Government u-turn on scrapping criminal sanctions for breaches of money laundering regulations

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By Legal Futures

20 July 2012

Anti-money laundering: storage of legal documents will not trigger requirements

The government has changed its mind over scrapping more than two dozen money laundering offences that can penalise lawyers for minor rule breaches, but has emphasised that minor failures should not lead to prosecution.

Announcing the result of a consultation on reforming the 2007 Money Laundering Regulations, carried out a year ago, the Treasury said the majority of respondents opposed the removal of criminal sanctions, and that they highlighted key risks inherent in such a move.

The Law Society supported removal, arguing that it would not reduce compliance because the current situation – where legitimate businesses that inadvertently breach the regulations can be treated the same as drug dealers – means “most regulated persons and supervisors are not making suspicious activity reports to [the Serious Organised Crime Agency] about breaches of the regulations, because the result is so egregious”.

The Treasury cited the society’s position and said: “To address the concerns of those opposed to the criminal penalties, the government encourages supervisors [such as the Law Society/Solicitors Regulation Authority] to work with law enforcement agencies to improve awareness and understanding of where prosecution action may be taken.

“The government reiterates the point made by the Crown Prosecution Service that it is not in the public interest to prosecute employees of regulated businesses for minor, procedural or accidental regulatory failures.”.

The Law Society said it was “dismayed” by the decision. “The Law Society firmly believes that effective enforcement of procedural compliance with the UK’s anti-money laundering (AML) regime is by disciplinary action and removing the right to stay in business for those who repeatedly fail to meet their obligations.”

In the last year the Solicitors Disciplinary Tribunal struck off six solicitors where there were significant failures to comply with AML obligations, it added.

However, the Treasury did respond positively to calls for the new definition of ‘safe custody services’ – the provision of which triggers compliance with the regulations – not to include lawyers storing legal documents, such as wills.

It will also strengthen the SRA’s powers as a supervisor, such as introducing penalties for the unreasonable failure to provide information.

Further, the Treasury listened to the worries of the law societies of the three home nations about the practical difficulties for law firms in providing to banks beneficial ownership information of funds in their client accounts on request without explicit consent from clients.

It said: “The profession has expressed concerns that the request does not provide a statutory override of confidentiality and believe that asking their members to implement a blanket informed consent regime would be disproportionate and an inappropriate use of compliance resources.”

The Treasury said it will consider changing the regulations, if negotiations at EU level on the next money laundering directive are not successful in producing a solution, so as to provide “a limited statutory override of client confidentiality in these circumstances”.

It also announced it was changing its mind on exempting very small businesses (less than €15,000) from the regulations, saying there was no correlation between size and risk.


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