An Appraisal Of Chapter 2 Of The RPC, 2023 And The Implementation Of The FATF Reporting Standards By Legal Practitioners In Nigeria
By Samuel Oguntuyi, Esq.
CHAPTER 2
GUIDELINES AND RULES ON ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM FOR LEGAL PRACTITIONERS
The Rules of Professional Conduct for Legal Practitioners, 2023 (“the Rules”) was made on the 6th of June 2023 by the General Council of the Bar pursuant to the power conferred on it by section 12 (4) of the Legal Practitioners’ Act, 2004[1] The Rules however became operational on the 1st January, 2024, thereby effectively revoking the Rules of Professional Conduct for Legal Practitioners, 2007 (“The Old Rules”). The RPC 2023 came as an expanded subsidiary legislation codifying and embodying the basic ethical standards for legal practitioners whose name appear on the roll of Legal Practitioners in Nigeria.[2] The expanded scope of new Rules as contained in Chapter Two embraces the emerging challenges of Nigeria and the global world such as money laundering, terrorism financing and proliferation financing in lawyer-client relationships and the provision of legal services. The incorporation of these provisions into the new Rules became necessary given the emerging challenges of national and global terrorism, intra and cross-border insurgencies, banditry, and the growing risks encountered in the financial sector with the attendant possibilities of using independent legal practitioners for the commission of financial crimes, since the corporate and professional relationship between the legal practitioner and the client would invariably involve monies.[3] Chapter Two of the RPC 2023 therefore provides comprehensive protocols for the adoption of a risk-based approach in preventing and/or combatting money laundering, terrorism-financing and proliferation-financing situations.[4]
The Nigerian Bar Association Anti-Money Laundering Committee (NBAAMLC)
In line with the policy objective of the General Council of the Bar to internally self-regulate members of the legal profession in accordance with the provisions of the LPA, LFN, 2004, the Rules mandates the NBA, to create an ad hoc committee, to be described as the Nigerian Bar Association Anti Money Laundering Committee (NBAAMLC) (“the Committee”)[5] and whose responsibility include undertaking compliance examination of law firms on a risk-based approach and submitting its Report to the Special Control Unit against Money Laundering (SCUML)[6], amongst other allied duties. Primarily, the core mandate of the NBAAMLC shall be to advise the NBA on the implementation and monitoring of compliance of law firms and legal practitioners with the provisions of Chapter 2 of the Rules.[7]
Composition
The Rules mandates that the composition of the NBAAMLC shall consist of persons with adequate training and knowledge on anti-money laundering and terrorist financing, being persons of high repute and standing in the legal profession and have not been found guilty of money laundering or related offences.[8]
Capacity Building & Risk Identification by the NBAAMLC
The Rules[9] mandates the NBA to ensure the training of members of the NBAAML Committee on the risks of money laundering and terrorism financing with a view to effectuating the Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) policies of the Financial Action Task Force (FATF).[10] Similarly, the Committee is saddled with the mandate of taking the lead in identifying ML and TF risks, peculiarities and procedures of the legal sector and to publish same from time to time.[11] These obligations on the Committee also include developing policies and strategies for the identification and review of the ML and TF risk profile of legal practitioners when assessing their recommendations and letters of good standing as well as a supervisory framework for verifying extant ownership information of legal persons and arrangements are maintained by lawyers and law firms. Such framework must take cognizance of, among others, the performance, by lawyers, of risk assessment at the client, firm and transactional levels; performance of risk-based Client Due Diligence; periodic continuing legal education in due diligence, anti-money laundering and combating terrorism financing themes; procedures to ensure prompt investigation of a lawyer’s misappropriation of client’s funds or involvement in money laundering and/or terrorism financing; the prompt reporting of suspicious transactions in a manner that complies with the profession’s ethical duty of confidentiality, among others.[12]
COMPLIANCE OBLIGATIONS IMPOSED ON LEGAL PRACTITIONERS TOWARDS PREVENTING AND COMBATTING MONEY LAUNDERING AND TERRORIST FINANCING IN THE RULES
