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Money laundering review finds most law firms doing well but urges others to comply

7th Mar, 2018 / Authorities & Faculties, News
  • Review of law firms finds most tackling money laundering risks, but some have more to do to meet new regulations
  • New warning notice and guidance highlight key risks
  • Strong action taken against 49 solicitors, with eight firms closed down in last three years

Our review of 50 firms has shown that although most law firms are doing what is needed to tackle money laundering, some need to do more.

The review of firms – large and small – explored the profession’s compliance with the more stringent demands of the Money Laundering Regulations 20171, introduced last June.

It also found most were taking appropriate steps to understand and reduce the risk of money laundering. This included doing appropriate customer due diligence, using a variety of ways to establish the source of a client’s funds and wealth, and good training processes.

Yet there were areas of concern. Not all firms were keeping records of their decisions and only 69 percent of files reviewed had written evidence that the level of risk was assessed. Despite being a requirement, only a third – 17 firms – had a firm-wide risk assessment in place or were in the process of implementing one. At the time of the review firms had only had limited time to implement the new regulations, but we expect firms to move towards compliance as a matter of urgency.

We had serious concerns about the processes and practices of six firms it reviewed. They are now in ongoing disciplinary processes.

More broadly, in the last three years in cases linked to potential improper money movements2, we have closed-down eight firms, with another 14 closing down voluntarily, and has referred 49 solicitors and two other firms to the Solicitors Disciplinary Tribunal. This has resulted in 12 strike offs, 13 suspensions and fines of more than £800,000.

As a result of these findings, we have issued a warning notice further highlighting potential indicators of money laundering or criminal activity. It warns firms to remain vigilant and look out for signs such as overly secretive clients, high value cash transactions and clients acting through third parties. Firms should report suspicious activity.

To help firms better protect themselves, we have also issued guidance highlighting key changes in the regulations. These include the need to have records of all staff training, a Money Laundering Compliance Officer (MLCO) on the board of directors, and to identify domestic, as well as foreign, politically exposed persons.

This guidance is complemented by our sectoral risk assessment, which identifies the five main risk areas, such as types of clients, legal services and transaction.

The National Crime Agency has said that money laundering is likely to cost the UK more than £24 billion a year, and is a major source of financing for criminal activity.

“The credibility of law firms makes them an obvious target for criminals wishing to launder money. Tackling it is crucial not only to maintain trust in the profession, but also for the good of society. Money laundering is not a victimless crime – it helps fund terrorism and those involved in drug trafficking and people smuggling.

“We are encouraged that most firms seem to be on top of the issues, but all firms in scope must now comply with the new regulations. It is not enough to want to do the right thing. Weak processes or undertrained staff leave the door open for criminals. If firms do not step up and treat this issue with the seriousness it deserves, we will take action.”

Paul Philip, SRA Chief Executive

1. The Money Laundering, Terrorist Financial and Transfer of Funds (Information on the Payer) Regulations 2017 came into effect in June 2017. The regulations apply to around two-thirds (around 6,700) of law firms the SRA regulates in England and Wales. These provide services that are most likely targeted by those wishing to launder money.

2. Note these cases do not necessarily involve evidence of actual money laundering. our rules and money laundering are preventative and can be breached without there being evidence of actual laundering.

Contributor: Solicitors Regulation Authority

Website: www.sra.org.uk

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