Money laundering: ABS risks being tackled by detailed assessments of applications
Eighteen solicitors were sanctioned by the Solicitors Disciplinary Tribunal last year for breaches of anti-money laundering (AML) obligations, the Law Society has reported.
It has also identified litigation and alternative business structures (ABSs) as among the increased risks of money laundering facing the profession.
In their annual report to HM Treasury on their activities as the AML supervisor for solicitors in England and Wales, the society and the Solicitors Regulation Authority said six solicitors had been struck off, two suspended, eight fined and two reprimanded.
In addition, one solicitor was struck off for a conviction under the Proceeds of Crime Act 2002, while two more were refused restoration to the roll due to convictions under the Act.
The report said “the key methodologies and warning signs of money laundering and terrorist financing remain relatively consistent for the legal sector”, but there are increased risks in four main areas.
These were an increase in private funding for property purchases as lenders require higher levels of deposits and home buyers seek funding from friends and family; increased use of litigation and other alternative dispute resolution methods to attempt to launder funds; hijacking of legal practice identities and creation of sham legal practices by organised criminals; and the potential for organised criminals to seek to invest in legal practices through the licensing of ABSs.
The report laid out the steps the society and SRA are taking to mitigate these risks, such as increasing awareness – for example, the SRA recently issued a warning on identity theft – while it is tightening the procedures by which firms can register or amend their details with the SRA, including branch offices. ABS risks are being tackled by “detailed assessments of all applications for licensing”.
The report asserted that the resources currently allocated to supervision in this area are “appropriate given the risk assessments conducted”, noting that inspections of solicitors’ practices have shown “a high level of AML compliance… There is strong evidence that the majority of the supervised community take their compliance obligations very seriously and work hard to ensure that not only are they complying but are also seen to be complying with their regulatory obligations.”
The report said: “We are aware of some legal practices taking a fairly onerous approach to compliance where a slightly more flexible and risk-based approach may be warranted. However, we also appreciate that they face potential significant criminal penalties for breaches of the regulations, even where no money laundering actually occurred.
“For this reason we take the view that these legal practices are best placed to understand their own risks and their capacity limitations. We will advise them of the full compliance options available to them and seek to assist in building capacity where we can, but will not seek to impose our own risk-based assessment to lower or ‘make more proportionate’ their compliance choices.”
Despite this, the report said “it is clear that some smaller legal practices are struggling to find the resources to effectively meet their AML/counter-terrorist financing obligations and keep informed about emerging trends and methodologies.”
It said greater support from the Law Society and continued monitoring from the SRA should help them to better equip such firms.
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