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SRA warns Solicitors against Charging Clients for Money Laundering Checks
In a report published on 12th May the Solicitors Regulation Authority has warned firms against charging clients for the anti money laundering checks that they are in some cases required to carry out, and that by doing so they may be breaking the rules. Because the work is done to comply with a legal requirement rather than for the direct benefit of the client it should not be passed on to the client and should ordinarily be treated as part of the firm's overheads.
A full extract from the report follows -
"On a number of our visits we noted that some firms were charging their clients the cost of undertaking CDD [client due diligence]. In relation to regulated activity and in accordance with the MLRs [Money Laundering Regulations], law firms are legally required to undertake CDD. It is our view that the cost of undertaking CDD cannot therefore be treated as a disbursement, since it is not a cost incurred on behalf of the client. Firms will be at risk under Outcome (8.1) [of the Solicitors Code of Conduct] if CDD payments are described in their bills to clients as disbursements. As a general rule, we would expect such charges to form part of a firm's overheads. There may on occasion be circumstances in which the cost of the CDD is particularly high (for example, when you have to carry out an overseas company search) and firms may wish to seek agreement with their client that the cost will be payable by the client."
"In order to comply with Outcomes (1.12) and (1.13) firms should explain the likely cost with their client and obtain their client's informed consent at the outset of the retainer. If the client agrees to meet the cost of the CDD then firms should record it in their bill as part of profit costs. Some firms undertake CDD for all clients as a matter of course, irrespective of the nature of the retainer and whether it is a requirement of the MLRs. Whilst there may be good reasons for doing this, it is questionable as to whether there would ever be justification for passing the cost on to the client where such checks are not a requirement, even if the client agrees"