The challenges of AML compliance for lawyers

An aspect of the Belgian Law of 18 September 2017 on the prevention of money laundering and terrorist financing and on- limiting the use of cash (“AML Law”) that may not always receive the adequate attention is the individual recognition of lawyers as “Obliged Entities¹”. The following article provides more background regarding the Anti-Money Laundering (“AML”) obligations impacting lawyers, emphasizing the importance of their understanding, the implementation and the balance to be kept with professional secrecy rules.

Lawyers and law firms are encouraged to stay informed about their obligations and responsibilities under AML Law, this safeguards them from possible investigations and the risk of being exploited by criminals for money laundering purposes. In order to be compliant with the AML Law, they should adopt a risk-based approach, conduct regular due diligence and transaction monitoring.
 

AML Guidelines in Belgium: Lawyers as Obliged Entities under the AML Law

Unlike other Obliged Entities, lawyers bear individual AML Law responsibility, law firms are therefore excluded from the scope. Moreover, only certain activities are affected (“Targeted Activities”):

• when they assist their client in planning or carrying out transactions concerning the:
  • buying and selling of real property or business entities;
  • management of the client’s funds, securities or other assets;
  • opening or management of bank, savings or securities accounts;
  • organization of contributions necessary for the creation, operation or management of companies;
  • creation, operation or management of fiducies or trusts, companies, foundations, or similar structures;
• or when they act on behalf of and for their client in any financial or real property transaction.

Not all lawyers engage in these legal services that criminals could exploit, but some situations may require their involvement. As a result, lawyers conducting such activities are uniquely exposed to criminality.
 

“Judgement N°114/2020”: the Constitutional Court partially cancels the AML Law for lawyers

One clear tension stemming from making lawyers Obliged Entities for AML purposes is how to reconcile this with their duty to uphold professional secrecy rules. This resulted in a decision by the Constitutional Court (September 24^th 2020²) leading to the annulment of several sections of the AML Law that applied to lawyers.

According to the Court, lawyers’ professional secrecy is an essential component of the right to privacy and a fair trial. Some aspects of the AML Law have thus been challenged:

• The obligation for lawyers to report tentative suspicious transactions, even if the client abandons the transaction after receiving advice³. The Court states that this situation falls under the privilege of professional secrecy⁴.
• The possibility for a third party in the lawyer-client relationship, such as an employee or another lawyer from the same firm, to directly communicate to CTIF-CFI⁵ information covered by professional secrecy. Indeed, article 49 of the AML Law gives the possibility to any individual to make a report themselves to the CTIF-CFI, under certain circumstances. The Court states that there is no justification for third parties, even if they are lawyers, to transmit client information, as it clearly breaches professional secrecy. In light of this, the Court annulled the reference to lawyers in Article 49⁶. Moreover, the Court pointed out that lawyers shall not report to the CTIF-CFI directly but should report to the President of their Bar. who will file a report to the CTIF-CFI after analysis.
• The requirement of the President of the Bar to transmit lawyer-provided information "unfiltered" to CTIF-CFI⁷. According to the Court, the role played by the President of the Bar does not violate professional secrecy as it is a proportionate measure.
   

Lawyers’ role and responsibilities under the AML Law

AML obligations for lawyers are the same as for other obliged entities, with some exceptions, such as the changes provided by Judgement N°114/2020 and some lawyer-specific requirements. Moreover, as stated above, only certain activities are targeted.

Each lawyer holds the responsibility, when dealing with Targeted Activities, to perform an unbiased individual risk assessment for each new case, even for existing clients. This assessment establishes the risk levels (low, medium, high) based on both the client and the types of activities. Risk determination should occur at the latest before the case starts and be regularly updated as needed. 

Lawyers must also establish a client acceptance policy outlining how to handle cases and which client data to gather, based on risk levels. It is also mandatory for lawyers to identify and verify the identity of the clients, their possible proxies and beneficial owners. How the information is collected also depends on the risk level of the case.

Moreover, it falls on the lawyer to possess adequate knowledge of the client, the case, the client’s characteristics and the nature of the business relationship. This knowledge is essential to verify that the client is not subject to sanctions or embargoes.

Lawyers must also adhere to transaction monitoring obligations similar to those of other entities. However, due to the unique nature of the lawyer-client relationship, the scope of transaction monitoring is relatively limited.

In addition to the obligations related to client cases in Targeted Activities, lawyers are also required to take appropriate measures proportionate to their nature and size, in order to identify and assess the money laundering and terrorist financing risks they face. This assessment evaluates the overall risk exposure for the lawyer, distinct from individual risk analysis.
 

How can lawyers report suspicious transactions/activities ?

In the context of lawyers' obligation for transaction monitoring, they may develop suspicions. Even the slightest suspicion warrants a thorough analysis by the lawyer, such as requesting additional information or documents from the client. If the lawyer has reasonable and concrete grounds to suspect that funds, transactions or circumstances are linked to money laundering or terrorist financing, and these relate to Targeted Activities, the transaction or activity must be reported.

In this regard, lawyers’ reporting procedures constitute an exception compared to other obliged entities. As the Constitutional Court recently pointed out, the declaration of suspicions must imperatively be made by the lawyer in charge of the case (holding the role of AMLCO), and directed to the President of the Bar. Any deviation from this practice would breach professional secrecy. This is why this declaration can never be submitted to the President of the Bar by another lawyer within the firm, the AML manager or another staff member.

The President of the Bar will then analyze the compliance of the received information and file a report to the CTIF-CFI⁸.

Lastly, as a reminder, lawyers are exempt from reporting potential instances of money laundering as this would conflict with the preservation of professional secrecy.
 

Lawyers may benefit from a deeper understanding of AML obligations and their applicability.

According to the CTIF-CIF's 2022 Annual Report lawyers have reported 11, 17, 8 and 14 suspicious activities for the years 2019, 2020, 2021 and 2022 respectively⁹, which represents 0.03% of all reports received by the CTIF-CIF. This report highlights that it may be rare for lawyers to report suspicious transactions or activities to the President of the Bar (and consequently to the CTIF-CFI). 

Unfortunately, a growing number of lawyers are encountering financial difficulties nowadays, rendering them susceptible to corruption and more easily exploitable by organized criminal groups seeking to launder their funds¹⁰. Research indicates lawyers' vulnerability in money laundering scenarios tied to drug-related activities¹¹. Over the last few years, several investigations were initiated against lawyers on grounds of suspected money laundering and acquaintance with organized criminal groups.

In conclusion, as lawyers face (almost) the same obligations as any other Obliged Entity they could learn from the AML methods that financial institutions implement and therefore benefit from the application of AML rules.