Client Due Diligence in International Transactions

Law and regulations have been passed across the world affecting making it tougher to move large sums of money without the knowledge and involvement of governments, and tax authorities in particular. The focus of most of these laws has been the individuals moving the money, and the financial institutions. However, governments have recognized that lawyers and accountants are essential to any company or individual moving large sums of money and have used the label “gatekeepers” to indicate their role in moving money into the legitimate financial networks. The idea is that lawyers often monitor, control, and at least influence clients and can prevent wrongdoing.

However, the rules regarding lawyer conduct in most countries require that they owe a duty of allegiance and confidentiality to their clients and are not “gatekeepers”

Nonetheless, there are certain Client Due Diligence (“CDD”) functions that lawyers should to take to keep themselves out of trouble and properly support  their clients. These rules, flowing from the law and rules of professional conduct in the U.S., imposes some restriction on attorneys for accepting a client or continuing with a client.

Attorneys are prohibited from knowingly advising or assisting a client to commit a crime or fraud. And lawyers may not aid, abets, or commit a violation of anti-money laundering law. Thus, lawyers must be mindful of who they take on as clients, and the nature of the client’s business and business objectives when assisting in financial transactions.

Thus, client due diligence is important. The good news is that if a potential client can move through the list of due diligence checkpoints below, it is easier for a lawyer to represent the client through the financial transaction and when dealing with financial institutions.

The list is pretty simple:

(1)            Identifying and verifying the identity of each client;

(2)            Identifying and verifying the identity of any “beneficial owner” of the client, defined as the natural person(s) with ultimate control of a client, when such an analysis is warranted from a risk-based standpoint; and

(3)            Obtaining enough information to understand a client’s circumstances, business, and objectives.

In our next blog we will discuss client identification.