Lawyers and Accountants - Is receiving funds for disbursements considered to be ‘managing client funds’?

In recent audits of law firms we established that they were not conducting customer due diligence when anticipated disbursements were received in advance. The cause for this appeared to be advice received from external consultants deeming this to not be a captured activity.

DIA has issued guidance on this and has confirmed that if you receive funds in advance to be used for anticipated disbursements (not including fees for your own professional services) this will be ‘managing client funds’

DIA’s Guidance

Whether receiving funds from clients for disbursements is captured under the AML/CFT Act depends very much on the context.

In summary, where you receive funds in advance to be used for anticipated disbursements (not including fees for your own professional services) this will be ‘managing client funds’. However, if you pay a disbursement on behalf of your client before they have paid you, then you are not managing your client’s funds. Rather, you are paying with your own funds. If you then invoice the client and they reimburse you, this is repaying a debt owed to you.(via DIA)