Lawyer Monthly Magazine - August 2019 Edition

process where law firms need to be particularly attentive. Understanding when enhanced due diligence measures are needed, such as in the onboarding of PEPs, overseas clients and commercial organisations – to understand their purpose, corporate structure, and beneficial ownership – is critical. Some of the red flags to look out for include: the client’s assets being inconsistent with their known legitimate income; transactions that are unusual in their size, frequency or manner of execution; overly complex or illogical business structures; and, when a client has tried to hide their identity. It is important that legal firms train their frontline staff to not only identify red flags, but also take action if they suspect money laundering is taking place. If any activity seems suspicious, firms have a duty to submit a Suspicious Activity Report (SAR) to the NCA. Solicitors are required to take a ‘risk-based approach’ towards clients across the board – whether they are representing an organisation or an individual – so they can justify their decisions and actions to regulatory authorities and law enforcement agencies. They also need to have well-constructed policies, controls and procedures built upon the principles of a ‘risk- based approach’, where firms proactively identify not just their own risk exposure to money laundering, but that of all clients and other third parties they work with, too. Role of regulators Law firms, of course, aren’t solely responsible for tackling dirty money, especially since criminal activity is becoming more advanced in the digital world. The LexisNexis Risk Solutions/EIU survey found a quarter (24%) of respondents see evolving criminal methodologies, such as the use of cryptocurrencies, as the biggest future risk in the financial crime space. Regulators, too, need to step up to the challenge. A quarter of legal respondents (24%) only feel enough is being done by the UK regulator and regulated businesses in certain areas to tackle money laundering; nearly one in five (18%) worry that insufficient enforcement resources will be the biggest risk to fighting UK money laundering in the next 12 months; and 42% see the existing UK regulatory framework as ineffective in driving businesses to tackle money laundering. OPBAS has suggested the SRA should increase supervision, providing greater guidance, and potentially introducing tougher penalties or more incentives. Indeed, recent figures from the NCA have shown that lawyers are not using all the tools at their disposal to tackle financial crime. Less than one per cent (0.57%) of the total suspicious activity reports (SARs) submitted to the NCA in 2018 were from law firms. Considering almost half a million reports were submitted by businesses across the UK over that period, with that number increasing year-on-year, there needs to be more regulatory guidance to encourage law firms to use all the means available to them. Team effort There are signs the legal sector is becoming more serious about money laundering. Whilst some firms have not seen budgets rise, investing in their AML resource is a key part of budgetary considerations for many solicitors, with two thirds (64%) saying they expect to increase the amount they spend on their AML headcount over the next five years. It’s clear, however, that we need a concerted effort by regulatory bodies and frontline businesses to tackle the growing threat of dirty money. Behind every scandal, there are victims caught up in drug trafficking, modern slavery, violence and cybercrime. With the right tools and support, legal professionals can play their part in stopping the criminals in their tracks. LM ABOUT MICHAEL HARRIS Michael is Director of Finan- cial Crime Compliance and AML subject matter expert. He leads a team of sales specialists in the Financial Services Industry who pro- vide expert guidance on entity identity verification, client data management, KYC/AML screening solu- tions and enhanced due diligence. By drawing on the global suite of products offered by LexisNexis Risk Solutions in Data, Analytics and Technology the team create innovative solutions that support the entire cli- ent journey in onboarding and ongoing monitoring of AML Risk. 25 AUG 2019 | WWW.LAWYER-MONTHLY.COM Special Feature Written By Michael Harris, Lexisnexis ® Risk Solutions