The Solicitors Regulation Authority (SRA) has issued a stern warning to the profession about money laundering in the wake of a review that shows a significant number of law firms are not doing enough to prevent it, with some falling “seriously short”.
The SRA’s review focuses on 59 law firms providing trust and company services. The creation and administration of trusts and companies on behalf of clients has been highlighted by the Government as one of the legal service areas at highest risk of exploitation by criminals to launder money.
The review didn’t find evidence of actual money laundering or that firms had any intention of becoming involved in criminal activities. However, it did unearth a range of breaches of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as well as poor training and processes. This means that law firms could be unwittingly assisting money launderers.
One of the biggest areas of concern was firms’ risk assessments. A thorough risk assessment is required in legislation and should be the backbone of any law firm’s anti-money laundering approach. The SRA found that more than a third (24, in fact) of firms reviewed fell short in this area, including four that had no risk assessment at all.
There were also issues around appropriate customer due diligence. This included inadequate processes in almost a quarter (14) of firms to manage risks around Politically Exposed Persons. However, in some instances effective customer due diligence did result in firms turning down work. Fifteen firms had done this, in fact, with one of the main reasons being evasive clients.
As a result of the review, the SRA has put 26 firms into its disciplinary processes. The organisation has also published a warning notice reminding the profession of its obligations, and particularly so in relation to firm risk assessments. In addition, the SRA has begun a further review of 400 other law firms to check compliance with the Government’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This review will be led by a new dedicated anti-money laundering unit which is being set up to bolster resources and prevent and detect money laundering.
Paul Philip, the SRA’s CEO, 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.”
The SRA regulates around 7,000 law firms that fall under the scope of the Government’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. In the last five years, the SRA has taken more than 60 cases linked to potential improper money movements to the Solicitors Disciplinary Tribunal. These cases have seen more than 40 solicitors being struck off, voluntarily coming off the roll or being suspended from practising.
*The SRA has produced a range of support to help solicitors comply: www.sra.org.uk/antimoneylaundering/