In today's global marketplace, businesses that operate internationally are under higher levels of scrutiny. Money laundering, along with other financial crimes, is of top concern to governments, regulators, and enforcement agencies around the world, and businesses in high-risk sectors face increased expectations for compliance with quickly evolving laws relating to anti-money laundering (AML). For many companies, falling outside of compliance can result in high financial penalties, legal exposure, reputational risks, and in some cases, criminal liability. This type of risk indicates that an AML lawyer's role is not simply beneficial - but necessary.
Regardless of your industry, whether you are a financial institution, real estate developer, a cryptocurrency exchange, or a non-bank entity that conducts high value transactions, an AML lawyer is a key line of defence. Not only can they help you ensure that your compliance systems are in place, but that they are effective, are touching on the appropriate requirements, and are tailored to your risk profile. In this article, we explore the value of having an AML lawyer involved in your business, how they can assist in managing and mitigating regulatory risks, and why waiting until the investigation begins is likely too late.
Recognizing AML Risk in the Business Environment
Money laundering is the process of hiding illicit funds, so that they appear legitimate. Criminal organizations introduce illegal money into the financial system in many ways, such as shell companies, real estate, cryptocurrency, casinos, or trade-based money laundering. Governments and financial regulators enacted increasingly strict AML laws that aim to detect, deter and punish these activities.
For legitimate businesses, the consequence of complying with AML laws can be extensive and burdensome. The regulatory burden can be multi-layered and ever evolving. Depending on the jurisdiction in which the business operates, they may have to comply with overlapping frameworks (American Bank Secrecy Act, US FinCEN guidelines, European Union Anti-Money Laundering directives, FATF global standards).
Even businesses that do not consider approximately to be financial institutions are still presented with a moderate to large degree of AML obligations. Real estate companies, art dealers, lawyers, and fintech companies are often subjected to increasingly scrutiny, and AML compliance can seem unfamiliar or secondary until the situation goes sideways, which is where the experience, specialized knowledge and training of an AML lawyer may come in.
What Does an AML Lawyer Do?
An AML lawyer is an attorney who has knowledge of anti-money laundering laws and financial crime compliance. While not an exclusive focus for a general corporate lawyer, an AML lawyer helps clients understand, develop and implement compliance with local and global AML laws.
Some of the AML responsibilities of an AML lawyer include:
- Advising on compliance program design.
- Drafting AML policies and procedures.
- Reviewing customer due diligence (CDD) procedures and processes.
- Conducting internal investigations (when necessary).
- Representing clients in regulatory audits or investigations.
- Defending clients in enforcement actions.
AML lawyers often undertake other AML activities and are sometimes engaged in training staff, preparing businesses for licensing or registration, ensuring compliance due diligence during mergers and acquisitions, developing AML risk assessments, and formalizing compliance processes.
In brief, AML lawyers provide a legal role not just a compliance consultant. Compliance consultants are often unable to make the connection between business operational processes and legal compliance; lawyers create that intersection and are often the difference between compliance being seamless, or the enforcement agency conducting an expensive and far-reaching enforcement action.
Why Regulatory Risk Is Increasing
Regulators are more active and prepared than they've ever been. We are seeing increased levels of enforcement, the penalty amounts are increasing, and regulatory bodies are sharing information with more vigour than ever. Everywhere, from FinCEN in the U.S. to the Financial Conduct Authority (FCA) in the U.K., AUSTRAC in Australia and similar bodies globally. There are ever-increasing expectations on businesses, not only to have AML controls, but also integrating monitoring and reporting mechanisms to set controls in place.
Even a minor slip in compliance can have catastrophic repercussions. For example, you have recent stories about the fines imposed on large financial companies like HSBC, Danske Bank, and Westpac; however, it's not limited to larger firms. Mid-sized and smaller firms are subject to increasing scrutiny, as regulators focus on mid-sized companies and smaller firms (especially in sectors like crypto, gaming, real estate and private investment).
The costs associated with failing to comply extends beyond fines. Companies can lose their licenses and/or be prohibited from doing business with banking institutions, be hit by media scandals and class-action lawsuits. This includes the increasing liability of individuals, as executives and board members are personally responsible for compliance failures.
