Scott Devine is Policy Adviser for Anti-Money Laundering at The Law Society. He told Today’s Conveyancer why it’s such an important area for solicitors to be savvy in…
What exactly does The Law Society do regarding money laundering?
“The Money Laundering Task Force is The Law Society’s body of experts on money laundering and is chaired by Suzie Ogilvie, Head of Anti-Money Laundering at Freshfields. We, as a group, work on policy matters so when new legislation is proposed that will impact on the money laundering regime in the UK we ensure it’s fair and proportionate – that the policy objectives of the government are met but not in a way that’s unnecessarily burdensome on business. We talk to law enforcement agencies, government, the UK and European parliaments and we attend FATF (Financial Action Task Force on Money Laundering) meetings when they relate to legal sector issues.
“That’s the policy side and then the other side – which is just as big if not bigger – is our educational role. We have many streams of advice and education in the AML-space. In fact the National Crime Agency last year commented that the UK legal sector had far more AML information available to it than other sectors, and that is testament to our work.
“We have a dedicated anti-money laundering section on our website and send out a bi-monthly email update to about 15,000 subscribers with the latest policy updates, guidance articles, case reviews and any alerts we receive from law enforcement agencies. Collaboration is a huge part of what we do – we can’t inform solicitors on how they might be duped if law enforcement and regulators don’t share with us the tricks people are trying to pull. So we rely on the NCA and the Solicitors Regulatory Authority to provide us with reports of scams that are running and then we get that information out to the profession. What can be tricky is disseminating it in a way that doesn’t let the scammers know people are on to them – in some cases we can’t put alerts on public websites as the criminals could read them.”
How do you get around that?
“We have an AML forum which is a password protected website where people can chat about the issues – everybody on that is registered with us. So, in our bi-monthly reports, we’ll write: ‘There is a new alert out from the NCA – for more information, log on to the forum.’
“We send information to the Practice Advice Service as well – that’s our phone line for solicitors – up to 20% of its calls are related to money laundering issues, especially from smaller firms. Any issues that repeatedly arise through that phone line I feed into our training to ensure that the areas that people are having trouble with are addressed.”
What are the big stories in money laundering at the moment?
“We have a busy period coming up as the UK’s anti-money laundering regime is due to be inspected by the FATF over the next few years and will want to have its house in order in the run-up to that. Initially the inspection was pencilled in for the middle of 2016 but the latest word from the Treasury is that the FATF has indicated that it’s running behind schedule so late-2017/early 2018 is now more likely.
“The FATF set the international anti-money laundering rules. They last updated these rules in 2012 further indoctrinating a risk-based approach and moving away from a rules based, tick box approach. The Home Office and Treasury have, over the past 18-months, put together a national risk assessment looking at all the regulated sectors, including the legal sector, and developed a picture of where the dangers regarding money laundering are so resources can be moved towards those areas. The UK’s National Risk Assessment is due to be published in March.”
Is the EU Fourth Money Laundering Directive on track?
“The Fourth Money Laundering Directive will receive a full sign-off in a plenary session of the European Parliament which is scheduled for the middle of March. There will be no further amendments to the text as the final stage is a ‘take it or leave it’ vote and, after that, member states have two years to transpose it into their own legislation. I would anticipate that the UK will want to do it sooner rather than later so it’s in place when FATF inspects us.”
Is money-laundering a particularly big issue in conveyancing?
“Yes – money launderers have traditionally looked to exploit property transactions as they are high value and low volume. Saying that, the systems conveyancers have in place to combat money laundering are, in my experience, very good. In the past conveyancing may have been perceived as a bit of a soft target but that certainly isn’t the case now. There has been a lot of work done by solicitors and estate agents to tighten up their systems and lots of weaknesses have been eradicated.
“Ongoing monitoring, for example, is an area where systems have become stronger in conveyancing. That’s important because sometimes when facts are presented at the client on-boarding stage everything seems fine but when they move further down the line in the transaction red flags can appear.
“And conveyancers have improved their attitude towards training in anti-money laundering as well. It shouldn’t be limited to the one or two people in the firm who deal with compliance – there should be a whole of firm approach so staff aren’t afraid to speak up about any suspicions that they may have.”
