If you have not already reviewed your anti-money laundering (AML) strategy, now is the time to do so. Firms who fail to take action can face prosecution or disciplinary action.
As law firms continue to be targeted by money launderers, the following have been put in place to help fight against financial crime, money laundering and terrorist financing.
Current AML weaknesses in law firms
Nine months after the MLR 2017 came into force, the SRA published its findings following a thematic review of 50 law firms. Whilst most firms were actively taking steps to understand and reduce AML risk, the SRA highlighted four key areas of concern.
- Only 33% of firms visited had a written risk assessment in place or were in the process of writing one, despite it being a requirement.
- Not all firms were keeping records of their decisions in respect of client risk, with only 69% of files reviewed having written evidence that the level of risk had been assessed.
- Six firms were taken into disciplinary process, as a result of serious cases of poor processes and practices.
- Nineteen firms said staff had breached the firm’s AML/CFT (counter-terrorist financing) policies with issues being resolved by way of discussion with staff including additional training, reprimands and in some cases referral to the SRA.
Future updates to MLR 2017
- A requirement for a practice-wide risk assessment, which is separate to the need to risk assess clients or transactions.
- The obligation to appoint an individual at the level of ‘senior management’ as the officer responsible for compliance with the MLR 2017. This individual will be the Money Laundering Compliance Officer (MLCO) and is required by a firm where it is appropriate ‘with regard to the size and nature of its business.
- Amendments to the way in which simplified due diligence may be applied.
- A requirement to have a clear and up-to-date AML/CFT policy in place.
- The introduction of a formal requirement for some firms to appoint an independent audit function to assess the adequacy and effectiveness of its policies, make AML and CFT recommendations and monitor compliance with the MLR 2017 regulations.
The cost of getting it wrong
- In 2017 a law firm was fined £50,000 for breaching money laundering regulations and accountancy rules with three of its partners fined £10,000 each.
- The SRA referred 49 solicitors to the disciplinary tribunal, resulting in 12 being struck off, the suspension of 13 and more than £800,000 in fines.
- In March 2018 The Times reported that over the past three years the SRA has closed down eight law firms over money-laundering concerns, although in some cases the action was preventative and without definite proof of wrongdoing. A further 14 firms shut down of their own accord after the watchdog raised concerns.
How we can help
We work with law firms of all sizes to provide the assurance they need to navigate AML requirements. Our multi-disciplinary team has the experience and insight to support you in your interactions with clients and regulators.
We will work with you to:
- perform an independent assessment of your AML systems, procedures and controls
- evaluate the effectiveness of your current policies and procedures
- evaluate your risk-rating methodologies
- make recommendations for improving existing systems and procedures
- review the effectiveness of your AML training.
Our typical programme includes a review of the policies and procedures below:
- Data retention
- Self-assessment, independent audit
- Requests for information – from police, court, joint financial intelligence work
- Screening – suspicious activity reporting, sharing information with other financial institutions
- Clients – know your client, client risk assessment/risk rating, enhance due diligence, PEPs, sanctions, licences, on‑going transaction monitoring, client sample review
- Staff – recruitment, training
- Governance framework – written risk assessment, policies, written procedures, appointment MLRO, internet controls, monitoring.