How an AML Lawyer Protects Your Business
Let’s explore the ways an AML lawyer is protecting your business against growing regulatory threats:
1. Establishing and Reviewing a Strong AML Compliance Program
Every business covered by anti-money laundering (AML) obligations is required to maintain a documented, risk-based AML compliance program. Not all programs are equal. An AML lawyer will ensure your AML compliance program is not simply boilerplate, but rather reflects the risk of your business, the risk of your clientele, and the risk of the types of transactions you encounter.
An AML lawyer will help to establish the appropriate internal controls, set out your reporting obligations, establish escalation procedures, and align your policies and procedures with your regulators expectations. An AML lawyer will also help you test the effectiveness of your program with mock-audits and gap analyses to avoid enforcement surprises down the road.
2. Customizing Risk Assessments and Customer Due Diligence
AML obligations can differ based on customer risk. For example, Politically Exposed Persons, or clients with high-risk origins may require enhanced due diligence. An AML lawyer will help your business develop precise parameters to identify and classify risk profiles for customers.
They will assist you in preparing to validate whenever beneficial ownership should be validated, to register a suspicious activity report, if warranted, and what documents need to be collected during onboarding. Every detail is important; with inadequate or inconsistent customer due diligence, many enforcement actions can occur.
3. Advising on Global and Cross-Border Compliance
If your business operates in multiple countries or even if you simply do business with clients abroad, you may be facing overlap or conflict under AML laws. An AML lawyer will assist you in navigating complexities that have extraterritorial reach.
They will advise you on how to comply with the extraterritorial reach of U.S. sanctions, how to navigate the EU’s data protection laws when obtaining CDD, and how to avoid triggering violations under foreign laws. From a global perspective, it is essential for risk to be effectively mitigated in today’s world.
4. Responding to regulators’ audits and investigations
When your business is being audited by a regulator or investigated formally, time is of the essence. An AML lawyer will be your frontline defence. They will manage communications with the regulator, they will assist you in organizing and producing documents, and they will also help you ensure your responses do not expose the company to unnecessary risk or liability.
In the most serious cases like criminal investigations or civil enforcement, an AML lawyer can also help represent the company or executives in court, or in settlement discussions. Engaging a competent legal adviser at the outset often helps your business. In many cases, this has resulted in lower fines and abandoning the charges altogether.
5. Conducting internal investigations and remediation
When there is an indication of suspicious activity in the business (whistleblowers, internal/external audits, transaction monitoring alerts, etc.), an AML lawyer can assist you with conducting a confidential and privileged investigation. By working with an experienced AML lawyer, the business will be able to gather facts, rectify problems, and possibly self-report to regulators while regulators are still investigating and not to outside authorities.
The involvement of an AML lawyer ensures the investigation is properly conducted legally, that the results are documented correctly, and that the plans to remediate adhere to regulators' expectations.
6. Training and Culture Development
An AML compliance program is only as effective as the people that are executing it. AML lawyers provide training for staff, executives, and compliance teams, and help build an overall culture of compliance by instilling in your entire organization from the front-line to the board room - responsibility for preventing financial crime.
Training also lowers human error rates which is the chief cause of AML violations. When staff understands what the law means and the potential consequences of their actions, they are more likely to follow procedure, raise concerns, and limit your potential exposure to regulators.
7. Protecting Mergers and Acquisitions and Investments
AML issues can kill mergers, acquisitions or investments. In the event you acquire a business, you may be liable for compliance deficiencies from the acquired business' operations. An AML lawyer will be able to do legal due diligence to identify red flags, review the target's AML controls, and assess if remediation is possible before closing.
In some situations, a deal may need to be modified, repriced, or completely abandoned due to regulatory risk from AML issues and factors. Retaining a legal advisor with AML experience ensures you are protecting your capital and reputation.
Regulatory risk is not just a peripheral issue; it is now a strategic issue. Companies that treat AML compliance as a reactive process find themselves faced with expensive investigative activity and reputationally harmful effects they will never undo. Companies that embrace an AML lawyer on a proactive basis avoid regulatory penalties and benefit from a stronger and more resilient business.
AML lawyers are much more than lawyers, they are architects of risk management and compliance success. With the assistance of an AML lawyer, your company can affect its legal obligations, defend itself in unprecedented crises, and cultivate the trust of regulators, clients, and potential investors.
In an era of increasing regulatory scrutiny, it is not only wise to have an AML lawyer. It is critical.