When does our law firm need to do customer due diligence for AML/CTF?
One of the biggest shifts for law firms under Tranche 2 of the anti-money laundering (AML) and counter-terrorism financing (CTF) regime will be undertaking customer due diligence (CDD) before acting.
When is CDD required?
Your firm must conduct CDD before providing a “designated service” (see our article regarding “designated services” here. That usually means conducting CDD before settlement, before setting up a trust and/or before handling money.
CDD includes:
Identifying and verifying the client.
Identifying beneficial owners.
Checking if the client or owners are politically exposed persons (PEPs).
Assessing the purpose and nature of the relationship.
Checking sanctions lists.
Risk-based depth is important, for example:
Low risk: local first-home buyer with PAYG employment. Your firm may apply simplified CDD (less documentation).
Medium risk: small business client purchasing commercial property. Normal CDD applies.
High risk: complex trust structure with offshore beneficiaries. Enhanced CDD required (more documents, source-of-funds checks, senior management approval).
CDD is not “set and forget.” Your firm must monitor matters and update checks when circumstances change. For example, if a low-risk client suddenly introduces a foreign investor, your firm must reassess.
An important practical tip will be to document your firm’s rationale. If AUSTRAC asks, your firm must show why you considered a client low, medium or high risk and why the level of checks matched that risk.
We are well placed to assist you with all of these requirements – register for a webinar or give our AML/CTF team a call.
Paul Gray
Principal
T 03 5225 5231 | M 0414 195 886
E pgray@ha.legal
Hugo Le Clerc
Senior Associate
T: 03 5225 5213 | M: 0438 089 334
E: hleclerc@ha.legal
