CLIENT IDENTIFICATION PROCESSES LOOKING FOR THEIR FORM

The Anti-Money Laundering Act, which took effect in July 2017, obliges law firms to know their clients and their business, and report any suspicious transactions or suspicions of terrorist financing. Kristiina Sare, Legal Attorney at the Finnish Bar Association, shared some tips and best practices for client identification at the Finnish Legal Assistant Day, which was arranged in April.

In her interesting speech, Sare used practical case examples to raise common client identification related questions that are often faced in the daily work. For me, having recently started working with the legal industry, her speech gave a good understanding on identification related legal practices.

Key questions related to client identification

The anti-money laundering legislation applies to attorneys, lawyers, and other employees of law firms working on assignments related to clients’ financial activities or immovable property. There are three key issues associated with client identification.

What kind of assignments are covered by the identification and verification obligations?

In practice, the Anti-Money Laundering Act applies to all assignments related to financial affairs or immovable property, with the exception of the duties of an ombudsman.

What is the difference between client identification and verification?

Client identification means finding out the client’s identity based on the information provided by the customer. Instead, verification is about ensuring the identity of a person based on documents or information from a reliable and independent source. For example in Finland, a driver’s license is still valid for verification of personal data.

When is verification of client identity required?

A client has to be identified and the identity verified:

• Always when establishing a new permanent client relationship
• In assignments where the total amount of business transactions or interconnected transactions exceed 10,000 euros. This also applies, for example, to the liquidation of bankruptcy and deceased estates and to the sale of goods in cash.
• When it comes to questionable business or when a lawyer has reason to suspect the origin or use of the assets related to the transaction.
• When a lawyer has reason to suspect the reliability or adequacy of the identity verification data of a previously verified client.

Client identification is not a one-time operation. It is advisable to go through and update the identification information on a regular basis, for example, whenever there is a new assignment from the client. Whenever possible, the client's identity should always be verified.

Risk assessment defines the level of required identification

Client identification activities should be based on a risk assessment, where the risks that concern client relationships and assignments are evaluated. In individual cases, one should be able to justify the identification actions to the Bar Association or another authority.

The level of identification required varies depending on the risk assessment performed by the office. A simplified identification procedure is sufficient if, based on the risk assessment, a client relationship or a single transaction only has a low risk of money laundering and financing of terrorist activities. Such cases require less identification data or sources than normal.

If the risk assessment reveals that the risk of questionable activity is high, it may be necessary to perform an enhanced client identification. In that case, special attention should be paid to the client, its business and transactions, both at the time of identification and throughout the entire customer relationship. Reasons for an enhanced identification might be for example the client’s political influence or connections to a country that does not meet the international requirements concerning anti-money laundering and terrorist financing.

Identification of a corporate customer

When a client is a limited company, the identification and verification obligations apply to multiple different entities according to the process below. 

The company must be identified and verified through a trade registry extract or an equal document. A company representative, e.g. an authorized representative, a board member or the company’s managing director, is to be identified by power of attorney, board meeting minutes, a trade registry extract or some other form of statement, and his/her identity verified.

The company’s board members are identified based on the trade register extract. The actual beneficiaries of the company should also be identified e.g. based on the client's declaration or a shareholder list, and it needs to be determined whether they are politically influential persons. If so, you should at least obtain information about their profession and whether they are in a politically significant public position. The company's business sector, as well as the scope and nature of the business, should also be investigated.

It is important to pay attention to the grounds for the assignment, especially when it comes to a corporate client within a grey market industry and when the company has business or business partners outside the EEA. Attention should be paid also if the company has foreign owners, is managed from abroad or when its actual beneficiary is a politically influential person. It is good to follow the client’s business activities and update the identification data regularly.

CSI Lawyer supports client identification

CSI Lawyer detects the potential need for client identification when managing an assignment. It also supports the identification process and its progress as part of the assignment management, even in cases where a valid identification has not yet been completed.

In CSI Lawyer you can:

• Indicate the required client identification level and interval, and the user groups entitled to perform an identification
• Notice any missing identifications required for managing an assignment, and start the identification process either through the assignment or the client
• Follow the status of all identifications and easily start the missing ones
• Ensure that, if an identification is missing, the assignment is not unintentionally promoted for example by adding transactions or creating invoices in it.

The client identification itself always takes place outside CSI Lawyer, and the client's identification information is never stored in the system. However, the functionality provides a good tool for following the status of the identifications and managing the assignment according to the identification status.