Welcome to the Ultimate Client Due Diligence Checklist and Guide tailored specifically for law firms operating in Singapore.
This comprehensive resource is designed to assist you in navigating the complex landscape of client due diligence while ensuring compliance with the Legal Profession Act, Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015, and the Council’s Practice Direction on Prevention of Money Laundering and Financing of Terrorism.
Client due diligence is a crucial process that law firms must undertake to mitigate risks associated with money laundering, terrorist financing, and other illicit activities. It involves gathering and verifying relevant information about clients, their identities, and the nature of their business relationships. By implementing robust due diligence measures, law firms can safeguard their reputation, maintain regulatory compliance, and contribute to the overall integrity of the legal profession.
This guide is organised into various sections, each addressing specific aspects of client due diligence. It begins with an examination of existing clients, considering factors such as their contact history with the law practice and the need for identity waivers. The checklist then delves into new client onboarding, distinguishing between natural persons and entities/legal arrangements.
For each, it outlines the necessary particulars, documentation requirements, and risk assessments.
Additionally, this guide explores critical areas such as individuals purporting to act on behalf of clients, reliance on third parties for due diligence, ongoing monitoring of the business relationship, and enhanced due diligence for high-risk clients. These sections provide detailed instructions and criteria for proper assessment and continuous evaluation of clients.The checklist emphasises the importance of obtaining necessary approvals from senior management and compliance officers, ensuring a rigorous and comprehensive approach to client due diligence.
The guide also includes a section to address instances where completion of due diligence measures may be deferred, along with guidelines for necessary actions and timeframes.
Remember, this checklist is a comprehensive tool designed to assist your law firm in fulfilling its obligations under Singaporean law. However, it should be tailored to your specific practice and compliance requirements using a risk based approach.
The Singapore government is unwavering in its commitment to combat money laundering activities. As such, it is crucial for all members of the Council of the Law Society to understand and fulfill their statutory obligation under section 39(1) of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA). This obligation requires the reporting of any suspicious transaction to the appropriate authorities.
Section 39(1) of the CDSA stipulates that if a person possesses knowledge or reasonable grounds to suspect that any property, whether directly or indirectly, represents the proceeds of, was used in connection with, or is intended to be used in connection with drug dealing or criminal conduct, they are obligated to disclose this knowledge or suspicion. The disclosure must be made to a Suspicious Transaction Reporting Officer as soon as reasonably practicable after becoming aware of the information or matter related to the suspicion or knowledge. It is important to note that this obligation applies when such information or matter is obtained in the course of one’s trade, profession, business, or employment.
In practical terms, this means that if you become aware or have reasonable grounds to suspect that any property is linked to criminal activity, it is your duty to file a Suspicious Transaction Report (STR).
By following these best practices and thorough due diligence processes, your law firm can operate with confidence, maintain the highest standards of professionalism, and contribute to the prevention of financial crimes.
Join us as we navigate through each section, providing you with valuable insights, practical tips, and comprehensive checklists to facilitate your client due diligence efforts. Let’s ensure that your law firm operates with integrity, safeguards against financial crimes, and upholds Singapore’s commitment to combating money laundering and the financing of terrorism.
Section A: Existing Clients (Rule 14; PD 3.8)
This section focuses on clients who have an established relationship with the law practice. It outlines the process for determining if an existing client qualifies for an identity waiver based on their contact history. It also provides categories for waived profiles, ensuring compliance while simplifying the due diligence process.
-Identity Waiver for Existing Client:
Determine if the client has been in contact with the law practice for the last 5 years.
-Profile of Existing Client Waived:
For Category A Clients:
-Confirm that formal identification of the client was provided on first contact.
-Verify that the engagement lawyer has been in contact with the client for the last 5 years.
For Category B Clients:
-Indicate if no identification was provided on initial contact.
-Confirm that the engagement lawyer has been in regular contact with the client for the last 5 years.
-Ensure that the client’s information provided in subsequent sections is accurate.
Section B: Waiver for Famous Clients (PD 3.7)
In this section, we address clients who are nationally or internationally known. These clients may be exempt from providing identity documents due to their public recognition. We explore the criteria for waiving the requirement and ensuring the client’s identity is verified based on their reputation.
Confirm if the client is nationally or internationally known, thus exempting the need for identity documents.
Section C: New Clients who are Natural Persons (Rule 6; PD 3.6)
When onboarding new clients who are individuals, this section provides guidance on gathering their particulars, verifying their identities, and assessing any politically exposed or high-risk associations. It emphasizes the importance of obtaining accurate information to mitigate the risk of money laundering and terrorist financing.
-Particulars of Individual:
Obtain the individual’s name, gender, address, date of birth, passport/NRIC no., nationality, and occupation.
-Documents, Data, or Information to Verify Identity:
List the documents obtained from the client for identity verification, such as passport/NRIC/FIN no., proof of address, and other relevant documents.
-Politically Exposed Individual:
Determine if the client is a politically exposed individual and provide details of any prominent public function they hold or have held.
-Business Relationship:
Gather information on the purpose and intended nature of the business relationship with the client.
-Risk Profile:
Assess the risks of money laundering and financing of terrorism based on the provided information and state the reasons for the risk grading.
Section D: New Clients who are Entities or Legal Arrangements (Rule 8; PD 3.6)
For new clients who are entities or legal arrangements, this section highlights the information necessary to identify and verify the entity’s identity and beneficial ownership. It covers the importance of understanding the nature of the client’s business, ownership structure, and any politically exposed connections.
