Anti-money laundering: Source of funds checks were not done
A law firm that was non-compliant with the anti-money laundering (AML) rules for three years has been fined for showing “a disregard for statutory and regulatory obligations”.
Scarborough firm Pinkney Grunwells Lawyers agreed to pay the fine of £2,000 in a regulatory settlement agreement with the Solicitors Regulation Authority (SRA).
In 2020, the firm had declared to the SRA that its firm-wide risk assessment was compliant with the 2017 Money Laundering Regulations – 40% of its work was conveyancing and so within their scope.
However, an investigation begun soon after, following a referral from the SRA’s AML proactive supervision team, showed this was not the case.
There are five key risk areas which must be assessed as part of the process – clients, jurisdictions, products/services, delivery channels and transactions – and the firm had not covered the final one.
Further, the assessment “failed to have sufficient regard for the Legal Sector Affinity Group guidance, our sectoral risk assessment and warning notice”.
The firm also did not have in place compliant policies, controls and procedures to prevent money laundering, as required by the regulations.
Among the omissions were how to identify and scrutinise complex and/or unusual large transactions, how to identify and scrutinise transactions that have no apparent economic or legal purpose, how the firm identified and verified clients, and its position on source of funds/wealth checks, and on transactions in high-risk jurisdictions.
Pinkney Grunwells failed to screen relevant employees during employment as well and could not provide a record of the staff training it said had been undertaken.
The SRA said a review of a sample of client files highlighted multiple shortcomings, such as failing to keep records and source of funds evidence not being collated by fee-earners.
“Failure to properly identify where funds have derived from could put the firm at risk of committing a section 327 offence under the Proceeds of Crime Act 2002.”
Pinkney Grunwells admitted multiple breaches of SRA principles and rules.
The regulator said: “The conduct showed a disregard for statutory and regulatory obligations and had the potential to cause harm, by facilitating transactions that could have led to money laundering (and/or terrorist financing)… The lack of compliance showed an AML control environment failing at the firm.”
The fine was “a proportionate outcome in the public interest because it creates a credible deterrent to others and the issuing of such a sanction signifies the risk to the public, and the legal sector, that arises when solicitors do not comply with anti-money laundering legislation and their professional regulatory rules”.
In mitigation, there was no evidence of harm to consumers or third parties and the firm did not financially benefit from the misconduct. The firm has “shown remorse for its actions and remedied the breaches”.
Separately, the SRA has fined Anjum Shahzad, sole director of East London firm Shahzads Law, £1,200 for substantially the same offences.
He too did not have a compliant assessment in place for three years – but by contrast had admitted it in his declaration to the SRA – while the firm’s PCPs had not been updated since 2015.
The fine – £1,500 discounted by 20% – reflected his mitigation, remedy of the breaches, prompt admissions, “the continuing compliance moving forward”, and the fact that Mr Shahzad was the sole fee-earner at his firm conducting work in scope of the regulations.
Last month, Surrey law firm Buglear Bate & Co was fined £2,000 for the same offences.
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