Simplifying anti-money laundering obligations for corporate M&A lawyers

Corporate mergers and acquisitions (M&A) lawyers must understand and verify who they are working with to meet compliance requirements.

But, for many M&A lawyers, this can be a challenge because of complex ownership structures and interlinked businesses and people. However, new tools and methods can simplify this process enabling lawyers to know their clients and reduce their fraud and money laundering risk.

What’s the issue?

Any transaction or deal increases the risk of fraud and money laundering. When money is changing hands, such risks become significant.

Given this, lawyers advising firms on acquisitions, sales or mergers are exposed to increased risks and potential fines or penalties.

To reduce this risk, lawyers must understand and verify their clients. They must take ‘reasonable measures’ to discover the ultimate beneficial owner (UBO) of any deal or transaction to help prevent fraud and money laundering.

The closer lawyers are to the UBO, the more they can trust the information they receive and the less likely they are to fall foul of the regulations.

However, for M&A lawyers, this can be challenging. Some companies may have complex ownership structures involving multiple businesses and people - all requiring verification.

Such complexity takes time to resolve, adding a significant burden for already busy lawyers and their firms, and may leave the lawyer or firm open to significant fines or penalties if they fail to verify the identities of the directors and the UBO.

Indeed, many corporate lawyers deal with businesses with several layers of ownership across multiple jurisdictions. For example, Thirdfort worked with a corporate law firm to untangle the structure of a seemingly straightforward small food business, which had ten layers of ownership across four countries and in several tax havens.

What’s the impact?

Unravelling such ownership structures and verifying the identities of all involved is time-consuming.

To do so, corporate lawyers will need to understand and identify the directors and owners of each business within the ownership structure.

To gain this understanding, lawyers must investigate relevant business registers such as Companies House and overseas equivalents.

For those businesses in foreign jurisdictions, even researching such registers can be difficult. For instance, some registers may not be kept up to date, forcing lawyers to double-check all information with those involved, adding further time and complexity to the due diligence process.

After the business ownership has been examined and verified, lawyers must verify the individuals involved. This process requires checking all individuals’ identity documents, such as passports, proof of address and other essential information.