What would a red flag be?
“The FATF produced a paper about vulnerabilities in the legal profession in 2003 which identified 42 red flag indicators which are indicators of possible money laundering that could warrant further investigation.
“For example, on a property purchase lawyers should be alert for an unusual manner of execution – that could be funds deposited unusually early in the transaction, perhaps even before a price has been agreed between the parties. A large deposit that doesn’t tally with the client’s income is also a red flag so solicitors must verify that the amount of money coming in matches the client’s financial profile. Situations where more funds are deposited than the purchase price of the property with the remainder remitted to a third party – that’s suspicious. And so are back to back property transactions, where somebody buys a house and sells it on immediately. They’re all situations where parts of the deal are out of synch with normal property market dynamics and solicitors should be alert to them.
“One of the things The Law Society has done – in conjunction with the International Bar Association, the American Bar Association and the CCBE (the Bars of Europe) – is write an AML guidance report highlighting the red flags that emerged from the FATF report alongside some practical examples of how these red flags may emerge in real-life transactions. The ‘Lawyer’s Guide to Detecting and Preventing Money Laundering’ is a ‘by lawyers for lawyers’ guide with relevant case studies and I’d highly recommend it to everyone working in the conveyancing sector. It’s available, free, to download, on The Law Society AML page.”
Are electronic checks essential?
“Electronic checks will only prove that someone exists – not that it is the person the solicitor is dealing with – so electronic checks are useful but cannot completely eliminate the need for examining hard copies of documents. The risk-based approach to AML requires common sense – as long as solicitors are performing a good risk assessment of the client at the beginning and, as a firm, have a good idea of where the biggest risks lie, they are in a good position to judge whether they have adequately fulfilled their CDD obligations.”
Why do you think so few firms are submitting suspicious activity reports (SARs)? Is there a lack of concern about money-laundering?
“One thing we need to remember here is that the NCA and its predecessor – the Serious Organised Crime Agency – have always been clear that there is no ‘right’ number of SARs. They have been reluctant in the past to say that any drop in SARs means compliance is lacking in a certain sector – however they did ask The Law Society, on behalf of the legal sector in the UK, whether we had any ideas as to why SARs submitted by the legal sector had dropped by 8% in the past year.
“So, at the Conveyancing and Land Law Conference in October of last year, we asked delegates for feedback on the reasons for the drop in SARs. And several emerged: that the Proceeds of Crime Act has been subject to piecemeal amendment by parliament and interpretation by the courts in the ten years it has existed and that amendments have had a lot of influence on whether lawyers make reports; that, in the past, lawyers have been accused of defensive reporting in cases where, perhaps, a report wasn’t necessary; and that the economic downturn led to a sharp drop in mergers and acquisitions in the residential property market and, obviously, fewer transactions means fewer SARs.
“What we have said is that analysing the number of SARs alone is no way to assess the effectiveness of the legal sector in fighting money laundering. One hundred pointless SARs are not as good as ten worthwhile SARs. What’s important is how effective our reports are – not how many there are.”
Could it also be that the education and support The Law Society is providing around money-laundering is cutting the number of SARs as they are working?
“Yes – we’ve worked really hard to eliminate the number of defensive SARs through education and I think the drop in numbers could also indicate that our policy on that has been successful.”
What about the future of anti-money laundering regulations?
“The SRA is doing some focussed work on money laundering at the moment – it’s halfway through surveying 500 firms and, so far, we hear that despite the discovery of some poor behaviours, the overall picture is good. When the SRA has finished we can look at the results and feed any specific areas requiring further attention into our training so that will help us work out where to go next. Another issue around money laundering is going to be the update of the UK regulations in the wake of the Fourth Money Laundering Directive. One of the biggest changes will be around politically exposed persons (PEPs). A PEP is a person who has been entrusted within the past year with a prominent public function, such as a politician, a judge, or a high ranking civil servant or military officer. Whereas previously only foreign PEPs needed to be subject to enhanced due diligence measures, the new regulations will require the same treatment for domestic PEPs.”
For more information about The Law Society’s work in anti-money laundering, log on to http://www.lawsociety.org.uk/aml.