-Particulars of Entity/Description of Legal Arrangement:
Collect the name of the entity, nature of the client’s business, type of entity/legal arrangement, country of incorporation/registration/constitution, registered office address, and principal place of business address (if different).
-Documents, Data, or Information to Verify Identity:
Specify the documents obtained to verify the identity of the entity/legal arrangement, such as ACRA business profile, constitution/memorandum and articles of association, trust deed (if applicable), and any other relevant documents.
-Waiver of Client Due Diligence Measures for Beneficial Ownership:
Determine if the client is exempt from providing beneficial ownership information as per Rule 8(4) and PD 3.7. Provide a description if applicable.
-Particulars of Beneficial Owner(s):
Gather information about the beneficial owner(s) of the entity/legal arrangement, including name, gender, address, date of birth, passport/NRIC no., nationality, and occupation.
-Nature of Business, Ownership, and Control Structure of Client:
Describe the nature of the client’s business, ownership structure, and control structure.
-Politically Exposed Individual:
Determine if the beneficial owner(s) is a politically exposed individual and provide relevant details.
-Business Relationship:
Obtain information on the purpose and intended nature of the business relationship with the client.
-Risk Profile:
Assess the risks of money laundering and financing
Section E: Particulars of Individual Purporting to Act on Behalf of Client (Rule 7; PD 3.9)
When an individual acts on behalf of a client, it is essential to verify their identity and authorisation. This section outlines the details required for due diligence on such individuals, ensuring they are legitimate representatives of the client.
Gather information about the individual acting on behalf of the client, including their name, gender, address, date of birth, passport/NRIC no., nationality, and occupation.
Document the steps taken to verify their authorization to act on behalf of the client and to ascertain and verify their identity.
Section F: Reliance on Third Party to Conduct Client Due Diligence (Rule 17; PD 3.10)
Sometimes, law firms rely on trusted third parties to conduct client due diligence. This section examines the factors to consider when engaging third parties, ensuring they meet compliance standards, and have robust measures in place to provide necessary information and documentation.
-Provide the name of the third party engaged to conduct client due diligence.
-Specify the country of incorporation/residence (if an individual) of the third party.
-Indicate if the third party is a legal professional, auditor, financial institution, or other (specify).
-Confirm if the third party is subject to and supervised for compliance with requirements for the prevention of money laundering and financing of terrorism consistent with FATF standards.
-Verify if the third party has measures in place for compliance with those requirements.
-Confirm if the third party is willing to provide all source documents, data, or information obtained upon request by the law practice.
Section G: Ongoing Client Due Diligence on the Business Relationship (Rule 9; PD 3.13)
Client due diligence is an ongoing process. In this section, we explore the importance of regular reviews to ensure the accuracy and relevance of client information. It emphasises the need to monitor transactions, assess risk profiles, and maintain up-to-date due diligence data throughout the business relationship.
-Document the dates of reviews undertaken to assess the ongoing business relationship.
-Confirm if the transactions undertaken are consistent with the information provided in Sections C and D.
-Verify if client due diligence data, documents, and information are relevant and kept up-to-date.
-Assess the risk profile of the business relationship post-review, indicating whether it is a low-risk or high-risk relationship.
If there are grounds to suspect money laundering or financing of terrorism, explain the reasons to retain the existing client and outline the nature of risk mitigation measures.
Section H: Enhanced Client Due Diligence for High-Risk Clients (Rule 13; PD 3.14)
For high-risk clients, this section emphasizes the need for senior management approval and enhanced due diligence measures. It highlights the importance of understanding the client’s source of wealth and funds and implementing ongoing monitoring to mitigate the heightened risks.
-Confirm that approval from senior management has been obtained before establishing or continuing a business relationship with a high-risk client.
-Gather source of wealth information for the client and, if applicable, the beneficial owner.
-Obtain source of funds information for the client and, if applicable, the beneficial owner.
-Provide details on the nature of enhanced ongoing monitoring of the business relationship.
Section I: Inability to Complete Client Due Diligence Measures (Rule 15; PD 3.15)
In situations where it is not possible to complete certain due diligence measures within the required timeframe, this section provides guidance on deferring completion while maintaining risk management. It underscores the importance of establishing internal risk management policies and promptly completing outstanding measures.
Provide comments and reasons if there is an inability to complete certain client due diligence measures within the required timeframe. Explain the deferral process for completing these measures as soon as reasonably practicable.
Section J: Approvals
This section emphasises the significance of approvals from key stakeholders, including engagement lawyers, compliance officers, and senior management. It highlights the need for certifications and signatures to ensure accountability and compliance throughout the client due diligence process.
-Include certifications and signatures by the engagement lawyer, confirming the correctness and accuracy of the information provided.
If applicable, obtain approval and signature by the compliance officer.
Include approval and signatures by senior management, confirming approval for establishing or continuing a business relationship with high-risk clients.
Remember to adapt and customise this checklist to suit the specific requirements and regulations of your law firm in Singapore. This guide has been compiled using Law Society of Singapore.
In conclusion, this comprehensive Client Due Diligence Guide equips law firms in Singapore with the necessary knowledge and tools to fulfill their obligations and combat money laundering and financial crimes. By following the guidelines and checklists provided, law firms can ensure compliance, safeguard their reputation, and contribute to the integrity of the legal profession.
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