Anti-money laundering: Step change in effectiveness needed
Only a single body policing anti-money laundering (AML) supervision across the UK legal sector will deliver “the step change in effectiveness that is needed”, a campaign group has argued.
“Fiddling around the edges of a broken system will not be enough to raise the standards of AML supervision across the board,” said Spotlight on Corruption. “We need to grasp the nettle of structural reform.”
Its Broken Record report found that, despite some bright spots of best supervisory practice, “long-standing and fundamental problems remain”.
Spotlight said: “Lawyers need to be at the forefront of preventing dirty money entering the UK. But time and again lawyers have been found to be some of the most prominent professionals at the heart of laundering schemes, or facilitating transactions for clients against whom there are widespread allegations of corruption.”
Currently, the Office for Professional Body Anti Money Laundering Supervision (OPBAS) oversees nine legal and 13 accountancy AML supervisors.
In the law, these are the Solicitors Regulation Authority (SRA) and Bar Standards Board, the law societies and bar councils of Scotland and Northern Ireland, the Chartered Institute of Legal Executives/CILEx Regulation, the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.
In 2023, HM Treasury consulted on the future of AML supervision, with a single supervisor for the legal sector one of the options. The SRA has put itself forward for the role, but the government has yet to make a decision.
OPBAS’s most recent assessment concluded that it was not seeing “the consistent, effective improvement we need” among legal supervisors and Spotlight on Corruption agreed.
On the positive side, it said, more resourcing at the SRA had meant “a huge uptick in supervisory activity”, while it praised a new risk-based approach to supervision and a new risk register at the Council for Licensed Conveyancers. Both had shown an increased appetite for enforcement as well.
The Law Society of Scotland, meanwhile, had introduced an “innovative analysis of risk factors for money laundering among Scottish lawyers”.
But among the areas of “ongoing fundamental concern” were the SRA’s “failure to land major blows against large law firms” at the Solicitors Disciplinary Tribunal.
“The causes of the SRA’s difficulties in landing contested cases before the tribunal are complex, but undoubtedly include the challenge of proving clear missteps and shortcomings in particular cases where firms have outwardly strong AML systems.”
The report also highlighted inconsistencies of approach across the different regulators.
For example, while the CLC has recorded a “sharp increase” in onsite visits, the SRA’s greater supervisory activity has favoured desk-based reviews. Barristers across the UK face “very little proactive supervisory activity at all”.
There were also high rates of non-compliance with AML rules, with “little shift” in rates of 50% non-compliance in the conveyancing sector, and nearly 30% non-compliance among English solicitors.
“Alarmingly, more than 50% of high-risk Scottish firms were found to provide ‘limited’ or ‘very limited’ assurance about their AML procedures.”
Inconsistencies in supervisors’ strategies, powers and sanctions resulted in “huge discrepancies” in enforcement outcomes, with the biggest fine of an English firm hitting £500,000 in 2023/24 while fines against Northern Ireland solicitors are capped at £3,000.
While no structural reforms were “without risks that need to be mitigated”, Spotlight on Corruption argued that a single statutory AML supervisor for professional services “offers the best way forward to address the ongoing inconsistencies in supervision in the sector”.
But it said consolidation “must build on some of the incremental gains that have been made”.
As a first step, it recommended that the government “relieve failing professional body supervisors of their duties as an urgent priority within a carefully managed transition to consolidated AML supervision” – including the two out of nine that OPBAS found were “clearly ineffective” but did not name.
The other recommendations were to establish best supervisory practice, work towards a “consolidated public register of the regulated sector” – as not all lawyers fall within the AML regime – “retain, integrate and build sectoral and regional AML expertise in any new AML supervisory structure” and expand thematic work and cross-sectoral information-sharing.
Dr Helen Taylor, Spotlight’s senior legal researcher and author of the report, said: “After six years of listening to the same broken record, it is now clear that the UK’s current system of AML supervision of the legal sector is not up to the job, despite the best efforts of OPBAS.
“With a Financial Action Task Force review looming in 2027, now is the time for the government to call time on this fragmented system and consolidate AML supervision of the non-financial professional services.”
Leave a Comment