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SRA warns against money laundering ‘complacency’

The following article has been extracted from the Law Society Gazette:

Law firms are generally effective at tackling money laundering, but the Solicitors Regulation Authority says solicitors must avoid complacency after it uncovered examples of malpractice during site audits.

The regulator’s Anti-Money Laundering Report says firms inspected had a designated money laundering reporting officer and most had ‘effective’ AML compliance frameworks.

Firms and staff had a ‘positive attitude’ to compliance and were ‘trying hard’ to meet their obligations.

However, ‘weaknesses’ were identified at some firms and the regulator is ‘actively investigating evidence’ of potential money laundering in a ‘limited’ number.

The regulator found that some firms still referred to the Serious Organised Crime Agency (SOCA) rather than the National Crime Agency (NCA), which replaced SOCA in 2013.

‘This suggested a failure to review and amend policies regularly, and raised questions about their use and effectiveness and the firm’s commitment to AML generally,’ the report states.

One large firm, which had undergone a merger, had not updated its AML systems and processes.

Another large firm’s training records suggested some staff had not had AML training since 2008, including staff in a ‘high-risk’ commercial sector.

Several partners and associates at another large firm who did transactional work ‘had not received AML training for up to seven years’.

The SRA flagged one firm’s ‘inconsistent’ approach to reporting, which led to suspicious transactions not being appropriately considered, recorded or reported to the NCA. In this case, the reporting officer ‘will not be able to justify his internal AML decisions, if criminal or regulatory allegations arise’, the report states.

Some firms lacked knowledge of when and how to establish a client’s source of funds and source of wealth, with some unable to distinguish between the two. In most cases, fee-earners were making enquiries with clients about these, but the client’s response was often taken at ‘face value’ with no request to see supporting documents.

Some firms also risked breaching regulations by charging clients the cost of undertaking client due diligence. The regulator says it ‘expects such charges to form part of a firm’s overheads’.

However, it added: ‘There may on occasion be circumstances in which the cost of the [client due diligence] is particuarly high (for example, when you have to carry out an overseas company search) and firms may wish to seek agreement with their client that the cost will be payable by the client.’

Despite these examples, SRA chief executive Paul Philip (pictured) said the ‘overall picture is positive’, but warned that ‘neither we, not the firms we regulate, can be complacent’.

Philip also used the issue to lobby once again for full separation from the Law Society. ‘Against the backdrop of government proposals to separate our regulation and representation in the legal sector, it is timely to remind ourselves that any perception of a conflict of interest will undermine public confidence,’ he said.

‘Although we operate independently, our status as part of the Law Society, which represents solicitors and their interests, is thrown into sharp relief in this difficult area. Truly independent regulation is all the more necessary as the need to fight corruption and money laundering becomes ever more important.’