Mark Boyle, policy lead on anti-money laundering for the SRA has stated that law firms must learn exactly where their clients’ money is coming from if they want to effectively fight money laundering.
The statement was made at the Regulator’s compliance conference.
Mr Boyle stated :
“The key is knowing who your client is and understanding who your client is and understanding why they have come to you – does it make sense?
‘You really need to be checking how did the person get their money? Be it through salary, investment or gifts. It can be many legitimate means, but you need to understand that and be evidencing that.”
Speaking at the same event, Helena Wood, an associate fellow with the Centre for Financial Crime and Security Studies added:
“It is not the complicit solicitor or compliance officer who are the full part of the problem here. I would say it’s the complacent, the unwitting and it’s the negligent that are really allowing people to access the financial and legal systems in this country. It is those that see compliance as a tick-box exercise.
‘If you want criminals to stop, what they really rely on is weak systems and controls, complacent compliance officers and those activities helping them access the credibility and respectability they need.”
Results from the SRA’s Anti-Money Laundering Visits 2019/20 Report
The results from the SRA’s Anti-Money Laundering Visits 2019/20 Report were published on 25 November 2020. From September 2019 to October 2020, the Regulator visited 74 law firms to review their AML policies and procedures and to see how these were being applied on a sample of the firm’s files.
Key findings of the report included:
- In most cases, the Regulator found firms were supportive of AML practices and took their compliance seriously.
- Over 50% of firms required follow-up action concerning the requirement for an independent audit of AML policies and procedures. It was observed that whilst there was a general understanding regarding the need to keep updating policies, controls, and procedures, several firms failed to monitor their effectiveness.
- One-fifth of the firms visited failed to conduct ongoing checks on employees.
- Almost a third of files (29%) had not had a matter-risk assessment carried out on them. This could result in matters that are at high risk of money laundering activities passing through the law firm unnoticed.
- In 21% of cases, the source of the client’s funds had not been properly checked. The SRA stated that failing to check the source of funds means it is unlikely that a proper risk assessment could be undertaken regarding the transaction.
The report concluded:
“When reviewing firms’ files, we found that in a large number there were differences between policies, procedures and what the money laundering compliance officer (MLCO) said should have happened, and what actually happened on the ground. This was often because the fee earners were not following procedures, something that could have been identified and rectified sooner if a compliant audit had been carried out.”
Given this analysis, are law firms risking inadvertently becoming embroiled in illicit money-laundering activities?
Are the SRA’s expectations regarding money-laundering reasonable?
The difficulty associated with anti-money laundering checks is that (to the best of my knowledge) clients do not make a habit of walking into solicitors’ offices with wheelbarrows full of cash. Therefore, it is difficult to see how the current due diligence process can be extended without:
a) being cost-prohibitive; and
b) deeply offending the majority of clients who are honest folk.
Furthermore, as educated professionals, most solicitors are highly attuned to situations that need further investigating. For most clients, examining mortgage applications and supporting documents (such as bank account statements) will show that income earned matches what is being spent/invested. If the source of the money being used is less obvious, greater due diligence is undertaken.
One way to mitigate the risk of laundered money passing through your firm is to invest in ongoing, extensive training for all staff members. Because they are your first line of defence for AML compliance.
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