Part II (Chapter 2) of the new Rules, 2023 imposes series of obligations on a legal practitioner ranging from assessment to reporting and compliance standards, particularly when acting in different circumstances such as a formation agent or stakeholders in a company, conducting sales or purchase of real estate for clients, amongst others.[13] These obligations also include the conduct of an internal risk assessment including the development of an Internal Risk Assessment Guidelines (RAG)[14] towards understanding, identifying and preventing and/or mitigating the risks of money laundering, terrorism financing and proliferation financing which said obligation must be carried out with respect to the services provides under Rule 57(1)(a)-(f)[15] with a consequence of liability for professional misconduct and disciplinary sanctions in the event of failure to comply with the provisions outlined in Chapter of the Rules by a legal practitioner.[16] However, the obligations does not bind or apply to a legal practitioner who merely notarizes or certifies a Power of Attorney or other documents not necessarily prepared by him but used to facilitate a number of business-related transaction including buying and selling of real estate, managing client’s money, opening or managing of bank, etc.[17] In addition, a legal practitioner is mandated to keep an accurate and up-to-date record of both domestic and international clients which is aimed at enabling the ease of identification of such clients. In the same vein, a legal practitioner is obligated to ensure that relevant information obtained under the client identification process are kept up-to-date and relevant; and such records of both clients and transactions must be kept for a minimum period of five years.[18]
Similarly, legal practitioners are mandated by the Rules to set up mechanisms for the implementation of the United Nations (UN) Targeted Financial Sanction relating to Terrorism and Proliferation Financing and such mechanisms must provide an adequate procedure for the screening of all their clients to be sure that they do not fall within or are related to entities placed on the UN Consolidated List or the Nigerian Sanction List,[19] and in any case of a positive match of persons and entities designated by the UN, legal practitioners are mandated by the Rules to immediately identify and freeze all the assets of such client in their possession and forward a report to the NBAAMLC for onward transmission to the Nigerian Sanctions Committee as well as a Suspicious Transactions Report to the NBAAMLC to be further transmitted to the Nigerian Financial Intelligence Unit (NFIU) for additional analysis on the financial activities of such entities.[20]
Client Due Diligence
Furthermore, the Rules outline certain steps and guidelines for legal practitioners and law firms in the exercise of undertaking Client Due Diligence (CDD)[21] or Enhanced Due Diligence (EDD)[22]. By the said provisions, legal practitioners and law firms are obligated to identify and assess the money laundering and terrorism financing risks associated with specific services rendered or to be rendered to clients and accordingly develop internal policies, procedures and measures to control and/or mitigate the risk associated with ML and TF. Such procedures must reasonably identify key details of such clients (such as source of their funding) and the potential risks and complexities that may be associated with them whilst ensuring that their firms’ standards and policies can address such intricacies as may be associated with them.[23] Instructively, the Rules provide that where a legal practitioner lacks the requisite expertise to carry out an effective client due diligence and enhanced due diligence, the said legal practitioner must seek expert assistance in order to comply effectively with the provisions of the Rules, otherwise, he/she may decline such client instructions without prejudice.[24]
Deemed compliance with CDD Requirements
By the provision of Rule 69(5), a legal Practitioner is deemed to have satisfied the obligation to assess risk on CDD if he shows by any compliance document, his or her review and understanding of such risk in the engagement with the client.
Risk Types and Factors
Whilst the Rules states that there is no universally accepted set of risk categories, it however provides that the examples provided in the Rules are the most identified risk categories[25]. Viz:
a. Geographic Risks: the Rules recognizes geographic risk by countries and mandates a legal practitioner involved in cross border transactions to carry out proper risk assessment in respect of the country or geographic risks which is involved or likely to be involved in such transactions.[26]
Ø Determinants of geographic risks of Money Laundering (ML) or Terrorist Financing (TF) as follows:
(i) Domicile of client
(ii) Location of the transaction, or
(iii) Source of wealth[27]
Ø Factors that places a country at higher risk[28]
(i) Countries identified by credible sources as providing funding or support for terrorist activities
(ii) Countries that have designated terrorist organization operating within them
(iii) Countries identified by credible sources as having significant levels of organized crimes, corruption and other crimes including source of transit for illegal drugs, human trafficking, smuggling and illegal gambling.
