The Legal Services Council has published a new information sheet to assist law practices with the costs of complying with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and to provide guidance about how these costs should be treated under the Legal Profession Uniform Law (Uniform Law).
The key principle is that law practices cannot automatically pass AML CTF compliance costs on to clients. Whether a cost can be billed depends on its nature, the client’s agreement, and compliance with the Uniform Law. Legal costs charged to a client must generally fall within two recognised categories: professional fees or disbursements.
Other AML CTF expenses are properly categorised as overheads, which are the ordinary costs of running a law practice.
Costs incurred before formal engagement
The LSC cautions that special care is required with initial client due diligence conducted before the client formally engages the law practice. Such costs may only be recovered if they were incurred for the purpose of providing legal services to that specific client and were clearly disclosed and agreed to in advance.
If the prospective client decides not to retain the law practice, or if the costs were not properly disclosed, the firm should generally not seek reimbursement.
The Uniform Law requires law practices to disclose legal costs to clients upfront and ensure that all costs are fair, reasonable, and proportionate. Failure to comply with disclosure obligations can result in a costs agreement being declared void and may expose practitioners to disciplinary action.
Charging costs that are excessive, unreasonable, or improperly characterised may also constitute unsatisfactory professional conduct or professional misconduct.
AML CTF overheads
Examples of AML CTF compliance costs ordinarily regarded as overheads include AML CTF software subscriptions, salaries of compliance officers, secure record-keeping systems, staff training, maintenance of AML CTF programs, annual compliance reporting, board reporting, and the preparation and lodgement of Suspicious Matter Reports (SMRs).
Activities that are likely classed as overheads include drafting risk assessments, updating policies and maintaining compliance systems.
These costs relate to the general operation and regulatory compliance of the law practice rather than a specific client matter and should typically be absorbed into the firm’s fee structure (hourly rates or fixed fees) rather than itemised on client bills.
Importantly, SMR-related work should not be charged to clients because an SMR is not undertaken for the client’s benefit. Charging a client for SMR-related work may also risk breaching statutory “tipping-off” prohibitions under the AML CTF Act.
Professional fees
Professional fees are charges for legal work performed for a client, such as work billed at hourly rates, daily rates, or fixed fees.
Professional fees for AML CTF-related activities undertaken for a specific client matter include:
- conducting ongoing customer due diligence
- preparing client-specific risk assessments
- undertaking enhanced due diligence for high-risk clients
- verifying complex ownership structures
- advising clients on AML CTF obligations
- analysing sources of funds or wealth
- conducting matter-specific monitoring
- responding to AML CTF issues arising during the retainer.
Such charges must be properly disclosed and remain fair and reasonable. If the task is administrative, in many cases it may be more appropriately carried out by a paralegal rather than a lawyer.
Disbursements
Disbursements are amounts paid or payable by the law practice to third parties on behalf of a client, specific to the client’s matter. Certain AML CTF expenses may be charged as disbursements including:
- company and ASIC searches
- electronic identity verification checks
- sanctions and politically exposed person (PEP) screening
- beneficial ownership searches
- international database searches
- credit reports
- corporate intelligence reports
- document authentication services
- reasonable costs incurred in obtaining personal information.
These costs can only be recovered where they are properly and accurately attributed to the client’s matter and represent actual third-party expenses.
For more information on all things AML CTF, visit the Law Society’s AML CTF hub.
