Complying with anti-money laundering rules: A ‘how to’ guide28/07/23
The anti-money laundering (AML) and financial sanctions arena in a metaphorical cauldron pot. As such, law firms must take proactive, urgent steps to comply with their myriad AML compliance requirements. Although the demands are heavy and enforcement even heavier, complying is easier than it might appear.
Recent sanctions questionnaire
If you’re a Solicitors Regulation Authority (SRA) regulated law firm, you’ll already know about the sanctions questionnaire which your Compliance Officer for Legal Practice or Authorised Signatory submitted by the end of May to your industry regulator, answering a series of searching questions relating to sanctions legislation, such as your clients’ countries of origin and lines of business, as well as whether those you represent are ultimate beneficial owners or sanctioned individuals.
The SRA’s assessment is a core part of your essential processes for adhering to the UK’s strengthened financial sanctions regime operated by the Office of Financial Sanctions Implementation (OFSI) and imposed by the government.
The wider context of AML compliance
The government’s response to war in Europe is a major contributing factor to sanctions getting tougher in its attempt to combat the Ukraine invasion’s impact on the economic risk environment otherwise jeopardised by elevated malicious cyber activity.
Sanctions questionnaire aside, another new-for-2023 ruling is the SRA’s annual competence report. Data is drawn from multiple sources, including AML activity, and the first report is due out this summer. Targeting incompetent solicitors, the SRA’s chief executive Paul Philip is quoted as saying, “We will take enforcement action where necessary to protect consumers where standards fall short”.
Neglect to fulfil your AML duties sufficiently, and expect to be named and shamed in the SRA’s report. The least outcome of which is reputational damage; the worst outcome of which is investigation and possible punishment including removal of your practising licence and a jail sentence.
On the topic of fines, the SRA’s fining powers for AML breaches has risen from £2,000 to £25,000 in the last year, with the largest fine to date of £20,000 being imposed on an Oxfordshire practice, making headline news in January.
Another existing AML-related demand upon our profession is suspicious activity reports (SARs) to the National Crime Agency (NCA), encompassing defence against money laundering and terrorist financing. 2021/22 saw a 20% increase in SARs compared to the previous year.
The power of SARs should not be underestimated. According to the NCA’s SARs annual report, £306 million was denied to suspected criminals in 2021/22 which is more than double 2020/21’s £139 million. Vince O’Brien, head of the UK Financial Intelligence Unit, stresses their importance stating, “SARs are vital to the fight against money laundering, illicit finance and wider criminality”.
If you’re wondering which rules and regulations are in force currently, try these as a starting point:
- SRA Code of Conduct for Firms – outlines the standards expected by those authorised to provide legal services.
- 5th Money Laundering Directive – defines the international transparency and preventative framework, as set out by the Financial Action Task Force.
- Proceeds of Crime Act 2022 – the principal money laundering legislation setting out the confiscation or civil recovery of any proceeds of crime.
- Money Laundering and Terrorist Financing Regulations 2022 – makes it an offence to use, possess or raise illicit monies intended for terrorism purposes.
In sum, then, your obligations lie not with the SRA alone but with governmental departments too. Your financial liabilities for failure to comply are not only SRA penalties but also losses arising from doing business with criminals in the first place.
Figures show money laundering is estimated to cost the UK economy over £100 billion each year. Solicitors are appealing prey to money launderers because of the services they provide, position of trust they hold and volume of monies they handle on behalf of clients. In other words, you’re vulnerable and you’re in the firing line.
A digital-first approach to AML
AML compliance is about undertaking identity, credit and source of funds checks on prospective clients during the intake phase. While in the past, this task was primarily paper based, comprising verification using passports or equivalent documentation, the preferred method today is electronic systems.
The benefits of digital over print generally are well documented, spanning numerous efficiency, productivity, profitability and security advantages. Specifically where AML is concerned, electronic screening gives you access to sophisticated and reliable tools to activate searches in seconds, automate checks within your matter management workflow, store comprehensive records of results with pass or fail status, log any subsequent actions taken along with reasons why, and successfully manage and mitigate risks posed to your organisation.
A risk-based approach to AML compliance is made possible by software. Lots of practice and case management applications contain AML checking functionality as a means of controlling clients and matters in their entirety from inception to completion. Everything begins with AML searches before official legal representation commences. It’s peace of mind at the outset of new cases that your clients are who they say they are, and have sufficient and legitimate funds to pay for your services.
Your next steps
AML compliance is a minefield. To help you navigate the mounting burden, we present three tips…
- Familiarise yourself with your AML responsibilities, namely the aforementioned, set-in-stone rules and your duties under the SRA’s Code of Conduct such as completing your sanctions assessment and reporting violations in the form of SARs.
- Digitise your day-to-day AML procedures to onboard clients quickly and safely, simultaneously protecting your law firm against fraud and satisfying your AML compliance commitments. Remember, your existing practice and case management software may already have these features built in.
- Discover the transformative power of Quill’s AML compliance and fraud prevention measures. Or, contact our friendly and helpful team by emailing email@example.com or calling 0161 236 2910.
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