15 May 2019
More than 40 percent of the 59 law firms recently examined by the Solicitors Regulatory Authority (SRA) are facing potential disciplinary actions for anti-money laundering (AML) compliance failures.
That SRA, which focused its review on firms in England and Wales that offer trust and company services, found compliance deficiencies at 26 law firms, according to report published last week. Of those, 24 of the firms had inadequate risk assessment policies and procedures while 14 of the companies had improperly managed their AML risks in connection with politically-tied individuals, the authority said.
Only 10 of the 59 firms had filed suspicious activity reports (SARs) in the last two years, according to the report.
The findings echo previous warnings for the sector, which experts contend faces unique hurdles to AML compliance that should be addressed by the SRA and other authorities.
In 2014, the Birmingham-based regulator called on high-risk firms to engage more with it on compliance issues. Last year, the regulatory body found that some law firms had not retained records of customer due diligence checks and had failed to follow through on recommendations included in their AML risk assessments.
In March, the regulator announced it would examine 400 randomly selected firms to ensure compliance with the 2017 Money Laundering, Terrorist Financing and Transfer of Funds Regulations.
To address compliance lapses, the SRA needs to go beyond providing law firms with general training material and instead give them more case studies that illustrate the intricacies of various money laundering operations, according to Helena Wood, an associate fellow at the Centre for Security and Financial Crime Studies in the London-based Royal United Services Institute.
The level of AML awareness within the sector is generally very high, but sophisticated money laundering operations can turn honest attorneys into unwitting facilitators of illicit finance, particularly when many solicitors don’t fully understand how they might get caught up in such schemes, she said.
Solicitors need to know what money laundering looks like “when it walks in through the door,” according to Wood.
“It may not be evident to the lawyer at that specific moment that what they’re being asked to do is to facilitate money laundering,” she said. “In some cases, lawyers are being unwittingly duped, rather than being complicit, in the crime.”
Such situations reflect the fact that solicitors, accountants and estate agents in the UK have received little AML guidance compared to that given to the financial sector, according to Wood.
But the SRA’s citation of the relatively few SARs filed by law firms should not be viewed as an inherent failure by the sector, sources said.
“That figure is going to be really low,” said Katie Benson, a criminology lecturer at Lancaster University who specialises in the legal sector’s nexus with money laundering. “The huge volume of transactions processed by the financial sector means they are naturally going to produce [more] reports.”
The SRA’s focus on SAR statistics could prompt law firms to over-file reports in an attempt to stave off regulatory penalties, according to Benson. Such defensive filing can burden the UK National Crime Agency rather than help prevent wrongdoing, she said.
UK law enforcement agents and other officials might also rethink the terminology they use when addressing the vulnerabilities of law firms, Benson advised.
Many in the sector don’t like being called “professional enablers” because it “casts aspersions on solicitors as a whole profession,” said Benson.
The SRA, which did not find evidence that any of the 59 firms had intentionally engaged in money laundering, has forwarded more than 60 cases involving potentially improper money movements to the Solicitors Disciplinary Tribunal in the last five years. The authority regulates approximately 7,000 law firms in England and Wales.
Spokespersons for the SRA did not respond to requests for comment.
Hiba Mahamadi is a freelance journalist based in the UK.
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