Mariam Dobosz, Access Legal
By Mariam Dobosz, Senior Risk and Compliance Associate at Legal Futures Associate Access Legal [1]
It has been a fast paved environment and we have seen significant changes to the legal framework within the last few years including numerous updates to the UK Sanctions Lists and it becoming a focus for many regulatory bodies as part of their audits and regulatory landscape. As a result, we have seen more law firms approach us for help with their Sanctions processes and review whether their current controls are fit for purpose.
The strict liability in relation to civil fines for breaches of trade and financial sanctions means that there is no excuse for noncompliance. The SRA also conducts the annual data collection on AML and Sanctions; therefore, the firm must provide relevant details on exposure to Sanctions.
The requirements apply to all law firms. However, good news is that entities having good AML controls may already be well equipped with the processes regarding the UK Sanctions Regime.
It is crucial for law firms to have a person responsible for compliance with the UK Sanctions Regime. This can be COLP, MLRO, MLCO, etc. They should:
- Know legal and regulatory requirements
- Setup processes for sanctions checks for all relevant parties/ individuals and ongoing monitoring
- Know procedure for requesting specific and general licenses
- Have established procedures for internal and external reporting of any potential breaches of the UK Sanctions
Where to start?
Even though it is not a regulatory requirement, it is the best practice to have a Sanction Firm Wide Risk Assessment. One of the questions within the Annual AML and Sanctions Questionnaire asks whether the firm has one in place. The SRA has produced guidance on this aspect together with a template. Therefore firms can use this publication as a starting pointing. Firms having AML and CTF Firm Wide Risk Assessments in place can use these as a checklist of risks to consider. Some of the key aspects that should be considered are:
- The firm: Where does the firm operate? How many offices do you have and where? Only in the UK? If the firm has subsidiaries abroad other Sanctions Regimes will have to be considered and making sure that these branches are compliant with the UK Sanctions Regime.
- Setup of the firm: How many employees do you have? Are employees office based or working remotely? Do you have any consultants working for the firm? If yes, what is the setup?
- Services offered: Review all services offered in line with the sanctions risk exposure noted by the SRA. The risks should be assessed to the different types of sanctions such as trade and financial. The firm should review both national publications such as Office for Financial Sanctions Implementations, Office for Trade Sanctions Implementations, as well as the sectorial publications such as SRA Guidance
- All types of funds: In contract to the AML regulated matters, there is no defense for adequate consideration. Therefore, if any client who is a sanctioned entity pays for legal fees without appropriate License (either General or Specific) in place, this would amount to a breach of the UK Sanctions Regime (depending on type of sanction in place). Who pays your fees? What payment types do you accept? Do you accept funds from abroad? When do you receive funds from counterparties? What type of litigation are you are involved in?
- Your Professional Indemnity Insurers: Speak with your PI Insurers if they have any view of risks in relation to the Sanctions including conducting work under General or Specific Licence.
Finally you need to establish your firm’s risk appetite regarding Sanctions. Would you deliver any services under General Licence? Would you apply for a Specific Licence?
Next steps
It is recommended that above is documented in a written format. Once you decide on the risk appetite, it was communicated that to your PI Insurers, staff members. Some banks also contact the owners of the business accounts asking about the specifics of transactions conducted especially in relation to the international payments; countries from where the funds are received from and sent to.
There is no set guidance on the format of the document. The firm should decide whether it is easier to maintain one document and merge together Sanctions and AML, CTF risks or have a separate Sanctions Firm Wide Risk Assessment.
The next step will require establishing specific procedures in relation to compliance. Again, good news, if a law firm already has AML controls in place, these may be applicable to the UK Sanctions Regime.
It is also crucial to communicate the Sanctions procedures to the staff members and to provide the appropriate training.
The UK Sanctions Regime continues to be a complex landscape and law firms have no other choice than to be compliant. Therefore, with further updates to the regulatory and legal landscape very likely, law firms should ensure that compliance with the UK Sanctions Regime is high on their compliance priority list.
Worried about sanctions compliance?
Let our specialist team take the pressure off. At Access Legal, we deliver expert risk and compliance consultancy, helping your firm stay aligned with regulatory and quality standards, so you can focus on what you do best.
Get in touch to find out how our sanctions audit can give you peace of mind. Services contact [2]