Rule 64 Rules of Professional Conduct for Legal Practitioners

Rule 64 of the Rules of Professional Conduct for Legal Practitioners (RPC) 2023 is about Client risk. It is under Part III (Risk Based Approach and Client Due Diligence) of Chapter 2 (Guidelines and Rules on Anti-money Laundering and Combating Financing of Terrorism for Legal Practitioners) of the Rules. It provides as follows:

(1) A legal practitioner or law firm shall determine the potential ML and TF risks posed by a client or category of clients, as this is critical to the development and implementation of an overall risk-based framework.

(2) A legal practitioner or law firm may develop internal criteria to determine whether a particular client poses a higher risk and the potential impact of any mitigating factors on that assessment, and the application of risk variables may mitigate or increase the risk assessment.

(3) The categories of clients whose activities may indicate a higher risk include —
(a) Politically Exposed Persons (PEPs) and persons closely associated with or related to PEPs, are considered as high-risk clients, and if a PEP is otherwise involved with a client, then the nature of the risk should be considered, considering all relevant circumstances. such as—

(i) the nature of the relationship between the client and the PEP, and if the client is a trust, company, or legal entity, even ifthe PEP is not a natural person exercising effective control or the PEP is merely a discretionary
beneficiary who has not received any distributions, the PEP may nonetheless affect the risk assessment,
(ii) the nature of the client,
(iii) the nature of the services sought, lower risks may exist where a PEP is not the client but a director of a client that is a public listed company or regulated entity and the client is purchasing property for adequate consideration, and higher risks may exist where a law firm or legal practitioner is involved in the movement or transfer of funds or assets, or the purchase of high value property or assets, and
(iv) the source of wealth and source of funds of customers and beneficial owners identified as PEPs, which is the activity that generates the funds and total net worth for a client (salary, trading revenues, or payments out
of a trust) :

(b) clients conducting their business relationship or requesting services in unusual or unconventional circumstances ;

(c) clients where the structure or nature of the entity or relationship makes it difficult to identify in a timely manner, the true beneficial owner or controlling interests or clients attempting to obscure the understanding of their business, ownership, or the nature of their transactions, such as—
(i) unexplained use of shell and shelf companies, front company, legal entities with ownership through nominee and corporate directors, legal persons, or legal arrangements, splitting company incorporation and asset
administration over different countries, all without any apparent legal or legitimate tax, business, economic or other reason,
(ii) unexplained use of informal arrangements such as family or close associates acting as nominee shareholders or directors, and
(iii) unusual complexity in control or ownership structures without a clear explanation ;

(d) client companies that operate a considerable part of their business in or have major subsidiaries in countries that may pose higher geographic risk ;

(e) clients that are cash or cash equivalent intensive businesses, which may include—
(i) Money or Value Transfer Services (MVTS) businesses (remittance houses, currency exchange houses, bureau de change, money transfer agents and bank note traders or other businesses offering money transfer facilities),
(ii) operators, brokers, and others providing services in virtual assets, and
(iii) casinos, betting houses and other gambling related institutions and activities ;

(f) businesses that while not normally cash intensive appear to have substantial amounts of cash ;
(g) businesses that rely heavily on new technologies ;
(h) unincorporated charities and other “not for profit” organizations (NPOs) that are not subject to monitori: or supervision, especially those operating on a “cross-border” basis :
(i) clients using financial intermediaries and financial institutions ;

(j) clients who appear to be acting on somebody else’s instructions without disclosing the identity of such person ;
(k) clients who appear to avoid face-to-face meetings actively and inexplicably or who provide instructions intermittently without legitimate reasons and are otherwise evasive or very difficult to reach, when this would
normally be expected ;
(l) clients who request that transactions be completed in unusually tight or accelerated time frames without a reasonable explanation for accelerating the transaction, which would make it difficult or impossible for the law firm or legal practitioner to perform a proper risk assessment ;

(m) clients who have no address, or who have multiple addresses without legitimate reasons ;

(n) clients who have funds that are obviously and inexplicably disproportionate to their circumstances (their age, income, occupation, or wealth) :
(o) clients who change their means of payment for a transaction at the last minute and without justification (or with suspicious justification), or where there is an unexplained lack of information or transparency in the transaction, and this risk extends to situations where last minute changes are made to enable funds to be paid in from or out to a third party ;

(p) clients who offer to pay unusually high levels of fees for services that would not ordinarily warrant such a premium, but bona fide, and appropriate contingency fee arrangements, where a law firm or legal practitioner may receive a significant premium for a successful representation, should ordinarily
not be considered a risk factor ;

(q) clients who are suspected to be engaged in falsifying activities using false loans, false invoices, and misleading naming conventions ;
(r) client seeking advice or implementation of an arrangement that has indicators of a tax evasion purpose, whether identified as the client’s express purpose, in connection with a known tax evasion scheme or based on other indicators from the nature of the transaction ;

(s) the transfer of the seat of a company to another jurisdiction without any genuine economic activity in the country of destination poses a risk of creation of shell companies that might be used to obscure beneficial ownership :
(t) sudden activity from a previously dormant client without clear explanation ;
(u) the reason for client choosing the law firm or legal practitioner is unclear, given the law firm or legal practitioner’s size, location, or specialization ;

(v) frequent or unexplained change of professional adviser or members of management ; or
(w) the client’s reluctance to provide all the relevant information, or the law firm or legal practitioner have reasonable doubt that the information provided is not correct or sufficient.

(4) A legal practitioner shall be deemed to have satisfied the obligation to assess Client risk if he shows by any compliance document, his or her review and understanding of such risk in the engagement with the client and provides an affidavit on oath from the client attesting to the genuineness of the transaction, source of funds and other relevant information relevant to the risk assessment outcomes.