5 things lawyers need to know about AML


(Originally published on Ark Group’s Website)

With the SRA reporting last week that 44% of the firms they recently visited in an Anti-Money Laundering (AML) thematic review have been referred through to their disciplinary procedure, the level of compliance in law firms has again been called into question…

There have also been concerns expressed by the National Crime Agency that out of nearly half a million Suspicious Activity Reports (SARs) last year, only 2,660 were from the legal profession.

The legal sector has been labelled “professional enablers” for a few years now. It’s a description of my colleagues that I don’t adhere to personally, but statistics like this really don’t help.

Due diligence is key

I run a consultancy helping law firms with compliance, in particular AML. The people I meet are genuinely trying to do their best to prevent money laundering, recognising not just the importance of complying with the law, but also their responsibility for stopping organised crime and the damage it does to their communities.

However, I do sometimes hear of challenges in getting staff to understand the importance of client due diligence in law firms, and that it isn’t just a tick box. Lawyers can sometimes be concerned about their clients’ reaction when being asked to provide due diligence information, about losing the client if we require them to provide information about source of funds and source of wealth – on occasion lawyers don’t understand why they have to ask because they’ve known the client for years.

These challenges can show a lack of appreciation for the risks of money laundering or the lawyer’s key role in preventing it. Firms need to make it very clear what compliance looks like and why it is necessary, not least to protect the lawyers!

Here are the 5 things I think lawyers need to know:

1. They must do a matter-based risk assessment. The recent thematic review demonstrated a lack of matter-based risk assessments in some firms. Many firms are just starting to put these in place, and lawyers need to comply with them; the SRA will check this. They are an important tool, and should be used in all matters, even for existing clients. The lawyer should be reviewing each instruction, and in particular, whether there are any red flags for the matter. For existing clients, they should be considering whether the matter is outside the client’s usual activities, as this could be a trigger to carry out further due diligence.

2. Knowing the client for years and being sure that they aren’t laundering money is not a reason not to do client due diligence (CDD). It is the fact that you are carrying out a transaction for the client which triggers the CDD requirement, not who they are. Firms have to consider the risk of money laundering from the services they offer, decide what measures they will put in place to prevent that (of which CDD is one) and the lawyers need to follow that process. If there is a departure from the process it needs to be recorded, as does the rationale.

3. Clients often don’t mind being asked about identity and source of funds and in fact, expect it. Staff need to be comfortable with explaining why we ask about it, and what we will do with the information.

4. All staff need to come to training even if they have had it before. Things change, the way criminals operate evolves but above all we need reminding. It is worth noting that the firm has to produce training records to the SRA should they request them.

5. There are consequences of non-compliance. Firms will need to be able to demonstrate to the regulator how they will deal with non-compliance with the firm’s policies and procedures. We should remember the COLP is under a duty to monitor breaches and report them if appropriate to the regulator and many firms state in their policies that non-compliance is a disciplinary offence.

AML measures are not just to pay lip service to legislation. Money Laundering causes real damage to our local communities, to our clients and their families, to their businesses, and we all have an important role to play in stopping it.

AML measures are not just to pay lip service to legislation. Money Laundering causes real damage to our local communities, to our clients and their families, to their businesses, and we all have an important role to play in stopping it.


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