) about the lawyer loophole in its AML regulations, Canada is again attempting to remedy the AML problem with high-velocity pass-through transactions in lawyers’ trust accounts.
A report yesterday in the Vancouver Sun detailed the lucrative practice of some lawyers facilitating pass-through transactions for customers without sufficient attention to AML Compliance or to customer due-diligence or know-your-customer standards (KYC/CDD). Moreover, the money often passes through these lawyer trust accounts on its way to shell companies shrouded in secrecy.
The report details that Canadian lawyers have little external regulatory accountability for determining the source of the funds or the beneficial ownership of the final destination. Canadian law societies push back hard against adding AML regulations, and they argue that the profession polices itself with internal rules and practices. However, critics contend that there is very little enforcement of these internal rules and that there is too much reliance on self-regulation.
Canada’s federal Finance Department is currently working on draft regulations that are expected to call for AML Compliance strategies such as suspicious activity reports and related AML measures. Those pushing for AML Compliance regulations for lawyers acknowledge that whatever solutions are offered must also accommodate attorney-client privilege.
British Columbia—and Vancouver, in particular—has experienced a surge over the last several years in foreign investment, particularly in real estate. Various reporting has detailed the influx of vast sums of un-sourced money that has not been subject to AML Compliance-style scrutiny due to gaps in AML enforcement. The Sun report details two current cases that involve tens of millions of dollars allegedly funneled high-velocity pass-through style via legal trust accounts.
These concerns about legal trust accounts and their suitability for money laundering has plagued the U.S. as well. But the legal profession in the U.S. is also pushing back against AML Compliance regulations.
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