“Holding Client Money Could Face Increased Regulatory Scrutiny” —

• “Law firms holding client money could come under increased scrutiny from U.K. regulator the Solicitors Regulation Authority given the cash that could now be earned from higher interest rates, one lawyer has warned.”
• “With the base interest rate in the U.K. rising from 0.1% in 2021 to 5.25% as of August 2023, law firms handling any client money could be set to earn substantial sums of interest. If they don’t account for that to clients in a ‘fair manner’, they could be likely to face increased scrutiny from the SRA, according to RPC partner Graham Reid.”
• “As it stands, firms are bound by the SRA to pay a ‘fair’ sum of interest on client funds, meaning that they don’t have to pay the full value of interest earned. But, with some law firms paying out less than 1% of interest on client accounts, the extra may be significantly boosting profits, says Reid.”
• “Reid continued: ‘With new enhanced powers to fine firms and a vigorous approach to rule enforcement, the SRA can be expected to take a very dim view of those that do not pay fair interest and thereby cause client detriment. The key messages are: Is it fair? Is it properly explained? Can you fully justify your decision-making to the regulator?'”
• “In recent years, handling client payments has become rarer and rarer for law firms. Last year, Travers Smith managing partner Edmund Reed explained that the service had been ‘going out of fashion’ for many years, with the pandemic accelerating the move away from client accounts.”

“Legal profession proactively mitigating money laundering risks” —

• “A new report released today shows the Australian legal profession is proactively working to mitigate the risk of being a party to money laundering and that where vulnerabilities exist, those not already being addressed can be addressed through augmentation of existing controls to which the profession is already subject.”
• “‘The Government is currently considering how best to achieve the existing anti money laundering and terrorism financing (AML/CTF) regime objectives in relation to the legal profession,’ Law Council of Australia President, Mr Luke Murphy said.”
• “‘The Law Council has always believed that due to the strict rules and regulations under which the Australian profession operates, the potential for lawyers being used to facilitate AML/CTF is small. To test the validity of that belief, we engaged Russ + Associates to undertake an independent review of the profession’s vulnerability to being an unwitting party to money laundering and terrorism financing. Russ + Associates is a specialist tax and AML law practice who are recognised experts in AML/CTF advice.'”
• “‘To our knowledge, the examination of vulnerabilities Russ + Associates were engaged to undertake is a world first. We believe this highlights the commitment the Australian legal profession brings to understanding and minimising AML/CTF risks and provides a strong evidence base upon which effective decisions and changes can be made.'”
• “‘What the report found is that beyond the regulations and professional requirements lawyers are subject to, they have taken additional steps to reduce risks. These include limited receipt of cash, particularly when it comes to funds from overseas, not holding assets for clients, and ensuring they meet all reporting obligations.'”
• “‘That is not to say that no vulnerabilities exist, and we thank the firms who participated in this study for being frank about the risks they have identified in their practices.'”
• “Vulnerabilities identified included lawyers not routinely making enquiries about a client’s source of wealth and difficulty in confirming the provenance of funds, with differences in risk between jurisdictions.”
• “‘The report highlights the positive attitudes and behaviours among the legal profession towards integrity, risk awareness and aversion, and to fulfilling statutory and professional obligations. It shows vulnerabilities are present, but they can be managed through augmentation of existing controls.'”

“Cautionary tale: Defrauded law firm loses insurance suit” —

• “A Boston law firm’s business policy did not cover losses stemming from its processing of a fake cashier’s check that it received from a “new client” who had retained the firm under a false identity, a U.S. District Court judge has ruled in dismissing a lawsuit against the insurance carrier.”
• “Wells Fargo notified Brooks & DeRensis on Nov. 4, 2021, that the bank had dishonored a cashier’s check for nearly $90,000 that the law firm had deposited into its IOLTA account just days earlier.”
• “The firm had accepted the check as settlement of an employment matter brought by a new client claiming to be ‘Brian Rodriguez.’ The firm promptly wired $88,385 of the deposited amount to the bank account of the client, but it turned out later that the ‘client’ was using a false identity.”
• “‘Taking the factual allegations in the complaint as true, B&D received a forged cashier’s check from a third-party purporting to be Rodriguez’s employer,’ Casper wrote. ‘As a cashier’s check, it was purportedly made or drawn by and drawn upon Wells Fargo, N.A. B&D was the payee or the bearer in this circumstance, not the maker, drawer or drawee.'”
• “While Casper found coverage existed under an endorsement providing ‘Counterfeit Currency and Money Orders Coverage,’ the judge went on to conclude the insurance contract’s ‘false pretenses’ exclusion applied. ‘This exclusion addresses a scenario where the insured willingly transfers funds to a third-party based on some false representation or receipt of a false check,’ Casper wrote.”
• “Nina E. Kallen, an insurance coverage litigator in Roslindale, said she has had colleagues who have been taken in by similar scams. That includes lawyers who thought they were taking adequate precautions.”

“Many Businesses Blindsided by New Anti-Money-Laundering Law” —

• “A new law aimed at ending the United States’ notorious reputation as a haven for ‘shell’ companies created to obscure crimes will require tens of millions of businesses to report ownership information for the first time, starting Jan. 1.”
• “But there’s a big problem, according to a newly released survey: Awareness among businesses that will have to comply, and even advisers such as certified public accountants and lawyers, is extremely low, raising the specter that business owners will be hammered with hefty fines, potentially even prison time.”
• “The information services company Wolters Kluwer surveyed 700 business, half of which will have to comply with the law. Of that half, 74% were oblivious to it.”
• “The requirements will apply to 32.6 million businesses, including the vast majority of private businesses and many small businesses. Generally excluded are heavily regulated businesses and large operating companies. (Find details on who must comply here.)”
• “Aronowitz said many businesses may not be able to count on their professional advisers to assist. In the Wolters Kluwers survey, just 54% of law firms and CPAs were aware of the CTA.”

The ABA notes: “The Corporate Transparency Act: Deniers Beware” —

• “The Corporate Transparency Act (“CTA”), effective January 1, 2024, requires certain businesses to report certain information to the Financial Crimes Enforcement Network for persons with “substantial control” over the business or 25 percent or more of the equity in the business.”
• “The CTA’s intent is to end the position of the U.S. as a haven for “shell” companies used in the commission of certain crimes. There are steep, escalating fines and possible jail time for noncompliance with the CTA’s requirements.”
• “Many people are CTA deniers, saying they’ve never heard of it, it doesn’t apply to small businesses, their lobby wouldn’t allow it, it can’t be constitutional, they won’t report, they’ll just pay the fine, or fiduciary duties are not implicated.”
• “Whether you like it, hate it, or are indifferent, the CTA has been thoroughly vetted and is here to stay. Compliance is both mandatory and advisable.”
• “The CTA marks a seismic shift in the legal landscape for businesses operating in the United States. Prior to the CTA, entity beneficial owner disclosure was solely (if at all) the purview of state or tribal law. Now it is a focus and purview of federal law enforcement agencies.”
• “Many professional advisers and business professionals have been caught off guard by this fundamental change in business entity law, now taking on a federal facet for the first time. Those that are aware have, by and large, taken a wait-and-see approach to either advising their clients and business associates or evaluating their own compliance profile. This is because much of the mechanics of compliance remains elusive. The ability for businesses to begin directly interfacing with FinCEN on filing and compliance continues to be in the future, giving those persons “in the know” little to offer as current action items—causing many to defer sounding the alarm bell until more is known from FinCEN. However, the wait must end, as there is limited and dwindling time remaining to take action before the window of opportunity closes at the end of 2023.”