SRA: “Dramatic increase” in money laundering reports
Some “genuinely shocking” cases of money laundering by law firms are currently going through the disciplinary system, a senior manager at the Solicitors Regulation Authority (SRA) has warned the profession.
Sam Palmer, manager of regulatory management at the SRA, said “landmark” money laundering cases “will become public knowledge when the disciplinary process has taken place”.
Ms Palmer said the SRA uncovered the cases amid a “dramatic increase” in reports of money laundering, and “almost as a side-shoot” to its work on the financial stability of law firms.
“We are seeing some very, very extreme cases,” she said. “These cases will be genuinely shocking to the vast majority of the profession”.
Speaking at the SRA’s annual conference for COLPs and COFAs this week, Ms Palmer said firms were failing to appoint sufficiently senior money-laundering reporting officers (MLROs).
She said a colleague had come across one firm, with 40 partners, where the MLRO was only 18 years old. “He was the son of one of the partners, who didn’t want to go to university and couldn’t get a job”.
In another example, Ms Palmer described how the SRA visited a “reasonably sized practice” where the MLRO was a “low-grade employee” who worked at the firm for a couple of days a week.
She said the firm had a “very low level” of money-laundering training. “Nobody in finance had received any training, and no equity partner or fee-earner who joined in the last two years.”
Ms Palmer said emails about money laundering from HR were “regularly ignored, with no follow-up”.
She said: “The lack of interest from senior levels in the firm percolated down. This led to some very extreme examples of behaviours and transactions in the property department”.
Steve Wilmott, director of intelligence and investigation at the SRA, said the legal profession was facing a “perfect storm” on money laundering.
Mr Wilmott said enforcement agencies had warned both the financial and legal sectors that they were heading for a “bumpy ride”.
He said the Financial Action Task Force, an international body which aims to counter money laundering and the financing of terrorism, is due to inspect the UK in 2016, while a recent EU directive would be implemented through new money-laundering regulations next year and the government had launched a separate initiative on “professional enablers”.
Ms Palmer added that all firms subject to regulatory management, of which there were around 300, would receive a money laundering visit from the SRA, along with around 200 other firms which would be targeted as part of the regulator’s supervisory activities.
In a guidance note on money laundering, the Law Society said MLROs needed to be “sufficiently senior” within the firm. “They will make decisions on systems and procedures which may result in certain retainers being declined. They need sufficient authority to implement these systems and procedures in the first place and then to enforce them.”
How disappointing to see law firms taking their lead on this compliance matter from banks – who took a similarly depressing and tardy approach to Forex trading, Libor fixing and handling terrorists ‘investments’.
I am reminded of a day two years ago when a client law firm called me on a Friday lunchtime to ask my advice about a Russian client who had arrived to complete the purchase of a high end residential property with case full of $100 bills and what should he do? My advice; send him on his way and tell him you cannot accept cash. He did so but I found out later the client returned with bank draft and settled by 5.30. Did my client report the ‘suspicious transaction’? No but I did.