For many years now, we have been writing about how some UK law firms have struggled to stamp out money laundering and the ever-increasing pressure being imposed by the SRA on law professionals to do so. A recent SRA compliance case involving one of the top law firms in the UK, Mishcon de Reya, reveals that even those with the most resources can find themselves in breach of Anti-Money Laundering (AML) regulations. In this article, we will discuss the recent record-breaking fine by the SRA of Mischon de Reya and how your law firm can avoid an inadvertent breach of the AML rules and regulations.
SRA issues Mischon De Reya with a £232,500 fine for breach of AML regulations
On 20th December 2021, the SRA reached a Regulatory Settlement Agreement with Mischon de Reya following an investigation into breaches of AML regulations; these included (please note this list is not exhaustive):
- while undertaking work for two individual clients (and their corporate vehicles) between September 2015 and April 2017, including asset planning and acquisition planning:
- neither original hard copies (which appeared “to have been misplaced”) or electronic copies of customer due diligence (CDD) documents were retained
- enhanced customer due diligence (EDD) should have been carried out, and ongoing monitoring applied because the proposed acquisitions presented a “higher risk of money laundering or terrorist financing.”
- payments were made that did not relate to an underlying legal transaction for which the firm was instructed to undertake
- a property transaction whereby due diligence was not carried out for separate special purpose vehicles and the firm did not retain copies of some of the CDD information on the beneficial owner
- the firm was asked to provide its firm-wide risk assessment, as required by Regulation 18 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017), in September 2018, but they did not have this in place at the time (this was later prepared and submitted to the SRA in May 2019).
Following the investigation, Mischon de Reya was found in breach or did not meet the standards of several MLRs 2017 regulations, the SRA Accounts Rules 2011, the SRA Principles 2011, and the SRA Code of Conduct 2011.
The settlement between the law firm and the SRA included an agreement that:
- Mischon de Reya will pay a financial penalty in the sum of £232,500, pursuant to Rule 3.1(b) of the SRA Regulatory and Disciplinary Procedure Rules.
- the Regulatory Settlement Agreement will be published pursuant to Rule 9.2 of the SRA Regulatory and Disciplinary Procedure Rules.
- Mischon de Reya will pay costs of the investigation of £50,000, pursuant to Rule 10.1 and Schedule 1 of the SRA Regulatory and Disciplinary Procedure Rules.
How can your law firm ensure adherence to AML principles, rules, and regulations?
Managing and mitigating the risk of money laundering represents a sizeable financial and manpower investment for UK law firms that fall within the scope of AML requirements. The main areas of legislation that must be understood include:
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, (significantly amended by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 and the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
- Proceeds of Crime Act 2002 (POCA)
- Terrorism Act 2000 (TACT)
It is essential to check if you are required to adhere to AML regulations and rules based on whether you are classified as an independent legal professional, a trust and company service provider (TCSP), or a tax advisor and the scope of your practice.
If your law practice is in scope for AML checks, then it must:
- Provide up to date training on AML processes, regulations, and obligations – this should include providing guidance on how to recognise AML red flags
- Put in place a robust risk management process – this should ensure you carry out a regular and frequent assessment of your organisation’s AML risks and those of your relevant clients
- Put in place clear and consistent processes to ensure the identification and verification of clients and any beneficial owners of your clients
- Ensure that the source of any funds and wealth is verified where necessary
- Nominate a money laundering reporting officer (MLRO) whose role it is to inform the National Crime Agency where the proceeds of crime have been discovered
- Where relevant to the size and nature of your organisation, nominate a money laundering compliance officer (MLCO) to supervise your compliance work.
Regardless of the nature and size of your law firm, it is always a challenge to balance regulatory compliance, including AML regulations, with day to day operations and client care. As the large fine imposed by the SRA on Mischon De Reya demonstrates, even if your firm has made the necessary investment in the people, processes, and systems necessary to meet its AML obligations, an oversight such as not providing compliance training due to a staff absence can have considerable consequences at a later date. When it comes to AML compliance, a detailed, careful, and diligent approach will always pay dividends.
We have been helping solicitors and other legal professionals with disciplinary and regulatory advice for 25 years. If you have any questions relating to an SRA investigation or an SDT appearance, please call us on 0151 909 2380 or complete our Free Online Enquiry.