How Law Firms Can Navigate Anti-Money Laundering Regulations

Anti-money laundering (AML) compliance is a constant priority for law firms.

As money laundering tactics grow increasingly complex, governments continue updating AML laws to close potential loopholes. Law firms must keep pace with these evolving regulations across jurisdictions. Non-compliance could expose firms to heavy penalties, reputational damage, and criminal liability.

This article unpacks the current AML regulations for law firms in the UK, Australia, and New Zealand, explains the best practices for implementing robust AML procedures, and lists the top AML tools available to Actionstep customers.

What is Money Laundering?

Money laundering is the process of concealing the origins of illegally obtained money. It typically involves three stages: placement, layering, and integration.

First, illicit funds enter the financial system (placement). Next, bad actors aim to hide their origins via a series of complex transactions and bookkeeping tricks (layering). Finally, they reintroduce the laundered money into the economy as legitimate (integration).

Law firms are heavily involved in financial deals. Therefore, they are particularly susceptible to being unwitting tools in the layering stage. Criminals often seek legal advice to create complex structures like trusts or companies, which can mask the true ownership of assets. The sophisticated nature of these schemes makes it challenging to detect and prevent money laundering. International initiatives (such as the Financial Action Task Force (FATF) have been developed to combat money laundering. However, laundering techniques continue to evolve—meaning law firms must stay vigilant and evolve their AML processes.

What is AML?

Anti-Money Laundering (AML) refers to laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML frameworks aim to detect and deter money laundering activities by imposing certain obligations on financial institutions and other entities, including law firms.

AML regulations require institutions to implement specific measures such as customer due diligence (CDD), record-keeping, and reporting suspicious activities. For law firms, this means conducting thorough background checks on clients and maintaining detailed records of financial transactions. Additionally, firms must report any transactions that appear suspicious, which could indicate money laundering.

AML Laws and Regulations (UK, AUS, NZ)

While the UK, Australia, and New Zealand each have their own AML regulations, the broad brushstrokes remain the same. Law firms must conduct customer due diligence, monitor clients’ financial activity, and report anything that seems suspicious.

Below, we outline each country’s specific AML regulations and regulatory bodies.

Note: These regulations were correct at the time of writing (November 2023). If you’re reading this article at a far later date, we recommend conducting additional research to confirm the information below.

AML regulations for UK law firms

The UK’s Money Laundering Regulations 2017 strongly emphasize risk assessment and due diligence. Law firms must identify and verify their clients’ identity, understand the nature of their businesses, and monitor transactions for suspicious activities.

The UK also has the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). This body oversees the effectiveness of professional body AML supervisors in the legal and accountancy sectors.

AML regulations for Australian law firms

Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, Australian law firms must adopt a client due diligence process, report any suspicious matters, and ensure that records of transactions and client identification are well-maintained.

Additionally, the Australian Transaction Reports and Analysis Centre (AUSTRAC) plays a crucial role in monitoring and regulating AML activities within the country.

AML regulations for New Zealand law firms

New Zealand’s approach is outlined in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. This act requires reporting entities to conduct due diligence, maintain records, and report suspicious activities.

It’s supported by guidelines from the Department of Internal Affairs. This is the primary AML/CFT supervisor for most reporting entities, including law firms.

How Can Law Firms Avoid Money Laundering?

Law firms have multiple AML strategies at their disposal. Remember that none of these processes alone will prevent money laundering. However, when used together, they form a powerful deterrent.

Develop a comprehensive AML compliance program

Establish policies and procedures tailored to your firm’s specific risk profile. Consistently update them to align with evolving AML laws and practices.

Conduct ongoing risk assessments

Identify potential vulnerabilities in your operations and monitor client profiles, transaction types, and service offerings.

Implement customer due diligence (CDD) protocols

Verify new clients’ identities and understand their business nature. Carry out enhanced due diligence for higher-risk clients.

Train staff regularly

Provide ongoing training to equip staff with the skills to identify and report suspicious activities, including updates on regulatory changes.

Utilize technology effectively

Leverage technology, like a legal practice management platform with robust AML features and integrations, for efficient compliance, including automated background checks and transaction monitoring.

Maintain accurate and comprehensive records

Keep detailed records of client interactions and financial transactions. Ensure they are readily accessible for audits or investigations.

Report suspicious activities

Have a clear process for reporting suspicious activities to the authorities, promoting a culture of transparency and responsibility.

Regularly review and update compliance measures

Continuously assess and adapt AML measures to address new threats or changes in the legal landscape.

Collaborate with legal and financial experts

Engage with AML experts for advice and consider joining professional networks for shared learning and updates.

The Best AML Tools for Law Firms

Preventing money laundering in law firms involves a combination of vigilance, effective procedures, and leveraging advanced technology. Actionstep’s integration with specialized AML tools plays a crucial role in this process. Here are the best AML tools for Actionstep customers in the UK, Australia, and New Zealand.

Verify 365 (UK)

Verify 365 provides comprehensive identity verification solutions. Its Actionstep integration offers law firms in the UK an efficient way to conduct client due diligence. Verify 365 automates identity checks and risk assessments, enhancing the accuracy and speed of AML compliance processes.

Learn more about how Verify 365 integrates with Actionstep here.

Legl (UK)

Legl specializes in empowering law firms with robust anti-money laundering capabilities. Their platform focuses on digitizing and optimizing AML compliance processes and checks within law practices. Legl’s integration with Actionstep provides tailored workflows to automate AML-related operations, ensuring adherence to regulatory requirements through the client lifecycle.

See Legl’s integration with Actionstep here.

First AML (UK, ANZ)

First AML simplifies the AML compliance process for law firms in the UK, Australia, and New Zealand. This tool automates customer due diligence and reporting, reducing the administrative burden on legal professionals. First AML’s integration with Actionstep streamlines data management, ensuring a seamless AML compliance workflow.

Discover more about First AML’s integration with Actionstep here.

Spinika (NZ)

Spinika specializes in AML compliance solutions specifically for New Zealand-based law firms. Its integration with Actionstep allows law firms to efficiently manage compliance obligations, including customer due diligence, monitoring, and reporting. Spinika’s platform ensures that AML procedures are thorough, up-to-date, and effectively integrated into the law firm’s daily operations.

Explore Spinika’s integration with Actionstep here.

AML: An Ongoing Priority

Preventing money laundering is a constant process. Law firms must ensure they stay up to date with evolving regulations, continually refine their AML strategies, and use the latest AML tools.

AML must be a constant priority—not a periodic afterthought. With the right approach, you can ensure your law firm stays compliant and doesn’t become involved in money laundering activities.