Client due diligence refers to the steps one must take to verify the identity of clients, understand the nature and purpose of the transaction and where funds will be passing though your firm's client account, the source of those funds and the source of the client's wealth. Source of funds and source of wealth are closely linked and addressing one sometimes addresses the other but both must be considered. The law does not prescribe the precise steps that must be taken in order to comply with CDD however the Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector 2025 offers detailed guidance on what any AML strategy should consider and what is is expected to achieve. Although a lengthy document, every conveyancer should take the time to read it and should have a copy he or she can refer back to. Besides being a useful reference source, compliance is compulsory.
The legislation that underpins a solicitor's AML requirements is contained in the Proceeds of Crime Act 2002, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and various subordinate regulations.
Firmwide AML Compliance Policy
Every firm must have a policy in place to minimise the risk of its client account being used to launder money or to facilitate a fraud. The law does not prescribe exactly what such a policy should contain however it must include:
- a risk assessment for each client;
- a risk assessment for each new matter;
- a requirement to conduct ID checks against each client;
- a requirement to verify the source of the wealth of each client that will be paying funds into the firm's client account;
- a requirement to verify the source of any funds that will be paid into the firm's client account;
- a requirement to provide regular AML training to all staff; and
- a process for escalating concerns internally to the Money Laundering Reporting Officer (MLRO).
Once a policy is in place it is the responsibility of every business owner and employee to follow it. Should any employee fail to do so, they could be guilty of an offence even if that failure does not result in any successful criminal activity. An employee has a defence if it can be shown that they have not received appropriate training, in which case the offence is committed by the firm's Compliance Officer for Legal Practice (COLP) as well as, potentially, the MLRO and the equity partners in the firm.
