AML Risk Outlook

Money laundering

Why this risk matters

• The legal market can be an attractive target for those wishing to launder the proceeds of crime. In some cases, criminals instruct legal professionals to hold or transfer money because of the perceived legitimacy this offers
• The National Risk Assessment of Money Laundering and Terrorist Financing 2017 reports that the legal sector remains at high risk of exploitation for money laundering. The level of risk varies by type of legal transaction, with trust and company formation, conveyancing, and misuse of client accounts being assessed as the biggest risks.
• Solicitors have numerous regulatory and legal obligations to be aware of including the Criminal Finances Act and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
• Solicitors have a duty to uphold the rule of law and support the proper administration of justice. Failing to meet their anti-money laundering obligations puts this at risk.

Trends

• The number of Suspicious Activity Reports (SARs) submitted by the legal sector has risen for the first time in seven years, but is still disproportionately low.
• Reports to us relating to money laundering have increased over recent years, with around a third relating to residential conveyancing.
• HM Treasury have recently expanded their enforcement powers under sanctions legislation. These regulations reinforce the obligation on law firms to report to the Treasury if they act for anyone subject to financial sanctions. Significant financial penalties can be applied for serious breaches.
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 are now in force. The new obligations cover a range of areas including:
  • client due diligence
  • policies, controls and procedures
  • a central register of beneficial ownership
  • politically exposed persons
  • registration of trust and company service providers
  • criminality testing.

Actions

• We expect all law firms to comply with their legal obligations.
• The government has specifically targeted its ‘Flag it up’ campaign at helping solicitors and accountants identify potential money laundering signs.
• The Office of Financial Sanctions Implementation have updated their guidance, and released a quick guide.
• We will be updating our guidance on the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 during 2017. We are working with other regulators across the UK to provide a consistent approach.
• Any action we take in relation to breaches of the new regulations will be proportionate and in accordance with our enforcement strategy.
• We recognise the short lead-in time businesses have been given to implement the new requirements. We will take a proportionate and pragmatic approach as firms take steps to comply with the new requirements.