What just happened?

The SRA defines money laundering as not a victimless crime – “it has severe impacts across our society and economy. It allows criminals and their associates to use funds from crime, such as the illegal drugs and firearms trade, people trafficking and fraud.” (1)

Due to the disruptions brought by Covid-19 and the subsequent economic downturn, law firms have become subject to an increasing number of new money laundering schemes. New money laundering schemes related to Covid-19 that have been reported to the National Crime Agency (NCA) include:

personal protective equipment (PPE) trading claims
fraudulent claims on the government’s support schemes.

What does this mean?

During a press conference this week on Money Laundering, the SRA said that Law firms should know where their clients’ money comes from if they want to be better protected against money laundering. The regulator said today that solicitors should ask questions about client wealth before engaging in any transaction.

Mark Boyle, policy lead on anti-money laundering for the regulator, said “that the idea that firms need to check only whether clients have a UK bank account is a myth. The key is knowing who your client is and understanding who your client is and understanding why they have come to you”. (2)

Helena Wood, associate fellow with the Centre for Financial Crime who was also present added: “If you want criminals to stop, what they really rely on is weak systems and controls, complacent compliance officers and those activities helping them access the credibility and respectability they need”.(2)

A bastion of global trade, the UK is seen by some as a prime target for money laundering, fraud and other financial crime. Last year alone 172 AML investigations were opened, many of which involved a layering strategy in complex financial schemes.

In the past 5 years, the SRA has taken more than 60 AML cases to the Solicitors Disciplinary Tribunal, resulting in the suspension/removal of more than 40 lawyers. A damning report in 2019 showed that more than 1 in 5 law firms from a sample of 400 in the UK didn’t have adequate compliance processes in place to meet the 2017 anti-money laundering rules (3).

How does this affect the legal sector?

Law firms and solicitors are seen by criminals as attractive inadvertent facilitators of money laundering because of the position of trust they hold. The SRA says the number of money-laundering related matters dealt with is on the rise. Firms involved with conveyancing work, handling client money and managing trusts are most at risk.

Conveyancing is currently at heightened risk because the current stamp duty land tax (SDLT) holiday break given by the government during Coronavirus, which specifically aims to increase the number and value of property transactions.

High-net worth individuals from overseas who are looking apply for residency through the investor visa scheme, could use solicitors to make UK investments using criminal proceeds. Solicitors working in the London property market are at particular high risk.

One way criminals targeted law firms during the last economic recession was to instruct firms on seemingly big deals. They hoped that the firm would be so focused on the fees it could earn rather than see the risks.

It is becoming more important that lawyers carry out thorough risk assessments. They should be aware of the red flags for money laundering, such as unusually complex client ownership structures, or large amounts of money. (4)

Many firms will have found Client Due Diligence, including appropriate levels of identification and verification, more difficult because of lockdowns and social distancing measures. Whilst electronic verification tools can be helpful, it is important that firms train staff to use them appropriately.

Many firms have modified their risk assessments following Covid-19, but some have found it difficult to adapt in such a turbulent period. For example, moving from in-person meetings to online communication exposes firms to different types of risks. As such they will need different control measures in place. Criminals are opportunists and will take advantage of uncertain times to deceive firms and consumers. Solicitors need to fully understand the risks and adapt their practice appropriately.

Written by Jessie Mahal

References:

1. Sra.org.uk. 2020. Anti-Money Laundering. [online] Available at: <https://www.sra.org.uk/risk/outlook/risk-outlook-2020-21/anti-money-laundering/> [Accessed 25 November 2020].

2. Hyde, J., 2020. SRA Tells Firms: Check Exactly Where Your Client’S Money Came From. [online] Law Gazette. Available at: <https://www.lawgazette.co.uk/news/sra-tells-firms-check-exactly-where-your-clients-money-came-from/5106520.article> [Accessed 25 November 2020].

3. Van Dijk, B., 2020. One Fifth Of UK Law Firms Found To Be AML Non-Compliant. [online] bvdamerican. Available at: <https://www.bvdinfo.com/en-us/blog/compliance-and-financial-crime/one-fifth-of-uk-law-firms-aml-non-compliant> [Accessed 25 November 2020].

4. Bell, A., 2020. Anti Money Laundering. [online] Lawsociety.org.uk. Available at: <https://www.lawsociety.org.uk/topics/anti-money-laundering/> [Accessed 25 November 2020].

Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.