Quality of AML reports from solicitors “getting worse”

AML: Good reports essential to work of NCA

The quality of one of the two main kinds of anti-money laundering (AML) reports made by solicitors has got significantly worse, a senior manager at the National Crime Agency (NCA) said yesterday.

Tony Fitzpatrick said 58% of the 1,546 defence against money laundering (DAML) requests sent by solicitors in the last financial year were not clear enough and required the NCA to send the law firm a letter.

Solicitors can send a DAML request, rather than an ordinary suspicious activity report (SAR), where they suspect the property involved is in some way criminal and they are at risk of committing a money laundering offence. If the NCA consents to the request, the law firm will not be committing the offence.

The number of DAML requests made by solicitors in the financial year 2019-20 was almost identical to the number of SARs, which stood at 1,552.

However, Mr Fitzpatrick said the quality of the DAMLs had “got worse” since the previous year, when 45% of requests required a letter from the NCA.

Speaking at the Solicitors Regulation Authority (SRA) annual COLP and COFA conference, held virtually, Mr Fitzpatrick, head of the reporter engagement team at the NCA’s UK financial intelligence unit, showed the audience of around 1,000 compliance officers some particularly bad examples of DAMLs by solicitors.

One of them was typed in capital letters, without proper punctuation or paragraphs. Mr Fitzpatrick said it was “very hard” to read, let alone find out what the solicitor’s suspicions were. No response was made to the NCA’s letter and the case was closed.

A second example, written in lower case with proper punctuation, mentioned a sum of money coming from China to fund a property purchase, but did not give any details of the transaction, including the purchase price.

Mr Fitzpatrick said good AML reports were essential to the work of the NCA and useful for data analysis.

“I have used your SARs in human trafficking and child exploitation cases,” he told delegates.

A poll of the audience found that 60% had submitted a SAR of one kind or another, almost half (47%) knew there was guidance on the NCA website and 49% had read the SARs FAQ document.

Mr Fitzpatrick said DAMLs arriving at the NCA were coded in term of their quality. ‘Code C’ was for DAMLs which had obvious mistakes or were “totally incomprehensible”. There were 127 of them from solicitors in the year 2019-20.

Meanwhile the SRA, in the latest edition of its Risk Outlook, highlighted the surge in cybercrime triggered by the coronavirus crisis and subsequent lockdowns.

In the first half of 2020, the regulator said that nearly £2.5m held by law firms had been stolen by cybercriminals – over three times the amount reported in the first half of 2019.

“The lockdowns have made firms more dependent than ever on technology. Many firms needed to adjust in a hurry. This means that some systems are more vulnerable to attack.”

The SRA said there was also a 337% rise in phishing scams in the first two months of the first lockdown. Phishing involves sending emails, appearing to be from reputable organisations, to persuade people to reveal personal information, such as passwords and credit card numbers.

The SRA said the impact of cybercrime on law firms was felt in higher insurance premiums, having to pay for financial losses, lost time, damage to client relationships, lost jobs, and stress and pressure on staff.

Looking to the future, the regulator said Interpol had predicted that cybercrime was “likely to carry on increasing because the economic downturn and working from home can make many businesses vulnerable”.

In a further challenge, when Covid-19 vaccines and treatments are released in the next few months, “phishing attacks about these are likely to spike”.

Paul Philip, chief executive of the SRA, said: “The Covid-19 pandemic has presented real challenges for all of us and how we work. While it will take some time for the implications to be fully understood, it is already clear that the pandemic has also exacerbated many of the wider, day-to-day risks faced by law firms and their clients.

“While none of us can predict exactly what 2021 will bring, we know that by considering likely risks, identifying where they may be vulnerable and planning accordingly, firms can take preventative action.”

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