Hawley: Professional body supervisors falling short
A Solicitors Regulation Authority (SRA) with “beefed up” powers should be the single body policing money laundering across the UK legal sector, a report has recommended.
Campaign groups Spotlight on Corruption and Global Integrity said the legal profession currently enjoyed “near impunity” from breaching anti-money laundering (AML) rules.
They said the nine UK legal regulators were providing “uneven and inadequate” enforcement of the rules and were three times more likely to engage in “quiet chats” than take formal action.
Currently, the Office for Professional Body Anti Money Laundering Supervision (OPBAS) oversees nine legal and 13 accountancy AML supervisors – the law societies and bar councils of the three UK jurisdictions (including also the SRA and Bar Standards Board), the Chartered Institute of Legal Executives/CILEx Regulation, the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.
The Treasury said earlier this summer that a single supervisor for all lawyers was one option for reform of AML supervision.
Spotlight on Corruption and Global Integrity said the SRA was the most “credible contender” because it was responsible for almost 75% of supervised professionals and was the only one with a “meaningful track record” of enforcement, imposing 97% of legal sector fines between 2017 and 2020.
Other advantages were operating as a “separate and independent” regulatory arm of the solicitor profession, which meant that unlike others it did not suffer from a conflict of interest, and having its own designated AML team.
However, the SRA would need the power to impose unlimited fines on law firms, whether or not they were alternative business structures, and the role of the Solicitors Disciplinary Tribunal would need to be relegated to acting as an “independent appeal tribunal” for law firms.
The Economic Crime and Corporate Transparency Bill, currently going through Parliament, provides for unlimited SRA fines in this area.
In the report, A Privileged Profession? How the UK’s legal sector escapes effective supervision for money laundering, researchers said that the nine existing legal sector supervisors had achieved “low levels of enforcement” and were three times more likely to engage in informal action or “quiet chats” with those breaching the rules than issue fines or public censures (formal actions).
The Financial Conduct Authority (FCA), in contrast, took more formal than informal action.
Some legal sector supervisors were “failing to impose any meaningful fines at all” despite finding multiple cases of non-compliance.
Researchers said the highest-ever AML fine imposed by the SRA – £232,500 for Mishcon de Reya last year – would have been 20 times higher at £5.4m if it had been calculated with similar rules to those used by the FCA.
The total value of AML-related fines imposed on the legal sector in the three years from 2017 to 2020 at £621,200 compared with £103m imposed by the FCA, £12.7m by HMRC and £67m by the Gambling Commission.
Researchers said none of the top 25 law firms had been fined by the SRA in relation to money laundering in the last three years, nor had any law firms been prosecuted for criminal breaches of AML rules.
There was also a lack of transparency in by legal supervisors in enforcement decisions, with three out of nine failing to publish any information about disciplinary or enforcement actions on their websites.
The report said almost a quarter of law firms visited by the nine legal sector supervisors in 2019/20 were assessed as non-compliant with AML rules.
Meanwhile, the sector benefited from “unique protections”, such as legal professional privilege and the fact that legal advice “fell explicitly” outside the UK’s AML rules, along with participation in litigation, arbitration and the payment of costs to lawyers.
Defences under the Proceeds of Crime Act 2002 “give lawyers a free pass to look the other way when accepting suspect funds for the payment of legal services”.
The group called for increased powers for OPBAS in order for it to operate effectively as ‘supervisor of supervisors’, with “a stronger mandate, greater independence, wider powers, substantially more resources, and a central role in the co-ordination of other supervisors”.
Dr Susan Hawley, executive director at Spotlight on Corruption, commented: “The UK has a well-deserved reputation as the laundromat of choice for the world’s kleptocratic regimes. This couldn’t have been achieved without the legal profession – wittingly or unwittingly – playing an essential role.
“But our research shows that the efforts of professional body supervisors to deal with this long-standing problem are falling far short of where they need to be.”
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