(iv) Countries subject to sanctions, embargoes or similar measures issued by international organizations.
(v) Countries identified by credible sources as having weal governance, law enforcement and regulatory regimes such as weak Anti Money Laundering (AML) policies and Counter Terrorism Financing (CTF) etc.
Deemed Compliance with Assessment of Geographic Risk
A legal practitioner is deemed to have satisfied the obligation to assess the country or geographic risk if he shows by any compliance document, his review and understanding of the risk in the engagement with the client.[29]
b. Client Risk
The Rules mandates a Legal Practitioner or law firm to determine the potential ML and TF risks posed by a client. The Rules also provides that such legal practitioner may develop internal criteria to determine the extent of risk posed by the said clients, as well as the impact of any mitigating factors on that assessment amongst others[30]
Categories of Clients whose activities may indicate Higher Risk
The Rules identifies Politically Exposed Persons (PEPs) and persons closely associated with them as high risk client. The Rules further provides guidance on the means of determining the nature of risk a client poses when a client is involved with such PEP and these include: the nature of the relationship between the client and the PEP; the nature of the Client; the nature of services sought; the source of wealth and source of funds of customers and beneficial owners identified as PEPs, etc.[31]
The Rules also identifies other categories of high risk clients such as Clients conducting their business relationships in unusual and unconventional circumstances;[32] 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 attempting to obscure the understanding of their business e.g shell or shelf companies etc.[33] These categories generally encompass the different businesses and clients (natural or juristic) who devises unusual, strange, unconventional, complex or shady schemes to disguise their criminal activities, amongst others[34]
Deemed Compliance with Assessment of Client’s Risk
A legal practitioner is deemed to have satisfied the obligation to assess the Client’s risk if he shows by any compliance document, his/her review and understanding of the risk in the engagement with the client. This is in addition to providing an affidavit on oath from the client attesting to the genuineness of the transaction, source of fund and other relevant information.[35] However, where the Legal Practitioner is unable to comply with the applicable CDD in relation to a transaction, or where the Client did not pass the CDD, such Legal Practitioner is mandated to decline such transaction and terminate the business relationship in addition to filing a Suspicious Transaction Report (STR) in relation to the NBAAMLC.[36]
c. Transaction or Service Risks
The Rules provide that this category of risk assessment and client identification can be determined from transactions which deploy the use of an unconventional means to effect payment for services viz: services that allow clients to deposit or transfer funds through the law firm or legal practitioner’s trust account which are not connected to the service or transaction being carried out by the law firm; services which provide or depend on client anonymity, payments from unknown third parties or unconventional cash payments, services which improperly conceals the beneficial ownership, amongst others.[37]
Deemed Compliance with Assessment of Transaction or Service Risks
A legal practitioner shall be deemed to have satisfied the obligation to assess the transaction or service risk if he shows by the production of a compliance document stating the legal practitioner’s view and understanding of the service sought whilst also obtaining an affidavit from the client stating the genuineness of the transaction, the source of funds and other essential information.[38]
CONCLUSION & RECOMMENDATIONS
Whilst the expansion of the Rules of Professional Conduct for Legal Practitioners, 2023 to include action protocols for the prevention and mitigation of Money Laundering and Terrorist Financing may underscore an overarching importance of stemming the scourge in the peculiar circumstances of our global world today, the onerous requirements for reporting suspicious transactions may constitute a great challenge to members of the legal profession who consider the said duties as inconsistent with their professional duties, particularly the issue of confidentiality which is statutorily and constitutionally regulated.[39] Also added to this challenge is the financial, time and energy costs to the Legal Practitioner who is required to conduct a high end and careful process of customer due diligence for identification and verification of clients. While it is clear that the strict application and enforcement of AML laws on members of the legal profession poses challenges, a delicate balance must be struck between the national obligation on the legal practitioner and his corresponding professional duties and dealings with his Client so that the legal practitioner is not seen as derelicting this all important duty.
