Money laundering: Conveyancing a particular risk
Legal services continue to be at high risk of attracting criminals intent on money laundering, but are not considered to be a target for terrorist financing, according to the latest government assessment.
Although some legal service providers involved in money laundering were complicit, most of such cases involved people who were “either wilfully blind or negligent”, it continued, while innovation in the legal industry could provide criminals with new opportunities.
In a section on legal services in the National risk assessment of money laundering and terrorist financing 2017, produced jointly by HM Treasury and the Home Office, it said: “Legal services remain attractive to criminals due to the credibility and respectability they can convey, helping to distance funds from their illicit source and integrate them into the legitimate economy.”
While money laundering, highlighted in a similar assessment in 2015, continued to be a risk, legal services “were not judged to be attractive for terrorist financing”.
The report went on: “There is no specific evidence of these services being abused by terrorists, so the terrorist financing risk associated with the sector is assessed to be low.”
Areas judged to be at greatest risk of exploitation by criminals were trust and company formation – often to hide beneficial ownership – conveyancing and client account services.
While solicitors were considered to be at greatest risk because they offered these services, “other legal professionals including barristers, legal executives and notaries are assessed to be exposed to lower risks”.
The report observed that criminals might use a combination of legal services “to add layers of complexity to a transaction and hamper effective due diligence”.
Equally, “criminals may also deliberately compartmentalise work between or within firms to avoid scrutiny”.
Conveyancing was thought to be a priority risk, because half of suspicious activity reports (SARs) relating to the legal sector were linked to the property market.
The assessment said: “Purchase of property provides an opportunity to launder a substantial sum in a single transaction, is a store of value (and often provides a capital gain) and can also be used to enhance criminal lifestyle.”
It gave the example of suspected money laundering in which a solicitor was instructed in the purchase of a £4.5m commercial property. It was funded by the sale of various property companies, but with an unknown ultimate beneficial owner.
Another potential area of risk around legal services was the misuse of client accounts: “Law enforcement agencies have observed client accounts being exploited by criminals to transfer funds to third parties, effectively breaking the audit trail to launder funds.”
Legal regulators could face a new challenge arising from innovation, the assessment warned: “Innovation within the legal services market may pose a further supervisory challenge, as criminals could identify new opportunities to access legal services without engaging a supervised firm.”
Also, lawyers falsely claiming legal professional privilege could be used to obscure money laundering, the document said.
It continued: “The government recognises that legal professional privilege is a vital part of the UK’s legal system and that ensuring that it is applied correctly in all circumstances is important in mitigating money laundering risk.”
While it was hoped that lawyers increasingly understood the nature of risk, the assessment noted that in 2015/16 the number of SARs submitted had fallen 10% from the previous year, to 3,447.
It said a number of steps had been taken to improve the quality of SAR submissions in the legal sector and additionally had introduced unexplained wealth orders in the Criminal Finances Act 2017.
These orders would require anyone suspected of serious criminality “to explain wealth that appears disproportionate to their income”.
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