Money Laundering in the Legal Profession in 2015

A packed audience attended the annual Solicitors Regulation Authority (SRA) Compliance Conference last week to hear more about the regulator’s current and future focus.  Money laundering was a very notable theme of the day.

The SRA Code of Conduct is very clear about solicitors’duties.  Outcome 7.5 states that firms must ‘comply with legislation applicable to your business, including anti-money laundering...legislation.’

Compliance with the Proceeds of Crime Act and the Money Laundering Regulations have of course been mandatory for lawyers since their inception.  But there has been a significant shift in tone from the SRA over the past 12 months.  They have issued two official warning notices (Money laundering and terrorist financing and Money laundering and terrorist financing – suspicious activity reports; published a helpful report on money laundering; included money laundering as a ‘priority risk’ to the profession in its recent Risk Outlook; and have descended on 250 firms to review their anti-money laundering systems as part of a ‘thematic review’.  That’s a lot of emphasis in a short period.

One of the main drivers of this renewed emphasis on money laundering is undoubtedly the Financial Action Task Force’s (FATF) impending UK visit.  Clearly, it would be bad news for the SRA, and potentially the UK’s international standing, if the FATF found that the legal sector was full of holes that could be exploited by criminals.  Added to that, the 4th Money Laundering Directive, which must be implemented into UK law by June 2017, is also putting renewed emphasis on financial crime.

I must admit that some of the statistics I heard at the conference made me sit up and think:

• Whilst the majority of the SRA’s thematic review visits were positive, 10% of firms required a second visit (i.e. failed inspection!)

• 30% of all Money Laundering Reporting Officers (MLRO’s) receive NO TRAINING about their specific role whatsoever

• The National Crime Agency (NCA) receive around 350,000 suspicious activity reports each year, but only 1% of these are from the legal sector.

Let’s break that surprising number down a little – from the entire legal profession, only 3,600 reports were made last year (a reduction of 14% from 2013) – that is roughly one third of a report per firm per year.  That seems incredibly low given the volume of transactions processed by solicitors.  Is it any wonder then that the SRA are keen to raise the profile of such a serious issue?

So where does that leave us?  It is vital that all law firms ensure that their anti-money laundering processes are up to scratch, including client on-boarding, staff training and suspicious activity reporting.

Lawyers should also be aware of the new Serious Crime Act 2015, which adds a new prosecution route in financial crime cases where ‘professional enablers’ (lawyers, accountants) are involved.

As legal professionals, we need to ask ourselves:

• do we do enough to regularly risk assess our practice for money laundering risks?

• do we regularly train staff on money laundering – what to look out for and what constitutes an offence?

• do we actively complete money laundering checks on EVERY file, as well as appropriate and robust due diligence checks?

• do we know when and how to report a matter to the NCA?

If there is any hesitation in answering YES to these, you should urgently review your processes.

A brief biography for Jonathan Bray:  

Jonathon Bray is a former solicitor, compliance specialist and ABS application expert.

He has worked with law firms around the country on a variety of COLP and COFA support projects, as well as successfully guiding many firms through the ABS application process.  

www.jonathonbray.com