AML: Source of funds failures
The Solicitors Regulation Authority (SRA) reported £161m worth of suspect transactions involving the profession to the National Crime Agency (NCA) during the 18 months to April 2022, with failures to check the source of funds the main trigger.
The regulator said it made 39 suspicious activity reports (SARs) to the NCA during the period, three-quarters of which involved conveyancing. A similar proportion involved sole practitioners or firms with up to 10 partners.
In her annual report for this month’s SRA board meeting, the regulator’s own money laundering reporting officer, Sara Gwilliam, said that, in all, 51 reports had been escalated internally for her consideration, while a further 178 investigations were flagged for ongoing monitoring.
She said this year’s anti-money laundering (AML) themes “broadly remained unchanged to previous years, with no significant shift in trends”.
Apart from residential and commercial conveyancing, themes included misuse of client account – such as no underlying legal transaction – tax evasion, fraud, client or funding links with high-risk jurisdictions, and complex offshore company structures or funds to conceal ownership.
Of the 39 SARs, all but two concerned money laundering. The two involving terrorist financing raised issues of commercial conveyancing, the purchase of businesses, and complex transactions involving multiple third parties.
Ms Gwilliam said the main cause of suspected money laundering or terrorist financing was “inadequate or no due diligence or source of funds checks” conducted on clients or third parties.
“Many of the transactions bear multiple red flags and risk indicators which appear to have either been missed or ignored.
“In some rare cases, we have seen complicit behaviours by individuals working in the legal profession, and a very small number of instances where infiltration at firms by criminal enterprises is a risk factor.”
Ms Gwilliam said the SRA had a “close working relationship” with the NCA and in one case this led the SRA to submit a SAR involving “around £7m in property conveyancing transactions with suspected links to organised crime”.
She went on: “It is encouraging to see that the information we have provided is now assisting financial criminal investigations involving fraud against deceased persons estates, and an asset recovery case where we have located what appears to be a high-value hidden asset.”
The report covered an 18-month period so that in future the SRA could report annually to 5 April, bringing it in line with other reporting requirements placed on the regulator by government.
In the previous year, the SRA made 26 SARs to the NCA, involving transactions worth over £200m.
Separately, chief executive Paul Philip told the board that the SRA has contacted more than 6,000 law firms asking them to provide information on activities within the scope of the AML regulations by the end of July.
The Treasury was expected later this month to lay a statutory instrument making minor amendments to the regulations and giving its response to the call for evidence on AML regulation.
Mr Philip said the Office for Professional Body Anti-money laundering Supervision (OPBAS) was expected to publish regulatory guidance on information and intelligence sharing “that may require us to undertake additional screening on those we supervise”.
Meanwhile, the government had started work on the new economic crime plan covering how the public and private sector can work together to prevent financial crime, which is due to be published in the autumn.
The SRA would continue to monitor “rapid changes” in the area of financial sanctions, undertaking a thematic review that would form the basis for guidance to be published in the autumn.
Mr Philip said: “We continue to highlight government changes to the regime that would allow us to work more effectively in this area, including greater powers to proactively request information and increased in-house fining powers for traditional firms.”
