Our anti-money laundering work
Money laundering is when criminals 'clean' the proceeds (the financial gains) of crime. Criminals transform proceeds into assets, such as houses or businesses, or other seemingly legitimate funds, for example, money in a bank account. In some cases, laundered money is used to fund terrorism.
Money laundering makes these proceeds look like genuine sources of income, which criminals can then spend freely and without raising suspicion. Such criminals often make their money from serious crimes such as fraud, or people, wildlife and drug trafficking.
Organised crime costs the UK economy more than £37bn every year, and the National Crime Agency (NCA) believes there are 4,500 organised crime groups operating in the UK. This, along with a rise in terror attacks in recent years, is why combatting money laundering is an international and UK priority, with UK legislation in place.
The information below details our work in this area and highlights key trends and patterns since 2017/18, which is when we started to make changes following the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. More information on these and other regulations can be found below.
Please note, our business year is 1 November to 31 October. Unless otherwise stated, these figures are as of the October in the latter year – ie, the figures for 2019/20 are as at 31 October 2020.
Solicitors and law firms are attractive to criminals because they process large amounts of money, are trusted, and can make the transfer of money or assets appear legitimate. Most law firms work hard to prevent and to spot money laundering and take necessary action, but some get involved unknowingly. A very small number may even knowingly cooperate or work with criminals to launder money.
Laundering money through the legal sector
Some ways in which firms and solicitors become involved with money laundering, either knowingly or unknowingly, are:
- Conveyancing – criminals use the proceeds of crime to buy houses to live in, rent or sell.
- Setting up shell companies or trusts – solicitors and law firms are integral to such transactions.
- Misusing client accounts – criminals will seek to misuse law firm client accounts to ‘clean’ laundered money.
- Failing to carry out proper due diligence – money laundering can take place if firms and solicitors do not carry out sufficient checks on a prospective, new, or existing, client’s source of funds.
- Failing to train staff – so that they know how to spot potential money laundering and who to report it to.
Number of firms we regulate which fall in scope of the regulations
The current money laundering regulations in place came from EU directives – such as the Fourth Money Laundering Directive and the Fifth Money Laundering Directive (5MLD). These directives were then brought into UK legislation. They became the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. In the future, new UK legislation is more likely to come from recommendations made by the international standards-setting body, the Financial Action Taskforce.
These regulations set out the business types which offer services that could, potentially, be targeted by money launders. They include banks, estate agents and some legal services.
Around two-thirds of the firms we authorise fall within the scope of the money laundering regulations and under which we act as a ‘professional body supervisor’. In this role, we have a duty to make sure that the firms we supervise, and which could be targeted by money launderers, comply with the regulations and have appropriate controls in place.
|Number of firms we regulate that fall within scope of the regulations||6,455||6,667||6,528|
|Percentage of total firms we regulate||67%||64%||65%|
As part of our work to monitor firm compliance with the money laundering regulations, we have a rolling programme of firm visits that look at general or specific areas. We publish the results from these reviews.
Please note, the years below follow the tax year (6 April–5 April), rather than our financial year (1 Nov–31 Oct).
The spike in visits in 2018/19 reflects an increased supervision of firms, following the introduction of new money laundering regulations in 2017/18.
Number of money laundering-related reports received
We receive reports concerning alleged breaches of our money laundering regulations and money laundering activity from the profession and consumers. Like all regulators, we monitor media and other reports. We also receive intelligence from the NCA and other law enforcement bodies. We investigate suspected breaches of the money laundering regulations and cases of suspected money laundering.
The introduction of the 2017 money laundering regulations may have raised risk awareness within the profession and encouraged firms to improve their systems, resulting in a decrease in concerns reported to us. This is alongside a change in the way in which we categorised concerns in 2018/19, affecting how we record their overall number.
Number of money laundering-related matters resulting in an internal sanction
Where we see that firms or individuals have failed to comply with the money laundering regulations, we can take action. We refer more serious matters to the Solicitors Disciplinary Tribunal (SDT). For less serious matters, our internal sanctions include a letter of advice or rebuke, where we remind the individual or firm of their regulatory responsibilities, fining a firm or individual, or putting conditions on their practising certificate, limiting what they are able to do in their role.
We have started to see a steady increase in investigations resulting in an internal sanction over the past three years. This is since the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Number of money laundering-related cases brought to the SDT
In more serious matters, we will prosecute a firm or an individual at the SDT. It has powers that we do not, for example, imposing unlimited fines, suspending or striking solicitors off the roll. It can take a number of years to investigate, refer and conclude a matter at the SDT.
Please note that, due to a data error, we misreported the number of cases brought to the SDT in 2018/19 as 15. The figure now shown (14) is correct.
The number of cases has stayed relatively stable over the past three years.
Number of suspicious activity reports submitted to the NCA
We can submit a suspicious activity report (SAR) to the NCA, if we identify a suspicion of money laundering through our work.
The increase in the number of SARs we have submitted to the NCA over the past three years reflects:
- the presence of a dedicated money laundering reporting officer (MLRO) and team from 2018
- training within the organisation on when to submit an internal SAR to the MLRO for review
- more proactive supervision of firms carrying out work that falls under the money laundering regulations.