P2P

64 P E E R T O P E E R : I L T A ' S Q U A R T E R L Y M A G A Z I N E | F A L L 2 0 2 2 requirements frequently evolve, and firms must stay up to date with the changes or face potentially damaging consequences. Reforming the client due diligence process Efficiently taking on new clients and matters is critical to the growth of law firms. Today, a number of market trends are putting pressures on firms to transform the way they evaluate and engage new business, and how they manage those relationships throughout the client lifecycle, including: • Clients are increasing customer service expectations and demand a swift response to more stringent pricing requirements, terms of engagement, and outside counsel guidelines. • Firms are looking to increase the sophistication and agility of intake processes to better align client selection with overall business strategy, service models, and internal policies. • Risks are proliferating, driven not only by professional standards and client mandates but also by evolving regulatory rules that increasingly extend compliance requirements to law firms. In the practice of law, ethical obligations require lawyers to carefully evaluate new clients and their motivation before entering into an engagement — also known as the process of client due diligence (CDD). Performing a multistep client acceptance process is necessary to comply with AML obligations. The foundation of AML compliance is a risk-based approach, or an understanding of exposed risks and how to apply measures to ensure mitigation of those risks. Widely accepted by FATF and regulators, a risk-based approach is believed to be an effective way to fight money laundering. 10 For law firms, the risk assessment is a core aspect of their due diligence before they take on a new client. A firm is obligated to determine and document the risk level, and ultimately, decide if they want to move forward with an engagement. Most midsize to large global firms have developed and refined a process to perform CDD and continuously monitor client relationships — some are built on a bespoke basis, either paper-based or within a system. Either way, under a recommendation from the FATF, law firm management should appoint a compliance officer such as a money-laundering reporting officer (MLRO) or anti- money-laundering officer (AMLO) to oversee the firm's AML framework. 15 For smaller firms or single practitioners that may not have an AML-focused employee or team, the FATF recommends the following framework: 16 • Adopt client acceptance and know-your-client policies: Identify the client, its beneficial owners, the true "beneficiaries" of the transaction, the source of funds, and the transaction's purpose. • Adopt engagement acceptance policies: Understand the exact nature of the work and how it could facilitate the movement or hiding of criminal proceeds. Do not accept work if you lack the requisite experience. • Understand the rationale for the work: You should be reasonably satisfied that a commercial or personal rationale exists. But you are not required to objectively assess that rationale. Q 3 W H I T E P A P E R S

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