The anti-money laundering/counter-terrorism financing (AML/CTF) regime has introduced a new set of compliance obligations for law practices, and with them, a new question: Can the costs of AML/CTF compliance be billed to clients, and if so, how?
The Legal Services Council has recently published general guidance on AML/CTF Act compliance and billing practices under the Legal Profession Uniform Law (NSW) (Uniform Law). Law practices are encouraged to read the guidance when considering whether and how AML/CTF compliance costs may be charged to clients.
An important reminder is that the introduction of AML/CTF obligations does not displace the usual costs obligations that apply to legal practices under the Uniform Law.
The starting point
Unless an exception applies, a law practice must comply with the requirements of the Uniform Law, including to:
- provide the client with a disclosure about the basis on which legal costs will be calculated an estimate of the total legal costs under section 174; and
- ensure that legal costs are no more than fair and reasonable in all the circumstances and are proportionate and reasonable under section 172.
When an AML/CTF compliance cost arises, instead of asking “can this cost be billed to my client”, more appropriate questions to consider are:
- What is the cost for, and who is it properly attributable to?
- Is it fair, reasonable, and proportionate?
- Does the client understand what they are being charged for?
- Has the cost been disclosed?
Keep costs disclosure meaningful
Costs disclosure should not be a tick-box exercise.
Costs disclosure must be contextual, clear, and meaningful rather than a mere administrative exercise. In Todorovska v Brydens Lawyers Pty Ltd [2022] NSW NSWCA 47 it was considered that whether a costs disclosure was effective was to be determined by the context in which it occurred. A law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed costs. What is considered reasonable will depend on the client and the context in which disclosure was made.
When talking to the client about costs, keep it simple.
Does the client understand what they are paying for? Is the charge reasonable? Does it relate to the specific client or matter? Has the cost been clearly explained?
The aim is not simply to give the client a document containing the required information. The aim is to make sure the client understands what they may be charged and why.
Please refer to previously published articles What should I put in a costs agreement? and The forgotten disclosure? for further information.
The takeaway
Although AML/CTF compliance costs may be charged to clients in appropriate circumstances, they should not be charged automatically. Law practices should consider the bigger picture requirements of the Uniform Law and ensure that any costs charged are fair and reasonable in all the circumstances, proportionately and reasonably incurred, and proportionate and reasonable in amount.
Further guidance
Practitioners in need of assistance in matters concerning legal costs are encouraged to utilise the costs resources available on the Law Society’s website. The Law Society’s Costs Guidebook (8th ed.) provides helpful guidance to practitioners on a range of topics in costs, including in relation to client engagement and costs disclosure. The Law Society’s Costs Committee has also prepared an updated Costs disclosure and costs agreement precedent.
For further guidance, please contact the Costs team of the Professional Support Unit (PSU) by emailing costs@lawsociety.com.au or calling (02) 9926 0116. PSU provides free and confidential guidance to legal practitioners in the areas of AML/CTF, costs, ethics and regulatory compliance.
