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Fifth of law firms fail on money laundering rules, says SRA

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Regulator to ramp up compliance checks in wake of review

One in five law firms are failing to maintain adequate systems to prevent money laundering, a review undertaken by the Solicitors Regulation Authority (SRA) has found.

The regulator wrote to 400 firms earlier this year, asking them to demonstrate their compliance with the current money laundering regulations by sending their firm risk assessment. All firms responded but 83 (21%) were not compliant. They either did not address all the risk areas required (43) or they sent over something other than a firm risk assessment (40), for instance, a client or matter risk assessment.

The SRA found the majority of firms (64%) were using risk assessment templates which were “generally of lower quality”. While acknowledging these can be helpful, the regular said too many firms appeared to take a “copy and paste” approach without considering the specific risks and issues faced by their firm.

The regulator also expressed concern that over a third of the risk assessments (135) were dated recently. Although accepting it could simply reflect an update of an earlier assessment, it said that this suggested some firms may have only created one in response to its request and therefore some firms may not have an existing risk assessment.

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Paul Philip, SRA chief executive, said: “Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism. The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The vast majority would never intend to get involved in criminal activities, but poor processes open the door to money launderers.

He continued:

“A call from us should not be the prompt for a firm to get their act together. You need to take immediate action now if you are not on top of your money laundering risks. Where we have serious concerns, we will take strong action.”

In light of the findings, the regulator said it will shortly be writing to the 7,000 firms that fall under the scope of the Money Laundering Regulations to ask them to confirm they have a firm risk assessment in place.

Elsewhere, figures released in the SRA’s annual Risk Outlook, published today, show that it launched 172 investigations linked to anti-money laundering compliance so far this year. In the last five years, the regulator has taken more than 60 such cases to the Solicitors Disciplinary Tribunal (SDT), resulting in more than 40 solicitors being struck-off or suspended.

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17 Comments

Sir Patrick Star QC

If I was going to launder money I wouldn’t do it through a law firm. SRA need to chill.

(3)(0)

Anonymous

God, I would. Perfect way to do it and get an eligible introducer letter if you can.

(1)(0)

LLB Student

Can someone explain to me how exactly clients “launder” money through a law firm?

Sure they can use dirty money to pay for services, but that money isn’t “laundered” in the sense that the client can wait for it to come out on the other side and chuck it in their bank account (as they could by using a sham business and reporting it as revenue, for instance), its gone into the lawyers pockets who provided a legitimate service. Where’s the “laundering” there?

(0)(4)

Just Anonymous

I might be completely wrong about this, but I don’t think the issue is the use of dirty money to pay for legitimate legal services.

The issue is people investing dirty money (for example in property or business) and using solicitors to facilitate those transactions, thereby making them appear genuine and above board.

(8)(0)

Compliance cock

If you think your client doesn’t pay income tax and take their money you are Potentially liable.

Any illegal action with money is technically in breach and reportable.

(0)(0)

Anon

Every law firm runs a client account through which payments for the transactions in which the firm is involved flow, often very quickly.

Even a high street shop might have a couple of million in mortgage funds go through on a busy Friday. An MC firm probably has quite a few days each year when a billion plus washes through the Corporate team client account in a matter of hours.

It’s a money launderer’s dream.

(3)(0)

LLB Student

So what’s a law firm expected to do in such situations? Put their intetpol hat on and check where a client’s income stems from? Does any firm actually do that?

(0)(0)

KYC

You do KYC and satisfy yourself that you know who your client is and, yes, where the money comes from. If the ultimate beneficial owner of a company is Vodafone then you’re probably ok. If the “ultimate beneficial owner” is Shady PropCo (Cayman) Obscurity Limited then you’re probably not.

You will learn this on the LPC.

(1)(0)

tips

They won’t in any of the kind of detail necessary.

Providers very much shy away from teaching it, because… they also don’t understand it, and every firm has different policies and procedures in place to do AML.

Anonymous

So if the SRA are so concerned about money laundering why did they grant permission under S41 for a convicted money launderer to work in a law firm they regulate?

(0)(0)

Anonymous

So if the SRA are so concerned about money laundering why did they grant permission under S41 for a convicted money launderer to work in a law firm they regulate?

(2)(1)

Anonymous

We act for a Mexican client who looks like El Chapo, but he’s perfectly clean (runs a number of security/alarm system companies). My colleagues have nicknamed him El Chapo. You should have seen the look on the NQ’s face when one of my colleagues turned to me and said “El Chapo has arrived with the signed TP1’s”. I was worried he would tell the MLRO/SRA that we act for a fugitive and international drug lord so had to explain why we call him El Chapo.

(4)(3)

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(1)(1)

Mr Pooey Bum QC

Pooey Bum has long been under the impression that the Offshore Trusts banking system is entirely dedicated to the purposes of money laundering and tax avoidance, and all of that dirty money, which flows through the City of London as surely as the Thames does, is actually the cornerstone on which the British economy has been founded for at least the past 40 years.

(3)(0)

CLS

Even SRA regulated big four firm EY didn’t report money laundering activities. Instead they covered it up and fired the auditor for whistleblowing. [Anyone else see BBC Panorama’s Following the Drug Money documentary?]

(0)(0)

Anthony Cox

I’m shocked by the SRA actually admitting to this as I’ve been trying to get them to investigate a solicitor for a year now who i firmly believe has not complied and they simply do not want to know. I found their whole attitude to be contradictory and failing in their responsibilities

(1)(0)

Mr Pooey Bum QC

One of them probably knows the secret handshakes, the other probably doesn’t.

(2)(0)

Comments are closed.

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