Risks Associated with Money Laundering and Terrorist Financing

Professional Service Providers — Overview

Objective. Assess the adequacy of the bank’s systems to manage the risks associated with professional service provider relationships, and management’s ability to implement effective due diligence, monitoring, and reporting systems.

A professional service provider acts as an intermediary between its client and the bank. Professional service providers include lawyers, accountants, investment brokers, and other third parties that act as financial liaisons for their clients. These providers may conduct financial dealings for their clients. For example, an attorney may perform services for a client, or arrange for services to be performed on the client’s behalf, such as settlement of real estate transactions, asset transfers, management of client monies, investment services, and trust arrangements.

A typical example is interest on lawyers’ trust accounts (IOLTA). These accounts contain funds for a lawyer’s various clients, and act as a standard bank account with one unique feature: The interest earned on the account is ceded to the state bar association or another entity for public interest and pro bono purposes.

Risk Factors

In contrast to escrow accounts that are set up to serve individual clients, professional service provider accounts allow for ongoing business transactions with multiple clients. Generally, a bank has no direct relationship with or knowledge of the beneficial owners of these accounts, who may be a constantly changing group of individuals and legal entities.

As with any account that presents third-party risk, the bank could be more vulnerable to potential money laundering abuse. Some potential examples of abuse could include:

  • Laundering illicit currency.
  • Structuring currency deposits and withdrawals.
  • Opening any third-party account for the primary purpose of masking the underlying client’s identity.

As such, the bank should establish an effective due diligence program for the professional service provider as summarized below.

Risk Mitigation

When establishing and maintaining relationships with professional service providers, banks should adequately assess account risk and monitor the relationship for suspicious or unusual activity. At account opening, the bank should have an understanding of the intended use of the account, including anticipated transaction volume, products and services used, and geographic locations involved in the relationship. As indicated in the core overview section, “Currency Transaction Reporting Exemptions,” page 86, professional service providers cannot be exempted from currency transaction reporting requirements.


< Previous Page
Non-Bank Financial Institutions - Examination Procedures
Next Page >
Professional Service Providers - Examination Procedures