Money laundering has been the subject of extensive regulation around the globe. Whilst money laundering is by no means a new concept, the highly globalised society in which we live, carrying with it the advancements in communication and transportation, has allowed financial crimes to transcend all geographical and practical barriers. As a result, the risks associated with money laundering have become quite pervasive.
The legal profession plays a crucial facilitative role for money laundering operations, and since lawyers may become, knowingly and unknowingly, implicated in such financial crimes, they have also fallen within the scope of regulation.
On 17 February 2021, the Bahraini Ministry of Justice, Islamic Affairs and Endowments (the “Ministry”) issued Decision No. (14) for the Year 2021 Regarding the Procedures to Prohibit and Combat Money Laundering, Terrorist Financing and the Illegal Transfer of Funds Across Borders in the Legal profession and Foreign Law Firms Operating in Bahrain (the “Decision”). The Decision has heightened the urgency of combatting money laundering and has placed obligations onto firms as well as individual lawyers. In this article we provide an overview of these obligations and note the main implications arising for the legal sector in the Kingdom of Bahrain.
By virtue of Articles 3 and 4, Legal Professionals as well as Foreign Law Firms are required to take the following steps in compliance with the Decision:
- Nominate a partner as a General Officer to be responsible for the implementation of the Decision’s provisions. The Monitoring Unit within the Ministry is informed of this nomination, and the partner becomes accountable before the Ministry.
- Ascertain and verify the accuracy of all information provided by the client in relation to his/her identity and the identity of the Ultimate Beneficiary, and to record that information on the registers utilized by the Ministry. The Ultimate Beneficiary is a concept worthy of elaboration. Any person, be it apparent or unidentified, who has the power to control and influence a company/legal person in a direct manner or by way of financial contributions, his assets or any other means or who benefits from the business transactions of the legal person is treated as an Ultimate Beneficiary and
therefore must be identified. This is noteworthy as it adds a further element of information-gathering, and that information shall be within the Ministry’s possession. The intention is to remove any potential element of anonymity.
- Inform the Enforcement Unit and Monitoring Unit within the Ministry regarding any information suspected of being inaccurate.
- Never deal with anonymous individuals or those who refrain from identifying themselves or the Ultimate Beneficiary.
- Freeze any money and cease all legal work which pertains to any individual or entity identified in the Sanctions List, which consolidates those who have been blacklisted by the UN Security Council, or those listed in the Bahrain Terrorist List published by the Ministry of Foreign Affairs.
- Never disclose to clients any suspicions of them engaging in an offence pursuant to Article 2(1) of Law No. 4 of 2001 With Respect to the Prevention and Prohibition of Money Laundering (“the Law”). This obligation is not a particularly novel one. It is already on offence under Article 2(5) of the Law to tip off a person since that would inevitably prejudice an investigation. The Decision
merely places the legal profession on the spotlight owing to their facilitative role in money laundering transactions.
- Never disclose to clients any sanction that has or shall be carried out against them pursuant to the Law.
- Adopt a business account under a bank approved by the Central Bank of Bahrain (CBB) where funds are to be transferred only to that account, and in any event, not to receive cash payments in excess of Bahraini Dinars 1,000.
- Establish an electronic database that records the client’s details, subject matter and funds transfer transactions numbers.
- Consult a licensed financial auditor and subsequently present to the Monitoring Unit a financial audit on the firm’s accounts within three months of the end of the year.
Moreover, by virtue of Article 6, Legal Professionals and Foreign Law Firms are required to nominate a Compliance Officer who must complete a course specified by the Monitoring Unit on measures to combat money laundering, terrorist financing and illegal cross-border transfers. This Officer is expected to act in an independent and partial manner as he/she is required to report to the Enforcement and Monitoring Unit if a Legal Professional or the Foreign Law Firm falls short of its obligations. The Officer should ensure that there has been adequate training for those at the firm. The above obligations are among the notable aspects of the Decision. Many of these obligations are motivated by enhancing the security and trustworthiness of the legal profession in the Kingdom of Bahrain in combating money laundering.
