Law firms fail to tackle money laundering robustly

A significant number of law firms are not doing enough to prevent money laundering, with some falling seriously short, leading to disciplinary action by the regulator

The Solicitors Regulation Authority (SRA) review focused on 59 law firms providing trust and company services, one of the legal service areas highlighted by the government as at highest risk of exploitation by criminals to launder money, and resulted in 26 firms entering disciplinary procedures.

Although the review did not find evidence of actual money laundering or that firms had any intention of becoming involved in criminal activities, it identified a range of breaches of the 2017 Money Laundering Regulations, as well as poor training and processes. This means firms could be unwittingly assisting money launderers.

One of the biggest areas of concern was firms’ risk assessments, where more than a third (24) of firms fell short. This included four that had no risk assessment at all.

There were also issues around appropriate customer due diligence. Almost a quarter (14) firms were judged to have inadequate processes to manage risks around politically exposed persons (PEPs).

However, the regulator also found that in some instances effective customer due diligence did result in firms turning down work. Fifteen firms had done this, with one of the main reasons being evasive clients.

Overall, only ten firms - a sixth of the sample - had submitted suspicious activity reports (SARs) in the last two years. The SRA said this tallies with concerns raised by the National Crime Agency (NCA) that generally law firms are not being proactive enough in looking to identify and then report suspicious activity.

As a result of the review the SRA 26 firms into disciplinary processes, and has published a warning notice reminding the profession of their obligations, particularly in relation to firm risk assessments.

The SRA, which regulates some 7,000 law firms that come under the scope of the 2017 Money Laundering Regulations, has also begun a further review of 400 other law firms to check compliance.  This review will be led by a new dedicated anti-money laundering unit, being set up to bolster resources to prevent and detect money laundering.

Paul Philip, SRA chief executive, said: ‘Money laundering damages society, supporting terrorists, drug dealers and people traffickers. The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime its supports.

‘Most solicitors take their responsibilities seriously, but too many firms are falling short. Those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.’

Last month the new watchdog, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), which has oversight of the 22 anti-money laundering (AML) supervisors in accountancy and law, published its first report.  This was highly critical of the work of both the accountancy and the legal professional services bodies in this area. The Treasury select committee has also raised concerns about what MPs saw as weaknesses in the current anti money laundering regime.

SRA thematic review of trust and company service providers

Pat Sweet

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