The Best Defense: Increased Efforts to Research Your Clients

Welcome to the August 2023 edition of our newsletter!  In this issue, we’ll examine efforts to strengthen due diligence on clients in the face of increased regulatory pressure and a rise in financial crimes.

Homework Begins at Home: the Need to Perform Due Diligence on Clients

As new technologies create new opportunities for criminal activity, regulators and law enforcement have had to respond, leading due diligence professionals to increase scrutiny of their clients.  In an environment where cryptocurrency can create opaqueness concerning financial transfers – and where Congress is proposing legislation to hold lawyers, accountants and others liable if they fail in anti-money laundering efforts – the need for thorough due diligence has never been more acute.  Industry groups like the American Bar Association have changed their rules to require lawyers to consider various factors, including a potential client’s background, prior to representation.  This is an effort to stave off potentially more onerous requirements imposed via legislation, and also a response to international events which can compel sanctions on high net worth individuals.  Given the relative ease of using harder to trace decentralized finance methods, it is incumbent upon lawyers, their corporate clients, and the researchers they employ to understand a client’s public risk profile outside of “black box” payment methods like cryptocurrencies, if for no other reason than to show law enforcement or regulators that your priorities skew toward preventing fraud by all involved parties.