Specific due diligence obligations
Due diligence is undoubtedly an intrinsic process in the legal profession as it is at this stage where money laundering may be discovered and combatted. Prior to this Decision, the legal landscape in Bahrain has recognized a distinction between standard and enhanced due diligence, particularly in Decision No. (20) for the Year 2019 on the Issuance of Guiding Principles for the Prevention and Combatting of Money Laundering, which was also aimed at the legal industry. It is therefore not a novel contribution, nor is it exclusive to the legal profession. Previous ministerial decisions have addressed financial auditors and the real estate sector in this regard (Decision No. (108) for the Year 2018 and Decision No. (3) of 2019, respectively). However, the latest Decision
delineates in Article 5 the circumstances which require this higher level of due diligence in the legal industry.
In accordance with Article 5, professionals in the legal industry are obliged to carry out enhanced due diligence in the following circumstances:
- High-Risk Individuals. This applies when a Lawyer deals with a client who is in a high-ranking position, such as a politician, judge, religious figure, member of a legislative body, diplomat or artist, and is not asked to assist in personal status matters.
- Blacklisted Persons. This occurs where the client falls under the Bahrain Terrorism List (as published by the Ministry of Foreign Affairs) or Sanctions List of the UN Security Council.
- Client is not the Ultimate Beneficiary.
- Scope of work is of a Private nature. This ground covers a wide array of work. When a legal profession is asked to assist in a sale or purchase of real estate, management of the client’s finances or accounts, the establishment of legal persons, its management or dissolution, or will be receiving funds via bank transfer or cash in order to transfer to a third party through another Legal Professional, that would carry an obligation for enhanced due diligence.
- Legal Work relates to a High-Risk Country. High risk countries are listed by the Financial Action Task Force (the “FATF”). This provision operates where: (i) a client’s nationality is that of a country listed by the FATF, (ii) the client is a resident there or (iii) the money originates from or will be directed to a country that has been listed by the same.
- The work requested carries a high risk of financial crime. This operates as a general catch-all clause that is intended to have a broad scope.
Enhanced due diligence
Article 5 continues by offering guidance on the performance of enhanced due diligence which operate parallel to the standard due diligence procedures. In addition to the standard due diligence procedures required to be performed by legal professionals including verification of client details,
legal professions must, in circumstances necessitating the carrying out of enhanced due diligence, take the following additional due diligence steps:
- Obtain further information on the identity of the client and the Ultimate Beneficiary including their digital identity provided it is compliant with the FATF publications. Legal professionals are obliged to inform the Enforcement and Monitoring Unit on any details suspected of being inaccurate.
- Ensure the suitability of the legal work sought in light of the activities pursued by the client.
- Enquire about the source of finance and purpose of the legal work sought, especially with regards to High-Risk Individuals.
- Seek clarification on the objective of complex transactions where it is unclear.
Penalties and Enforcement
The Decision refers to the penalties prescribed by the Law for any contravention of the provisions of the Decision. In accordance with Article 2 bis of the Law, violators may be faced with imprisonment and/or a fine not exceeding BHD100,000 and an administrative fine not exceeding
Next Steps for Legal Professionals
As a result of this Decision, lawyers will become more accountable for any oversight in the combat against money laundering and terrorist financing.
The key themes in this piece of reform are increased transparency and accountability. This was achieved primarily by the obligation to nominate a General Officer, Compliance Officer (and the latter having to maintain a sense of independence) and the requirement to submit financial audits.
The Decision has also led to changes within the Ministry, namely the establishment of the Enforcement and Monitoring Unit, who will expect Legal Professionals to notify them of any suspicions within 24 hours, and to also send a report in the format appended to the Decision. We
summarise below the main steps to be taken in the wake of the Decision:
- Nominate a General and Compliance Officer. The officer will ensure implementation of provisions and who shall be accountable before the Ministry.
- Endeavour to produce financial audits of the firm’s accounts.
- Ensure adequate training and awareness of prescribed anti-money laundering procedures to Legal Professionals at the firm.
- Establish a dedicated client account under a CBB approved bank.
- Maintain communication with the Ministry as many of the obligations prescribed have referred to the Enforcement and Monitoring Unit.
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