Law Firms Improving Anti-Money Laundering Procedures

Law firms are improving their processes when it comes to anti-money laundering procedures. 

Reports, about concerns involving law firms handling client money, submitted to the Solicitors Regulation Authority (SRA) by accountants, have fallen by 13% in the past year, according to SRA Accountants’ data analysed by Hazlewoods. 

In 2018, a total of 1,194 qualified reports were made to the SRA regarding concerns in the way law firms were handling client money. This figure had fallen from 1,380 in 2017. 

The reduced number in reports submitted by accountants could be testament to the improved processes law firms have made when it comes to anti-money laundering following the introduction of the fourth anti-money laundering directive in 2017. 

Numbers have also been reducing over the past five years after the SRA relaxed its guidelines on what constitutes a serious breach. Since 2014, the issues accountants are obligated to report have fallen. 

Before the reporting requirements for accountants were amended in 2014, 4,731 reports were made to the SRA. 

However, the reductions in reports in recent years has been significantly greater and suggests law firms are tightening anti-money laundering procedures and processes in addition to how they handle client money. 

 Whilst law firms can feel vindicated for improving internal procedures when it comes to the prevention of economic crime, many regulatory findings suggest noncompliance is still a critical issue in the legal sector. 

In 2017, 152 reports of money laundering allegations were made against SRA regulated law firms. Unfortunately, this increased to 218 between January and September last year. 

The findings were released as part of the Upholding Professional Standards 2017/18 report. 

Furthermore, in May, 26 SRA regulated firms out of a sample size of just 59 law firms providing trust and company services (TCSP) were placed into the SRA’s disciplinary process for inadequate money laundering procedures. The suggestion that over 200 firms are currently non-compliant highlighted a need for greater guidance on AML compliance. 

The review in May focused on the creation and administration of trusts and companies on behalf of clients, an area of law the Government deemed to be at most significant risk of money laundering as criminals look to exploit the system and launder their ill-gotten gains. 

The SRA speculated that two thirds of its regulated firms needed to comply with Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR 2017).  

44% of firms who are legally required to comply with MLR 2017 were failing in their obligatory requirements to some extent. 

The report also found that too many risk assessments, which are considered as vitally important to MLR 2017, were viewed as inadequate. In total, over a third of firms (24) had failed to create robust risk assessments with many areas of the regulatory strands missing completely. Worryingly, 4 law firms had failed to create any risk assessments at all. 

Firms were accused of failing to complete the necessary customer due diligence (CDD), especially concerning Politically Exposed Persons (PEPs) and Suspicious Activity Reports (SARs). Only a sixth of the sample (10 firms) had completed a SAR in the past two years. 

Jenny Staight, Associate Director at Hazlewoods, said:

“The National Crime Agency has identified law firms as being particularly vulnerable to being exploited by money launderers, so this is likely to be an area of intensive focus by the SRA over the next few years.” 

Has your law firm improved internal processes when dealing with suspected money laundering? Or, do you feel law firms are still struggling to monitor and report this issue? 

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