Money laundering

Why this risk matters

  • The legal market is an attractive target for those wishing to launder the proceeds of crime. Criminals want to instruct legal professionals to give legitimacy to holding or transferring money.
  • Solicitors and law firms are at an increased risk because they:
    • regularly hold large sums of money in pooled client accounts
    • advise and transfer money relating to property and financial transactions
    • have access to financial markets and can facilitate buying large assets.
  • Money laundering means that criminals can profit from selling drugs, people trafficking and other illegal activities. Organised crime can only operate if the criminals can move their money into the legitimate financial world. Solicitors who facilitate money laundering, whether deliberately or unknowingly, can face serious consequences including criminal prosecution and regulatory sanctions.
  • Conveyancing is particularly attractive to money launderers because of the large sums of money involved. The Government’s National Risk Assessment views conveyancing transactions and the creation of complex business and trust structures as serious risks. Although it recognises that few solicitors are knowingly involved in illegal activity.

The creation of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) shows the Government's focus on legal and financial professionals as important to the defence against money laundering.

Trends

  • The number of money laundering reports to us is rising. There were 218 in the first three-quarters of 2018, which is a 43% increase compared to 152 in the first three-quarters of 2017.
  • Legal professionals submitted less than 1% of the total suspicious activity reports (SARs) to the National Crime Agency (NCA) in 2017. This is considered low compared to the volume of work done by solicitors. And some SARs show that the solicitor had not looked at the source of the funds.
  • Four in ten of the SARs from the legal sector relate to conveyancing. The faster turnover of house sales makes residential property a more common target for money launderers than commercial property.

What firms can do

  • Solicitors and firms play a critical role in detecting and preventing money laundering and terrorist financing. The individuals and firms in the scope of the regulations must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and can refer to our guidance on their obligations.
  • Solicitors and firms - even where they are not in the scope of the money laundering regulations - must never allow their client account to be used for money laundering purposes. There should always be a legitimate underlying legal transaction. And we have updated our warning to firms about the improper use of a client account as a banking facility.
  • To prevent money laundering, solicitors within scope of the money laundering regulations must:
    • carry out proper customer due diligence on their clients
    • verify the client’s identity and check the source of funds (where appropriate)
    • check the circumstances of the proposed transaction
    • be aware of the warning signs for money laundering risks, particularly in high risk work such as conveyancing
    • be very careful to avoid the client account being exploited
    • submit a SAR if there is suspicion about a client or transaction
    • create and maintain a risk assessment.
  • Firms can use our risk assessment, along with the National Risk Assessment and their knowledge of their services, clients and delivery channels to help develop and update their own risk assessment. The Financial Action Task Force's report on professional money laundering also offers useful insight into how money launderers can exploit firms
  • Solicitors working in conveyancing should take extra care, particularly when the transaction has the warning signs of potential money laundering. Warning signs include purchases of very high value properties by overseas companies and trusts, or purchases involving money from high risk countries.
  • The NCA’s guidance on the Defence against Money Laundering regime is useful for improving the quality of SARs. The Government’s ‘Flag it up’ campaign is aimed at helping solicitors and accountants identify potential money laundering signs.
  • The Legal Sector Affinity Group’s guidance gives detailed information about how to comply with anti-money laundering obligations.

What we are doing

  • We are researching what firms have done since the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This will inform our risk-based approach. And we are supporting the Institute for Criminal Policy Research’s study into how professionals are targeted and recruited by money launderers.
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