Money laundering

Why this risk matters

  • The legal market can be an attractive target for those wishing to launder the proceeds of crime. Criminals want to instruct legal professionals to hold or transfer money because of the perceived legitimacy this offers.
  • 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 helps fund terrorism, drug trafficking and people smuggling. 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 money launderers because of the high sums of money involved. The Government’s National Risk Assessment views conveyancing transactions as a serious risk, although it accepts that few solicitors are knowingly involved in illegal activity.

Trends

  • There has been a 67% rise in money laundering reports to us since 2016, with 60 in the first quarter of 2018 compared to 36 at the end of 2016
  • Legal professionals submitted less than 1% of the total suspicious activity reports (SARs) to the National Crime Agency (NCA) in 2017. 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. In particular, residential conveyancing SARs have risen by 66% across the past two years. The faster turnover of house sales makes residential property a more common target for money launderers than commercial property.
  • 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.

Actions

  • Solicitors and firms play a critical role in detecting and preventing money laundering and terrorist financing. They 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.
  • They must not allow their client account to be used for money laundering purposes or money to transfer through it without a legitimate underlying legal transaction.
  • 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 refer to our risk assessment, along with the national risk assessment and a comprehensive knowledge of their services, clients and delivery channels to help their own risk assessment.
  • 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.
  • We are also 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.
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