Anti money laundering

29 October 2019

Why this risk matters

If you or your firm facilitates money laundering, then you are helping to fund serious and organised crime. By preventing money laundering, you and your firm play a major role in reducing the threat to the UK, its citizens and its institutions.

Who is at risk?

All solicitors and firms are exposed to money laundering. This is because they:

  • can legitimise a transaction
  • have access to financial markets
  • advise on property and business deals.

This makes them an attractive target for those seeking to launder the proceeds of crime.

We know the vast majority of law firms would never intentionally become involved in crime. By having the right training and processes in place, you can reduce your risk of unknowingly facilitating crime.

What is the impact?

If money laundering is not stopped, then criminals can finance their activities. The National Crime Agency (NCA) believes that hundreds of billions of pounds of money are laundered through the UK every year. This is the proceeds of exploitative and violent crimes such as people smuggling, drugs and firearm trafficking. Laundered money funds further crimes, political corruption and even terrorism.

The crimes that money laundering funds harm innocent people and can destroy lives. The activities of organised criminals cost the UK over £37bn each year. One major source of these funds is drug trafficking, which led to 2,917 deaths in the UK in 2018.

If solicitors become involved, even unknowingly, then they are supporting this crime. The consequences for them include disciplinary and potential criminal proceedings. Public trust in the legal profession can also be harmed if solicitors are involved with organised crime groups.

Solicitors are ideally placed to detect money laundering, but many are leaving themselves and society at risk. By law, solicitors must carry out a full firmwide risk assessment. This should be the basis of their thinking about how they are exposed.

Yet our 2019 review found that more than a third had not made a full assessment. Without this, firms might have vulnerabilities that they do not know about. All firms must ensure that they have a full risk assessment in place and that they comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Half of all the reports we receive about money laundering involve a firm not having carried out proper due diligence on a client or their funds.

The main tool for reporting suspicions is the Suspicious Activity Report (SAR).

Spotlight on trust formation and company services

Trust and company services are an attractive field for money launderers. This is because criminals can misuse trusts and companies to hide the real ownership and control of assets and wealth.

We recently reviewed how firms working in this area were meeting their obligations. No firm was directly involved in money laundering or other crime. However, some were not doing enough to protect themselves. This put them at risk of unintentionally helping money launderers.

We recommend

To help you and your firm comply:

Know your obligations

You and your firm must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Keep up to date with our warning notices. We produce these to help firms understand the risks and how to manage them.

Have the right controls

The starting point for protecting yourself from money laundering is a firm wide risk assessment.

  • This is a legal requirement for all firms.
  • Your risk assessment should give you a comprehensive view of your services, clients and delivery channels. This is so that you can see how you are exposed.

You can protect yourself and your firm from inadvertent involvement in crime by making SARs.

You should make sure you and your firm's staff are all appropriately trained.

Understand your clients

It is important to understand your clients, and in particular to recognise when they or their cases involve higher than usual money laundering risks.

You should carry out due diligence checks on clients and keep this understanding up to date. A longstanding client's exposure and risks may have changed since they last instructed you.

You need to know when you need enhanced due diligence on a client, for example if they are a PEP.

Find more information

The UK National Risk Assessment may be a helpful source of information for carrying out firm-wide risk assessments. Our money laundering risk assessment sets out information on money laundering and terrorist financing risks to solicitors, which may also be useful for firmwide risk assessments.

The Government's 'Flag it up' campaign helps solicitors and accountants identify potential money laundering signs. You should find the NCA's guidance on the Defence against Money Laundering regime helpful for making good quality SARs.

Our #staySHARP campaign is about raising awareness of the threat that money laundering poses to solicitors.

We have an Ethics Guidance helpline that offers advice on anti-money laundering (AML) regulation and supports the profession in compliance. The Legal Sector Affinity Group's guidance gives detailed information about how to comply with AML obligations.

What we are doing

Regulating based on evidence

As an AML supervisor, we use a risk-based approach. Our dedicated AML team uses targeted investigations to look at specific areas of concern.

The Office of Professional Body Anti Money Laundering Supervision (OPBAS) oversees our work to supervise how firms are complying with their AML obligations.

We are a member of the Economic Crime Strategy Board. This helps to make sure that we co-ordinate our AML approach with other regulators and expert bodies.

Taking appropriate action

When we find that firms are not meeting their AML obligations, we will take action.

We began 172 investigations about AML compliance in the first three quarters of 2019, compared to 314 in the same period in 2018.

In the last five years, we have taken more than 60 cases to the SDT. This has led to more than 40 solicitors being struck off, suspended from practice or voluntarily coming off the roll.

Helping the public

We work in co-ordination with other bodies to help prevent money laundering. This helps to make sure that criminals cannot move money into the legitimate financial system.

On the horizon

New regulations, due to come into force by 10 January 2020 will mean firms need to update their processes to bring them up to date with new legislation. We will also be changing our processes and there will be changes to how we approve some individuals under the regulations.

The Government has produced its new Economic Crime Plan. This sets out the steps that it will be taking to prevent money laundering and other financial crimes.

  • As part of the plan, the Treasury is considering whether AML supervisors need new powers or guidance to strengthen the UK financial sanctions regime.
  • They intend to finish this review by July 2020. It may lead to new obligations and potential penalties for firms.

The Government is reviewing the SAR regime and will finish in December 2020. This is to improve and increase money laundering detection and prevention.

  • Improvements to the SARs portal will include feedback, trends and information about outcomes.

By 2020, the Government intends to bring all cryptocurrencies into the scope of the AML regime. The Financial Conduct Authority (FCA) will supervise trading in these assets.

  • We are not aware of any solicitors involved in cryptocurrency trading. Firms must carry out the right checks on any clients who want to use these systems.