How Notaries Assist Anti-Money Laundering Efforts Through Customer Due Diligence

We ask not because we're curious, but because we have to.

Much to the annoyance of notaries and their clients alike, I’m afraid that the reason I, and all other notaries, ask clients for information about their personal life and financial history is not out of curiosity, but rather, the law.

I completely understand that it is annoying to divulge certain details to a notary that may or may not be a perfect stranger to the client. However, notaries have a central role to play in anti-money laundering (AML) efforts and the funding of illegal gains. According to the law, notaries have the legal responsibility of scrutinizing their clients through what are referred to as customer due diligence protocols.

The present legal provisions oblige notaries to carry out a number of procedures to prevent illicit actions by means of customer due diligence, record keeping, training of employees and internal and external reporting.

Customer Due Diligence Protocols

As a subject person, a Notary is legally bound to hand out specific forms to be filled in during the proceedings of a new transaction, as this detailed information helps to assess the nature of the deal. All necessary information is collected and a record of the procedures is kept.

It is a notary’s duty to obtain satisfactory evidence of clients’ identities and sometimes even people related to them. Occasionally, the notary may also need additional information or documentation in the context of the particular transaction. It is understandable that clients may feel uncomfortable with the process of Customer Due Diligence (CDD). It is an unpleasant thing for most notaries too!

Being compelled to perform meticulous background checks on clients is uncomfortable, taxing and could cause adverse effects to the relationship. However, this procedure is considered protocol since particular transactions involving a notary may be used to carry out illicit and criminal activities.

Consequently, the notary must ask for proof of identity upon the first client meeting and may also require a confirmation of one’s permanent residence by means of additional documentation, such as a recent utility bill. It is also common practice that the notary would ask for proof of provenance and origins of funds. This procedure is in line of Legal Notice 108/2008, in which the Notary is considered to be a subject person and is duty bound to ensure that proper Customer Due Diligence protocol is followed through.

Anti-Money Laundering Obligations

Perhaps the greatest need for Customer Due Diligence stems from the necessity to tackle illegal money laundering practices. Customer Due Diligence is central in combating the practice of generating income through illegal methods.

Law and regulations have been established to ensure that money that is gained through unethical practices can be detected. This saw the inauguration of the anti-money laundering legislation which empowers professionals to identify customers, carry out thorough background checks and report any suspicious activities.

Anti-money laundering legislation has gained international notability, and on a European level, the EU introduced an anti-money laundering directive in 2015 which aimed to prevent the use of financial systems for the purposes of money laundering or funding terrorist activities.

Locally, Malta has also adopted the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR), which is modelled upon the principles of the European Union’s Directive. The Act outlines what constitutes money laundering, establishes the obligations of financial institutions as well as legal persons and the competences of the Police and the Attorney General in cases when a person is suspected of being involved in money laundering.

Under Maltese law, anyone who carries out any form of financial activity is subject to the anti-money laundering obligations. In this vein, notaries have been placed at the pivot of these pre-emptive measures. Since the Maltese Act identifies financial transactions, access to savings and current accounts and overviewing the financial conditions of clients as a relevant activities, inevitably, notarial practices fall within the scope of the Act.

Because of this situation, notaries find themselves in a predicament between professional secrecy between customer relations and legal obligations towards anti-money laundering measures. Anti-money laundering and Customer Due Diligence thus work in tandem with one another whereby the procedures of the latter are precautions towards any criminal financial activity.

Compliance towards Customer Due Diligence is therefore obligatory and deemed necessary in order to clear any form of foul play and illegality. Nevertheless, despite the strain on the professional relationship between client and notary, it is essential to keep in mind that all information and documentation obtained in the course of these obligations is strictly confidential and tied with professional secrecy.

A Sign of Good Conduct and Professionalism

Notaries have a duty to adhere to the regulations of anti-money laundering provisions. Through procedures that are collectively known as Customer Due Diligence protocols, notaries can help prove that financial activity originated from legitimate sources.

Although these procedures can sometimes be uncomfortable and possibly put a strain on client relations, they are also signs of personal good conduct and a commitment towards providing a reputable service as a notary.

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