Anti-money laundering: Government toughens up rules
Plans to remove the £25,000 cap on fines the Solicitors Regulation Authority (SRA) can impose in cases of economic crime will enable the regulator to sanction larger law firms properly, the government has said.
It is also to introduce a new regulatory objective to the Legal Services Act 2007, requiring regulators to promote the prevention and detection of economic crime.
The changes will be made by the Economic Crime and Corporate Transparency Bill, the details of which were published yesterday.
It was only in June that the Ministry of Justice approved the increase in the SRA’s general fining power for traditional law firms from £2,000 to £25,000. Under the 2007 Act, alternative business structures can be fined up to £250m and individuals £50m and these will not change as a result of the bill.
Background documents on the bill said the new power would allow the SRA to set “credible fines, particularly for larger law firms, for disciplinary matters in relation to the sanctions and wider economic crime regime.
“This will improve enforcement and deterrence in relation to these potentially very serious matters.”
The current constraint meant the SRA has to send serious cases warranting a higher penalty to the Solicitors Disciplinary Tribunal (SDT), described by a “time-consuming and resource intensive” process.
“In contrast, other regulators do not have limits set in statute and have the flexibility to set appropriate financial penalties in relation to economic crime matters,” the government noted.
“If more cases are dealt with by the SRA internally, without the need for a referral to the SDT, this could also reduce costs for respondents.”
The right to appeal SRA fines to the SDT will remain, however, and the government acknowledged that appeals might increase as a result.
The new regulatory objective will be the first change since eight were set out in section one of the Legal Services Act.
The government said that while it could be “inferred” from the existing objectives that regulators should ensure lawyers were not breaching the economic crime regime, it was not set out as an explicit duty in current legislation.
“As a result, frontline regulations may have different interpretations of the extent of their duties relating to economic crime, and unequal effectiveness in monitoring and enforcing compliance.
“Regulators can also face challenge to their compliance activity, making monitoring and enforcement costly.”
It observed that the crisis in Ukraine has “shone a light on the exposure of professional services sectors to economic crime”, with the legal services sector assessed by the last Treasury national risk assessment of money laundering and terrorist financing as at high risk of abuse for money laundering purposes.
“The sector is exposed to further-reaching risks such as fraud or breaches of sanctions legislation. We need to ensure that legal services regulators have the powers they need in this space.”
The new duty would also enable the Legal Services Board “to performance manage frontline regulators against this economic crime objective”.
Other changes in the bill include:
- Provisions allowing direct sharing of information between two businesses in the anti-money laundering regulated sector for the purposes of “preventing, detecting and investigating economic crime”;
- Requiring anyone registering a company in the UK to verify their identity;
- Increased powers for Companies House;
- Preventing the abuse of limited partnerships; and
- Removing the requirement for a pre-existing suspicious activity report to have been submitted before the National Crime Agency can make an information order.
Business secretary Jacob Rees-Mogg said: “We want the UK to be the best place in the world to invest and start a business, but we must not allow this openness to be exploited by fraudsters misusing the identities of innocent people, or corrupt elites attempting to disguise their dodgy dealings.
“This historic bill will equip Companies House and law enforcement with the tools they need to root out criminals attempting to hide their activities without burdening law-abiding companies with unnecessary bureaucracy.
“Above all, via strict enforcement measures, we are telling investors that the UK is open for legitimate business only.”
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