Lawyers Roped In To Combat Money Laundering

Source : The Business Times, July 30, 2007

New rules state that they can no longer keep anonymous accounts

(SINGAPORE) Lawyers sitting on millions of dollars of clients' money in trust or client accounts will have to be more sure where the money came from, under new rules that aim to curb money laundering.

In particular, lawyers will no longer be able to maintain anonymous accounts - they will have to know a client's business and keep records for at least five years.

The moves - spelt out in the Legal Profession (Professional Conduct) (Amendment) Rules 2007 that takes effect Aug 15 - come amid whispers that some crooks are using Singapore's hot property market to launder ill-gotten gains. The fear is that crooks who are using the property boom could be parking cash with lawyers here pending a purchase.

More than 90 per cent of all property purchases go through lawyers. 'To help combat laundering through law firms, two areas need to be looked at,' said Wong Partnership's managing partner Dilhan Pillay Sandrasegara - 'retail conveyancing and clients that come to us via private banks'.

Law firms also need to pay more attention to funds from overseas or by way of telegraphic transfer, he said. Singapore banks have had to implement increasingly stringent rules to prevent 'black' money being moved into the financial system.

And now lawyers are going to have to do the same, to prevent illegal funds seeping into the legitimate economy through investments in real estate, luxury assets or business ventures. But once clients clear the first hurdle of opening a bank account here, it is difficult for lawyers to know whether funds are illicit.

'I've yet to see anyone come in with a suitcase of cash,' said KCChuang, conveyancing partner at Advent Law Corp. 'Usually they have a cheque or demand draft issued from a Singapore bank.'

Mr Chuang said he has been approached three times by suspected money launderers in the past few years.

'They asked to use our client account, saying they would remit money from an overseas bank and if we could remit onwards to their accounts - one was to Thailand, another to New Zealand.'

The amounts were US$5 million a month, for which the launderers offered a 2-5 per cent service fee, he said. 'For some lawyers this can be very tempting.'

Mr Chuang turned down all the requests. 'One of them said he was dealing in second-hand cars,' he said. 'I asked him why he could not remit directly, but got no answer.'

Lawyers typically hold clients' money in common accounts that can be huge, running to tens or even hundreds of millions of dollars. Once illegal funds are sent into a client account, it can be difficult to separate them from the rest of the account.

Law firms typically have three accounts - trust account, client accounts and an office account.

Worldwide, laundering illicit money by buying real estate has become a common tactic.

The new rules here put the onus on lawyers to know a client's business, with the 'acquisition, divestment or any other dealing of any interest in real estate' at the top of the list. Reputable law firms say they will not be affected by the amendment because they have systems to guard against money laundering.

'Our reputation is very important to us,' said Wong Partnership's MrDilhan. But some tweaking will have to be done with regard to private banking clients, he said.

Private banks do not want to reveal clients' identity at first for requesting searches, such as for caveats, before a deal goes through. 'But going forward, in keeping with the principal of know your client, the private banks will have to disclose upfront their clients and vouch for them,' he said. 'Otherwise we cannot accept instructions.'

Every financial centre is a target for money launderers. 'The real estate market is so global that the issues we face are the same issues a lawyer in London faces,' Mr Dilhan said.

Still, the new rules are no tougher that those in London or New York, so legitimate investors will have no problem buying property or other assets here, he said.

For instance, most law firms already keep records five years after a transaction. 'Law Society rules already say we have to maintain files for 6-12 years,' MrChuang said. 'It's a storage nightmare.'

Many firms use external warehouses to store records and files, he said. 'We don't look at the new rules as negative. They formalise requirements that some of us already practise.'

Will law firms that are expanding overseas, such as in China, have to be extra vigilant against suspicious transactions?

Wong Partnership exercises the same diligence on clients at all its offices, Mr Dilhan said. 'So far the number of incidents in China when we've had to discharge ourselves is very small.'