By Tim Smith, CEO at Legal Futures Associate Insight Legal
Anti-money laundering (AML), or rather non-compliance of AML rules, dominates the news. You might have read about the Solicitors Regulation Authority (SRA) threatening enforcement action and publicly sanctioning non-compliant firms or seen the headline announcing the criminal conviction of a high-profile AML expert for international investment fraud, as just two of many recent stories.
Failing to comply will not be overlooked by our industry’s regulator. AML must be addressed or consequences faced. There’s even the potential to be closed down in extreme cases. The reason for AML’s publicity spotlight is clear: solicitors have a responsibility to run their practice in a lawful, ethical and conscientious way.
Complying is more than just good business sense. There are rules set down in law which must be adhered to. If anyone should understand the importance of obeying the law, it’s the professionals whose duty it is to ensure the proper administration of justice. And if anyone should understand the SRA’s zero-tolerance AML stance, it’s the companies who manage client accounts holding substantial sums of money thereby being a prime target for money launderers and terrorist financers.
So, what exactly is the legislation pertinent to AML? They’re not for the faint of heart. High-level rules comprise the Proceeds of Crime Act 2002, 6th Anti-Money Laundering Directive, and Money Laundering, Terrorist Financing & Transfer of Funds Regulations 2017.
Closer to home, there are further regulations for the legal sector in the form of the SRA Accounts Rules (or CLC Accounts Code for conveyancing specialists) and Legal Sector Affinity Group’s (LSAG) Anti-Money Laundering Guidance 2021. The LSAG document on its own comprises 212 pages of guidance and supplementary information for specific areas of practice.
The task of complying can feel somewhat overwhelming from the perspective of digesting and understanding your requirements alone, never mind being able to put the necessary policies, procedures and systems in place to fulfil your AML obligations. However, doing so is easier than you may think. It comes down to AML software selection. Even better if it’s integrated with your case management software. There’s more on this subject in a moment…
Challenges introduced by Covid-19
AML compliance essentially relates to identification and verification of users of your legal services, otherwise called ‘know your client’. This is as much about being assured that the person claiming a particular identity is in fact the person with that actual identity, as it is about being confident that the same person can pay for services received with money that hasn’t been procured by illegal activity.
Already a difficult enough task for practitioners pre-Covid, AML compliance was made more challenging during the coronavirus outbreak. Changing ways of operating, with home- and hybrid-working, made necessary by the pandemic, posed greater risks relating to AML for two main reasons.
The first of these was the inability to meet face-to-face with clients due to social distancing restrictions. Before, many practices relied upon in-person meetings to undertake identity and credit checks using traditional methods and physical verification documentation – driving licences, passports and the like. This option was immediately removed by the government’s work-from-home command.
The second was financial pressures, driven by the economic downturn, which in itself made practices more susceptible to criminal exploitation. During a period of uncertainty, such as the one we find ourselves still in, it’s possible that practices are less alert to unusual requests, for example different-from-the norm clients, outside-of-specialism matter types, demands to forego standard onboarding procedures and less-than-clear transactions.
Added to this, the sector’s weaker cyber defences throughout the home-working era has been well chronicled, due to practices not being as focused on cyber security with employees dispersed rather than office based. To quote a few cybercrime figures by the SRA and Law Society Gazette, cyber attacks make up 75% of the UK’s reported crimes and there was a 400% increase in cyber attacks in the early lockdown weeks equating to the theft of £2.5million which is more than three times higher than the previous year. Even more motivation, then, to begin each matter in the correct way, following defined processes, as documented in policies, using the optimum software for the job.
Now we arrive at the pivotal point… AML software. While building stronger AML fortifications can at first appear unattainable, the solution is surprisingly straightforward. Simply by choosing an industry-recognised AML tool, ideally one that’s integrated with your case management software, you can meet your AML commitments with relative ease.
Hybrid-working is the ‘new normal’ for the majority of law firms which means the challenges of face-to-face meetings and greater cyber risks remain with us all for the foreseeable. There really is no time like the present to implement electronic AML checking as it’s fit for purpose right away and comes with the promise of future proofing.
Using Insight’s own combined case management and AML software as an exemplar, the AML system which you select should: verify identities with the opportunity for credit checking too; save time by cutting out paper-and-post steps and replacing with as little as three-second checks; comply fully with the aforementioned regulatory requirements; enhance efficiencies by operating on an integrated basis with your existing software; allow no room for error by drawing upon reliable data sources; streamline new client intake mechanisms for superior service delivery; improve business intelligence through one dataset within a single solution; become part of the day-to-day by embedding into case workflow; achieve your digital goals by eliminating paper; and more. For the ‘more’ of AML software, please be our guest and take a look at Insight Enterprise’s AML checking functionality here.
The point about integration cannot be stressed enough. With so much at stake – not just the possibility of punitive fines, damaged reputation and sanctioning by regulators, but also criminal proceedings and the closure of your company – your AML procedures need to be watertight. The way to ensure this is by software integration with AML checks performed during client inception.
In conclusion, your AML software is not just a tick-box exercise. It’s about truly knowing your client, and putting preventative measures in place to combat money laundering through and through. It’s about mitigating financial risk and safeguarding client monies to the best of your ability. It’s about maintaining a complete client record while adhering to data protection rules and running your business from one integrated platform with AML functionality built in.