Lawyer Monthly Magazine - August 2019 Edition

Why Law Firms Need to Be Extra-Diligent with Anti-Money Laundering Rules A wave of money laundering scandals across Europe has brought to light the vital role that businesses on the UK’s frontline have in tackling dirty money. The most recent scandals have originated in places such as Russia, the Baltics and Scandinavia, but no country is immune from the growing threat of financial crime. The National Crime Agency (NCA) estimates that more than £100bn a year is laundered in the UK alone. Historically, anti-money laundering (AML) legislation has focused on banks and the financial services industry, but there is growing pressure on sectors which have traditionally been viewed as lower risk, such as law firms and estate agents, to join the fight. In the legal sector, the Solicitor’s Regulation Authority (SRA) recently announced a crackdown on legal firms who aren’t implementing adequate AML controls. An initial review of 59 firms found a quarter were not conducting effective due diligence on Politically Exposed Persons (PEPs). Meanwhile, a report by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) highlighted AML supervisory failings in both the legal and accountancy sectors. Despite the regulatory clampdown, the legal sector is still regarded by many as low risk. According to a report by LexisNexis® Risk Solutions and The Economist Intelligence Unit (EIU), On the Frontline: The UK’s Fight Against Money Laundering, only 4% of frontline regulated firms said the legal sector was the industry most at risk of being targeted for money laundering. The gaming sector and high- value vendors (businesses who accept or make payments of over €10,000) were seen as the most appealing for criminals looking to launder money, cited as the industry groups most at risk by 15% and 12% of respondents respectively. Professionals within the legal sector also consider themselves to be low risk, with 38% agreeing that gambling companies are one of the top three groups most likely to be targeted by money launderers. Gatekeepers for the UK This sense of being a low-risk sector is not only at odds with the heightened regulatory scrutiny of the legal sector, but also suggests law firms aren’t fully aware of the important role they play as gatekeepers protecting the UK from the impact of financial crime. Legal professionals facilitate vital transactions that underpin the UK economy and, therefore, have a major role to play in ensuring their services aren’t used for criminal gain. Yet according to the survey, more than a quarter (26%) of law firms haven’t increased their AML compliance budgets in the last 24 months. The SRA is currently writing to 400 legal practices, asking them to demonstrate compliance with the Government’s 2017 Money Laundering Regulations. This should act as a wake-up call for the entire legal sector to ensure regulations are being applied diligently across the board. Implementing more robust AML controls into their everyday operations, including checks against PEPs and sanctions lists, and ensuring there is a full understanding of a clients’ activities and potential links to high-risk individuals, countries or third parties is a crucial part of effective compliance. For firms who are unsure of how to meet these obligations, there are a number of free digital resources available to help, including dedicated Customer Due Diligence guides. Identifying suspicious activity Client onboarding is one 24 WWW.LAWYER-MONTHLY.COM | AUG 2019 Special Feature Written By Michael Harris, Lexisnexis ® Risk Solutions WWW.RISK.LEXISNEXIS.CO.UK