KYC and anti-money-laundering (AML/CFT) in escrow by a lawyer

KYC cannot be understood in isolation: it is the first link in a broader system, anti-money-laundering and counter-terrorist-financing (AML/CFT). When a lawyer handles funds as part of an escrow, they apply this system at every stage of the matter.

AML/CFT, the bedrock of the escrow agent's obligations

The lawyer who receives, holds and releases funds on behalf of third parties is a professional subject to AML/CFT rules. This status imposes on them duties of vigilance towards their clients and the transactions they secure, of which KYC is the most concrete expression.

The three stages of vigilance

• Identification: gathering the identity of the parties and, for legal entities, that of the ultimate beneficial owners;
• Verification: checking these elements by means of probative documents and understanding the purpose and nature of the transaction;
• Ongoing vigilance: monitoring the relationship and the transaction over time, and updating the information if the context changes.

A risk-based approach

Due diligence is not uniform: it adjusts to the level of risk. A simple transaction between clearly identified parties calls for standard vigilance; a complex structure, a high amount, a cross-border dimension or the presence of a politically exposed person (PEP) justify enhanced vigilance, with additional checks on the source of funds and source of wealth.

Confidentiality and suspicious activity reporting

The information gathered is covered by the lawyer's professional secrecy and processed in accordance with the GDPR. The AML/CFT system nevertheless provides, in cases strictly circumscribed by law, for an obligation to file a suspicious activity report with the competent authority. This interplay between confidentiality and vigilance lies at the heart of the escrow agent's role.

What this changes in practice for your transaction

For the parties, the AML/CFT framework translates into a request for documents up front and, sometimes, into questions about the source of funds. Far from being a brake, this due diligence secures the transaction: it ensures that the escrowed sums are lawful and traceable, and that their release cannot be challenged. When properly anticipated, it fits naturally into the timetable of the matter.

Fidens sets up the escrow on a CARPA account, incorporating from the outset the KYC and AML/CFT due diligence suited to your transaction.