The Department of Internal Affairs says that whether receiving money from clients by lawyers or conveyancers falls into the category of 'captured activity' under the AML/CFT, depends very much on context.
This is not a straightforward topic, it says but DIA is providing this example which it says is not to be considered legal advice but does represent the current DIA supervisory position.
Wire transfer of >$1000 received from overseas into a solicitor’s trust account
DIA says if a law firm receives money from a client as a retainer to be held and then used to meet subsequent disbursement payments for its client, this is a captured activity and the law firm is likely to be a beneficiary institution of an international wire transfer. It says this is because the funds are held in trust for the client, (the beneficiary/payee of the funds), pending their future use. On this basis, a PTR is required in which the client is likely to be reported as the beneficiary.
It says that where money is received from a client to settle expenses that the law firm has already incurred on behalf of the client, this does not constitute ‘managing client funds’, so it is not a captured activity. DIA says this would include disbursements billed to the client for stationery, registration fees or other matters where the law firm subsequently invoices the client to recoup its own expenditure. It says no PTR is required.
Wire transfer of >$1000 made from a solicitor’s trust account to an overseas payee
In this situation, where a law firm transfers client money held in its trust account out in order to make those funds available overseas to pay for disbursements on behalf of the client, the law firm is likely to be the Ordering Institution of an international wire transfer. It says this is because the client’s funds are being used (on the client’s instructions) to pay a beneficiary (the payee to whom the disbursement is to be paid) at another reporting entity offshore. It says a PTR is required, with the client being reported as originator and the recipient of the disbursement as beneficiary.
DIA says if a law firm transfers money held in its trust account overseas to pay disbursements for a client, but the funds are not yet received from the client into its trust account, the law firm does not meet the definition of ‘Ordering Institution’ of an international wire transfer. Rather, it says, in relation to this payment to a beneficiary overseas, the law firm is (the originator and) acting on its own behalf (albeit for which its client will be subsequently be billed). DIA says no PTR is required in these circumstances.