Furthermore, apart from a robust and sustained programmes and initiatives on raising awareness and enlightenment on the FATF obligations among legal practitioners in Nigeria, the monitoring agencies must also devise strategies and mechanisms to ensure that legal practitioners are sufficiently trained and equipped to implement the FATF reporting standards; in the same vein, the regulatory agencies should provide a template to address the lack of resources or technical expertise of legal practitioners in meeting with the FATF compliance requirements.
Furthermore, apart from the thorny issues surrounding what safeguards exist to prevent the violation of lawyer-client privilege while complying with FATF reporting obligations, amongst other compliance challenges, the international AML standards set by the FATF which urge countries to impose preventive measures on legal professionals to provide intelligence to assist law enforcement in detecting financial crime appears onerous, asserting and imperious. Likewise, given a number of risks such as the potential loss of life and/or properties of a legal practitioner; the potential consequence of losing both retained and prospective clients which is most likely to result from reporting such clients to the regulatory authorities, it is humbly proposed that a reward mechanism (such as the issuance of certificate of recognition, et al) be deliberately framed by the requisite regulatory authority towards encouraging reporting obligations and the filing of an STR. It is no gainsaying that a reward system would not only greatly lower psychological and ethical barriers to the reporting obligations, but also foster a sense of duty and responsibility on the part of members of the legal profession in Nigeria.
S.A. Oguntuyi, Esq, is a Senior Associate in the firm of Y.C. Maikyau & Co and based in Abuja. He can be reached on samueloguntuyi954@gmail.com.
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[1] CAP L1 LFN, 2004 (LPA).
[2] Section 2 of the LPA, LFN, 2004
[3] Retainership Fees, Professional Fees and Personal funds of a Client or prospective Client. See Order 7 and 8 of the LPRO, 2023; Section 20 & 21 of the LPA, CAP L1 LFN, 2004; Rule 48 of the RPC, 2023.
[4] See the objectives of the 2023 Rules. Rule 55(1) RPC, 2023.
[5] Rule 73
[6] Rule 59
[7] Ibid Rule 73
[8] Rule 73(2)
[9] Rule 73(3).
[10] An international organization founded in 1989 by a group of Countries known as the G7 to establish norms and standards of “legal, regulatory and operational measures” to fight against money laundering, terrorist financing and other related threats to the security and integrity of the international financial system. Although, Nigeria is not a member of the FATF, the organization however comprises of several regional bodies such as the Inter-Governmental Action Group Against Money Laundering (GIABA). Unfortunately, in February, 2023, the FATF placed Nigeria on its “Grey List” (i.e designated jurisdictions under increased monitoring).
[11] Rule 73(4)
[12] See generally Rule 73(5)-(8
[13] Rule 57 (1)(a)-(f)
[14] Rule 68(1)-(4)
[15] Rule 57(5)
[16] Rule 57(2); See further Section 74(2) which mandates the NBAAMLC to recommend any disciplinary proceedings in relation to the breach of the provisions of Chapter to the LPDC.
[17] Rule 57(4)
[18] Rule 58(1)(2)
[19] Rule 60(1)(2)(3) & (4)
[20] Rule 60(4)(a)-(d)
[21] Measure available to lawyers to prevent money laundering and avoid their firm and practices being used by criminals to launder the proceeds of crime. See Rule 69, 77.
[22] Additional measures that a legal practitioner or a firm must employ to scrutinize and monitor high-risk clients and detect potential money laundering activities. See Rule 61, 77.
[23] Rule 61(3)(a)(b); (4),(5)(a)(b)
[24] Rule 61 (5) (c); See also generally Rule 69(1)-(6) on Client Due Diligence.
[25] Rule 62(1)(a)
[26] Rule 63(1)
[27] Rule 63(2)
[28] Rule 63(3)
[29] Rule 63(4)
[30] Rule 64(1)(2)
[31] Rule 64(3)(a)
[32] Rule 64(3)(b)
[33] Rule 64(3)(c)
[34] Rule 64(d)-(w)
[35] Rule 64(4)
[36] Rule 69(5)
[37] Rule 65(2)(a)-(m)
[38] Rule 65(3)
[39] See section 192 of the Evidence Act, 2011 on privileged communications between the lawyer and his client. See also Section 37 of the CFRN, 1999 (as amended).
