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Money Laundering and Terrorist Financing Vulnerabilities ...

Fatf REPORtMoney Laundering and Terrorist Financing Vulnerabilities of Legal ProfessionalsJune 2013 FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against Money Laundering , Terrorist Financing and the Financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti- Money Laundering (AML) and counter - Terrorist Financing (CFT) standard.

promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti -money laundering (AML) and counter-terrorist financing (CFT) standard.

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Transcription of Money Laundering and Terrorist Financing Vulnerabilities ...

1 Fatf REPORtMoney Laundering and Terrorist Financing Vulnerabilities of Legal ProfessionalsJune 2013 FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against Money Laundering , Terrorist Financing and the Financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti- Money Laundering (AML) and counter - Terrorist Financing (CFT) standard.

2 For more information about the FATF, please visit the website: 2013 FATF/OECD. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: Photocredits coverphoto: Thinkstock Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals 2013 1 TABLE OF CONTENTS ACRONYMS.)

3 3 EXECUTIVE SUMMARY .. 4 CHAPTER 1: INTRODUCTION .. 7 Background .. 7 Objectives .. 9 Methodology used in this study .. 10 CHAPTER 2: SCOPE OF THE LEGAL SECTOR .. 12 Types of legal professionals and their 12 Application of AML/CFT obligations .. 13 Unique features of the sector .. 15 CHAPTER 3: Vulnerabilities .. 23 Vulnerabilities identified in literature .. 23 Vulnerabilities identified through STRs and asset recovery .. 24 Supervision of legal professionals .. 28 Disciplinary and criminal sanctions imposed on legal professionals.

4 30 Taking enforcement action against legal professionals .. 30 CHAPTER 4: Money Laundering TYPOLOGIES .. 34 Method 1: Misuse of client account .. 37 Method 2: Property purchases .. 44 Method 3: Creation of companies and trusts .. 54 Method 4: Management of companies and trusts .. 59 Method 5: Managing client affairs and making introductions .. 63 Method 6: 69 Method 7: Other methods .. 71 CHAPTER 5: RED FLAG INDICATORS .. 77 Red flags about the client .. 77 Red flags in the source of funds .. 79 Red flags in the choice of lawyer.

5 80 Red Flags in the nature of the retainer .. 81 CHAPTER 6: 83 Key findings .. 83 Opportunities for future action .. 84 ANNEX 1: BIBLIOGRAPHY .. 87 ANNEX 2: RESPONDENTS TO THE QUESTIONNAIRE .. 91 ANNEX 3: DEFINITIONS .. 92 ANNEX 4: TYPES OF LEGAL PROFESSIONALS .. 93 ANNEX 5: SCHEDULE OF CASES .. 96 Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals 2 2013 ANNEX 6: ADDITIONAL CASE STUDIES .. 108 Method: Misuse of client account .. 108 Method: Purchase of real property .. 115 Method: Creation of companies and trusts.

6 128 Method: Management of companies and trusts .. 137 Method: Managing client affairs and making introductions .. 139 Method: Use of specialised legal skills .. 145 Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals 2013 3 ACRONYMS AML/CFT Anti- Money Laundering / counter Financing of terrorism APG Asia/Pacific Group on Money Laundering CDD Customer due diligence CFATF Caribbean Financial Action Task Force DNFBPs Designated non-financial businesses and professions ECHR European Convention on Human Rights FIU Financial intelligence units GIABA Intergovernmental Action Group against Money Laundering in West Africa GIFCS Group of

7 International Finance Centre Supervisors MENAFATF Middle East and North Africa Financial Action Task Force ML Money Laundering OECD Organisation for Economic Co-operation and Development PEP Politically exposed person SRBs Self-regulatory bodies STR Suspicious transaction report TF Terrorist Financing Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals 4 2013 EXECUTIVE SUMMARY In June 2012, the Financial Action Task Force (FATF) Plenary met in Rome and agreed to conduct typology research into the Money Laundering and Terrorist Financing (ML/TF) Vulnerabilities of the legal profession.

8 Since the inclusion of legal professionals in the scope of professionals in the FATF Recommendations in 2003, there has been extensive debate as to whether there is evidence that legal professionals have been involved in ML/TF and whether the application of the Recommendations is consistent with fundamental human rights and the ethical obligations of legal professionals. The purpose of this typology is to determine the degree to which legal professionals globally are vulnerable for ML/TF risks in light of the specific legal services they provide, and to describe red flag indicators of ML/TF which may be useful to legal professionals, self-regulatory bodies (SRBs), competent authorities and law enforcement agencies.

9 This typology report does not offer guidance or policy recommendations, nor can it serve as a one-size-fits-all educational tool for individual legal professionals practicing in different settings, across countries with varying supervisory regimes and secrecy, privilege and confidentiality rules. The report concludes that criminals seek out the involvement of legal professionals in their ML/TF activities, sometimes because a legal professional is required to complete certain transactions, and sometimes to access specialised legal and notarial skills and services which could assist the Laundering of the proceeds of crime and the funding of terrorism.

10 The report identifies a number of ML/TF methods that commonly employ or, in some countries, require the services of a legal professional. Inherently these activities pose ML/TF risk and when clients seek to misuse the legal professional s services in these areas, even law abiding legal professionals may be vulnerable. The methods are: misuse of client accounts; purchase of real property; creation of trusts and companies; management of trusts and companies; managing client affairs and making introductions; undertaking certain litigation; and setting up and managing charities.


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