Posted by Sian Darlington, Associate of Legal Futures’ Associate Teal Compliance
I’m sure that there isn’t a law firm left in the UK which remains blissfully unaware of the risks posed by money laundering. If you are, get in touch at once!
Practitioners are (or should be) familiar with the warning signs – secretive clients, high-value cash transactions, use of third parties – and the obvious example of criminals using property transactions to launder their dirty money.
But, as time moves on, methods of crime and the laundering of its products also change. In this blog we will look at five unexpected ways in which law firms and lawyers can fall foul of criminals and offer suggestions of how you can avoid becoming a target:
Hackers – Cyber-crime is the fastest growing area in criminal law and law firms are finding themselves increasingly targeted by hackers, not just as a means to divert money but also to steal data and even just as ‘sport’ in the form of ransomware attacks.
In 2018, over £11m was stolen by hackers from law firms, and the costs of dealing with cyber breaches no doubt make the total loss figure much higher. The Solicitors Regulation Authority (SRA) revealed last week that, out of 40 firms it has reviewed after a cyber-attack, 23 had between them lost £4m of client money.
How firms can protect themselves against cyber-crime is a whole blog series in itself but it is worth bearing in mind that smaller firms are increasingly at risk as they are perceived to be less tech-savvy and easier targets. It is really important for firms not only to ensure that their systems are adequately protected but also that staff are aware of the methods and risks posed by cyber-criminals.
Using lawyers to lend legitimacy to illegitimate schemes and transactions – I recently defended on a case where the business operated by the defendants had recruited an in-house solicitor immediately prior to the start of an allegedly fraudulent scheme. That solicitor sat in on business meetings and advised on the content of business documents. External solicitors had also been consulted and had given advice.
The involvement of these solicitors was used to justify the legitimacy of the defendants’ actions. The prosecution’s case was that it was a deliberate strategy of the defendants to give an air of legitimacy to their illegitimate scheme.
Whilst all the solicitors involved denied any knowledge and did not face prosecution, they were interviewed as part of the investigation and potentially faced action for misconduct from the SRA. This is a reminder of the importance of staff considering suspicion and internally reporting to the money laundering reporting officer (MLRO) even in situations where the firm isn’t dealing with financial transactions on behalf of the client.
Probate fraud – according to the Society of Trust and Estate Practitioners, probate fraud costs in the region of £150m a year.
It may be committed both by family members and by organised criminals, who use various methods to divert funds away from the beneficiaries. Probate fraud is considered to be extremely rife and it is therefore vital that probate lawyers are aware of such risks and ensure that payments are made to the right person, not only to avoid costly pay-outs but also potential actions for negligence.
Sham litigation – Litigators have typically considered themselves at little risk of falling foul of money launderers but are now increasingly finding themselves a target.
In one example, a law firm was contacted by an overseas business and instructed in relation to a business dispute involving a company local to that firm. The client passed all compliance checks and provided a payment on account of £50,000, which was not excessive in terms of the scale of the dispute.
A week later, the client advised that the matter had settled and requested the return of the monies, subject to the deduction of a nominal amount of costs. In this case, there had been some factors which led to the solicitor concluding that something did not “feel right” and reporting the matter to the MLRO.
This is another example of the importance of non-transactional staff being aware of the warning signs and being encouraged to report any suspicions to the MLRO.
Use of fake identity documents – Solicitors are familiar with the idea of obtaining and checking identity documents from clients and original photographic identification, such as a passport or driving licence, is often viewed as the best possible source of identification.
However, advances in technology mean that forgeries can now be so realistic it is virtually impossible to tell that they are not real by manually checking. Even the big banks and money lenders are being taken in. The only way for firms to protect themselves against this risk is by using electronic verification – something to consider if you are not already doing so.
Ultimately, the best tool each law firm has to protect itself against criminals is its staff. If you ensure all staff, not just fee-earners, are trained and updated, and if you have systems and procedures in place that are easy to understand and follow, then you are giving your firm the best possible chance to avoid becoming not only a victim of crime but a possible inadvertent accomplice.