Who is Your Client?
CKnow Your Customer ustomer due diligence (CDD) can simply be described as the steps taken towards knowing your customer. The “Know Your Customer” (KYC) acronym is commonly associated with banks and capital market operators, who are compelled by law to undertake customer due diligence measures when business relationships are established, or when carrying out transactions that fall within a financial threshold as stated in the Money Laundering, Anti-terrorism and other relevant regulations. The checklist usually comprises of facts that should enable an organisation assess the extent to which a customer exposes it to significant risks. Many professionals, particularly lawyers, in these parts are guilty of not carrying out the necessary checks. The financial capability or the ability of a prospective client to pay his or her bills should not becloud the need for character profiling or compliance cum regulatory checks. Matters relating to corruption, terrorism and money laundering, tend to invoke a lot of sentiments. The recent leaks on tax havens is instructive.
The Cab Rank Rule The other day, I was discussing with a colleague along the lines that it was important for legal practitioners to do some customer onboarding before accepting any brief. Everyone will agree that these are not the best of times for the judiciary. The need to do damage control is imperative, consequently
increasing the importance of being cautious in accepting briefs. To my shock, the “brother lawyer” retorted saying lawyers were constitutionally bound to take on all cases. Hmmm! Bros ooh! He supported his point with the right to legal representation principle and the cab rank rule. In my understanding, the cab rank rule is derived from the concept that the legal profession can be likened to a cab rank, where the taxi driver is compelled to take whichever passenger boards his vehicle once it is his turn, regardless of his or her race or pedigree. In the course of the conversation, Rules of Professional Conduct (RPC) in hand, I
pointed out to my colleague, that there were exceptions to this rule. Some of these exceptions include personal interest, conflict of interest and religious grounds. Having accepted that there were exceptions to the rule, we wondered why the rule had not been reviewed to include issues like Anti-Money laundering concerns.
Necessity of Client Due Diligence The fiduciary nature of the lawyer-counsel relationship, should not be abused where crime or its proceeds are involved. To this effect, the concept of client accounting, should be reviewed to take into consideration illicit funds flows and transactions. Every professional worth his salt should carry out preliminary checks before accepting briefs. Upon carrying out a D.D exercise, clients should be classified into the relevant risk brackets. Risk management, an element of corporate compliance, should not be seen as a wasteful exercise because the implications from non-compliance outweigh the cost elements. The Solicitors Code of Conduct 2011 which is applicable in the United Kingdom compels its members to conduct CDD on those clients who retain them for services regulated by the relevant code. This is expected to help the professional better identify suspicious transactions, and understand the reasoning behind the instructions received.
Step 1 As a first step, it is important to obtain a prospective client’s name, means of identification, residential address and date of birth. The best way to do this is to request for a nationally recognised means of identification, utility bills, and other official documents. The simplest way to verify this information provided, is to make use of the Google search engine. It is amazing how much information one can get about an individual or an organisation from this source. I am aware of the existence of a number of electronic verification models. These methods only ascertain that someone exists and do not confirm that your client is the said person. Legal Practitioners should consider the risk implications in respect of the particular retainer, and be on the alert for information which may suggest any conflicts in a client’s identity. When using electronic verification, one is not required to obtain a client’s consent. However, the customer must be informed that this check will take place. The CDD process must not be unduly cumbersome, and should not in any way make the client feel that his privacy is being invaded or that the services being provided are slow as many are resultoriented.
Step 2 Sometimes however, it may not suffice to only have information with respect to the named client. One may need to take a step further by identifying the beneficial owner. This is usually necessary when someone else is acting on behalf of another in a particular transaction, or when it becomes imperative to establish the ownership structure of a company, partnership or trust. As a general rule, the beneficial owner is the brain behind the client’s instructions. A professional is expected to keep an up-to-date client register, thus making it feasible to amend the risk assessment pattern if circumstances change, as well as carry out further due diligence measures where applicable. Significant Changes of circumstance which may raise a red flag include a noticeable increase in the level of business activity, or a change in the ownership structure of a business.
It is untidy for lawyers to be used as conduits to conceal financial crimes. Where a professional has doubts about a customer’s identity, it may be wise to put all dealings on hold until the necessary verifications are carried out. To protect one’s integrity, it may be necessary to go the extra mile in onboarding clients. Being caught in the web of a scam, can incur major reputational damage. For individual professionals such as lawyers and accountants, it may be careerending.
"TO PROTECT ONE’S INTEGRITY, IT MAY BE NECESSARY TO GO THE EXTRA MILE IN ONBOARDING CLIENTS. BEING CAUGHT IN THE WEB OF A SCAM, CAN INCUR MAJOR REPUTATIONAL DAMAGE. FOR INDIVIDUAL PROFESSIONALS SUCH AS LAWYERS AND ACCOUNTANTS, IT MAY BE CAREER-ENDING"