By Legal Futures Associate Access Legal
Our latest quarterly update webinar started with a view of the current anti-money laundering landscape including:
- The release of the Pandora papers, which have shown even more the extent to which the mega-rich employ different ways in which to hide their money and avoid paying tax on it; of particular concern to authorities is the use of different corporate vehicles to hide the true identity of beneficial owners.
- The recent fine placed on Natwest Bank after it was found to have allowed £365m to pass through its accounts, with around £250m being in cash, without the appropriate checks being made.
- 10% of law firms being investigated by the Solicitors Regulation Authority for various breaches of their anti-money laundering obligations, with issues around Practice Wide Risk Assessments being the main cause for concern. The SRA has been averaging seven physical visits to firms per month as part of its thematic review and these have played a part in 39 Suspicious Activity Reports (SAR) being made to the National Crime Agency involving around £180m of suspicious funds. Of the 241 files reviewed by the SRA 103 did not have appropriate source of funds information on them, so clearly this is another area firms need to tighten up on.
One comment I see frequently in blogs is around why law firms should play their part in reducing money laundering when the government is slow in enacting AML legislation and banks and other large corporate entities are seen to be getting away lightly with facilitating money laundering; the short answer is, they haven’t got the SRA looking over their shoulders!
A recent survey we undertook found that 84% of compliance officers were kept awake at night over concerns about complying with AML obligations, and this is understandable when looking at the findings of the SRA and the sanctions they have been handing out to non-compliant firms!
Our quarterly updates are intended to help compliance officers sleep a little better by providing them with updates around key areas of concern and practical examples of how they should be meeting their AML obligations; this update was no different and covered the following topics:
- Source of Funds – we looked at section 6.17 of the Legal Sector Affinity Group (LSAG) guidance which covered areas like the level of enquiry that should be considered, monies coming from other regulated entities, and the connection with source of wealth. We also ran through three case studies looking at the risks that certain transactions can pose and the level of scrutiny that would need to be considered.
- Enhanced Due Diligence (EDD) – this area is covered by section 6.18 of the LSAG guidance and looks at areas like Politically Exposed Persons, complex large transactions, and clients established in a high-risk third country. We also looked at Regulation 33.5 and what needs to be done to meet the EDD requirements and the high risk third country list, which is likely to include Afghanistan the next time it is updated.
- Terminating risky retainers – we finally looked at how firms can terminate client retainers safely should suspicions be raised about the client or their transaction. A little known section of the Proceeds of Crime Act provides a very useful defence in relation to discussions with clients about suspicions you may have that avoids the tipping off offence, this is section 333D(2) that says, “A professional legal adviser or a relevant professional adviser does not commit an offence under section 333A if the disclosure is to the adviser’s client, and is made for the purpose of dissuading the client from engaging in conduct amounting to an offence”. In effect you would tell the client that by continuing with any criminal conduct a criminal offence may be committed and that if the client insists in doing so you will have no option but to withdraw; if this happens you would need to consider whether a SAR would need to be submitted taking account of privilege issues, etc.
At the end of the webinar, we had a significant number of related questions, some of which we were unable to answer due to time constraints, but it is well worth registering with us so you can watch the recording and listen to what we said and the answers we gave.
Don’t forget, make sure that anything you do in relation to anti-money laundering is noted, including that you have read this blog and/or viewed our update webinar; it all goes to show the regulator that you take your obligations in this area very seriously!