Two different uses of trust
A professional trust account holds client money for a service. A trust customer is a legal arrangement with trustees and people who own, control or benefit from it. The account name does not tell you which customer checks apply.
A client-money account can serve individuals, companies or trusts. If the customer is a trust, use the trust customer checks as well as examining how the account is used.
Sources: AUSTRAC: Item 3 scope; exemptions under subsection 6(5C); AUSTRAC: Matters you must establish; Why these matters are so extensive.
- Client-money account
An account holds money for a professional service. Examine the service and use of the funds.
- Trust customer
A trust is a customer arrangement. Examine the trustees and people who own, control or benefit from it.
Separate the account from the customer
These are different questions. The account name and the national risk of trusts do not give every account or customer an automatic high risk rating.
Separate evidence questions. An answer to one does not settle the others.
When handling money can be a designated service
Item 3 can cover receiving, holding and controlling, or managing, client money or property to directly advance a transaction in the course of business. The service conditions and exceptions matter.
The incidental-payment exception requires both that the business provides no other designated services and that the payments are reasonably incidental to a non-designated service. It does not cover use of the account as a substitute bank account.
Other exceptions can apply, including specified payments and rental income or expenses managed through a real estate trust account. Check the actual facts against the current guidance. Keep a record of the scope decision.
Source: AUSTRAC: Item 3 scope; exemptions under subsection 6(5C).
What can make client-money activity concerning?
Look for transfers with no clear connection to the service, complicated movements that hide the funding source, and structures that obscure beneficial ownership. AUSTRAC lists relevant indicators for legal professionals.
An indicator calls for examination. It does not prove money laundering. Compare the payer, customer, recipient, amount and purpose with what the business reasonably expects.
Source: AUSTRAC: Service risk; indicators involving trust accounts and complex structures.
Are all trusts or trust accounts high risk?
No. AUSTRAC distinguishes the high national risk of trusts from the risk of a particular trust customer. Customer risk depends on the circumstances, including complexity and transparency of ownership and control.
That national finding concerns trust structures. It does not establish an automatic rating for every professional client-money account. Assess the services and customers in the business risk assessment, then apply the relevant customer risk and enhanced CDD rules.
Sources: AUSTRAC: Matters you must establish; Why these matters are so extensive; AUSTRAC: Identify and assess your risks.
Invented example: an unexplained payment request
A fictional practice holds funds for a property transaction. The client asks it to send some funds to an unrelated company for a purpose that is absent from the file.
The reviewer checks the instructions, authority, recipient and transaction purpose. The reviewer records missing evidence and refers the matter through the practice’s procedure. These are suggested steps for the example.
A reconciled account alone does not explain the payment. If suspicion arises, examine the suspicious matter reporting test and the limits on customer communications. This example does not decide whether a report is required.
Sources: AUSTRAC: Service risk; indicators involving trust accounts and complex structures; AUSTRAC: When to submit.