Money laundering prosecutions are in the pipeline

Reports and statements issued over the last couple of months demonstrate that money laundering remains a significant problem for
the profession. Not only
have domestic authorities
reaffirmed their commitment
to addressing issues raised
by money laundering, international organisations have worked together to produce A Lawyer's Guide to Detecting and Preventing
Money Laundering.

The SRA has confirmed there are a number of money laundering-related prosecutions in the pipeline that will shock the profession. Examples cited are prosecutions for having manifestly ill-qualified or unsuitable money laundering reporting officers (MLROs) and the lack of proper training for both the MLRO and staff. It should go without saying that the MLRO is someone who can command sufficient respect within the firm to make authoritative decisions as to when a suspicious transaction should be reported and when instructions should be declined. Indications from the SRA are that around 500 firms can expect monitoring visits focused on money laundering in the coming months.

Complacent attitudes

Anti-money laundering (AML) procedures have been with us for many years now and one of the risks the profession needs to grapple with as a result is complacency. We checked the rules when they came out and our procedures are compliant, so what do we really need to worry about? Don't we have an MLRO to look at these issues anyway? Isn't that just more tiresome red tape?

As with many areas of regulation, philosophy in the world of AML started to change a few years ago from the tick box approach to a more risk-based ethos. Professionals in general and solicitors in particular are encouraged to question more than just their client's bona fides. Solicitors should consider three broad categories of risk - country/geographic, client and service.

The first of these is self-explanatory: we should always take extra care when dealing with transactions which have connections - whether on your client's side, through an intermediary or the counterparty or its firm - to countries or regions which are the subject of national or international warnings, or which have significant levels of corruption or connections to terrorist organisations.

Client risk is, traditionally, the area in which firms have primarily focused their efforts. We all know the importance of obtaining proper ID for clients, beneficial owners and third-party funders. Other issues which require consideration, though, are clients which have unnecessarily complex structures, making it difficult to establish ownership or control. Enhanced investigations may need to be considered where clients use financial intermediaries which are not subject to equivalent AML laws and/or are not supervised by authorities or self-regulatory organisations. Caution is also advised where transactions involve unregulated charities or non-profit organisations.

Service risk does what it
says on the tin. The risk-based approach encourages the lawyer to consider the nature of and reasons for their role in the transaction. Is it normal for a lawyer to be involved with a transaction of the type proposed at all and, if applicable, for funds to be passing through a client account? If funds are received, is there an underlying transaction or are you providing banking services to your client? Why should money be going through your client account? Do you understand the transaction
and your role in it?

Online resources

Firms should take the opportunity to consider the extensive AML resources made available online and to review their policies and procedures. MLROs in particular should ensure their own knowledge is up to date and that they understand the issues they need to be dealing with.

Firms should ensure that
risk awareness in relation to
all matters of compliance is embedded in the culture of the firm. Lawyers are supposed to ask questions - that trait is at the
very heart of understanding
and assessing risk. It needs to
be encouraged and directed to ensure firms are not inadvertently drawn into money laundering schemes through ignorance or complacency.

The SRA is making efforts to get the AML message out there. It has issued specific AML resources and raised the topic at the annual compliance officers for legal practice (COLP)/compliance officers for finance and administration (COFA) conference. Firms which are not able to show that they take the issue of money laundering seriously can expect to be taken to task by the SRA. SJ

Susannna Heley is an associate at RadcliffesLeBrasseur