Professional bodies best placed to tackle money laundering, says Law Society

The Law Society has said it is 'uniquely placed' to oversee solicitors' compliance with new anti-money laundering (AML) laws.

The professional body was responding to a government consultation that called for information on how to tackle AML crimes as the legal profession ahead of the EU's fourth money laundering directive due to be implemented by June 2017.

The Law Society's chief executive, Catherine Dixon, stressed that Chancery Lane and other professional bodies were uniquely placed to disseminate information and tools to disrupt money laundering.

'Professional bodies have unique sector-specific expertise and knowledge of their professions - they understand the risks and vulnerabilities of the transactions their members are involved in,' she said.

'It would be nigh on impossible for a government body or stand-alone supervisor to match the depth of this institutional understanding.'

Dixon's comments come after the Solicitors Regulation Authority (SRA) issued its own response to the consultation which called for AML supervision to be independent from professional bodies.

'Without separate bodies for representation and regulation we do not believe that there can be fully effective AML supervision,' said the regulator.

'Public confidence is key and it is essential that vested interests are not able to, or are perceived as being able to, influence regulatory activities in this highly important area.

'Consumers have greater trust in professionals who are regulated by an independent regulatory body, rather than by the profession itself.'

The SRA also took the opportunity to reiterate its stance that the burden of proof required for disciplinary proceedings relating to money laundering offences should be the civil, and not criminal, standard.

Last month, the Treasury accepted recommendations put forward by the Insurance Fraud Taskforce (IFT), which included a reduced burden of proof for solicitors suspected of serious misconduct and greater flexibility for the SRA over issuing fines.

The regulator said the higher standard of proof added a regulatory burden by creating higher costs and increased the time taken to both prepare and hear cases.

'The higher standard also incentivises firms to resolve their case at the Solicitors Disciplinary Tribunal (SDT) where it is more likely to be overturned and often removes the possibility of an early settlement which would reduce costs.'

The regulator also called for the current in-house fining limit of £2,000 for solicitors and traditional firms, as prescribed in s44D of the Solicitors Act 1974, to be lifted.

Currently, the SRA must refer the case to the SDT for greater fines. It can, however, issue fines of up to £250m on alternative business structures (ABSs) under the Legal Services Act 2007.

'Swifter settlement by the SRA without tribunal involvement would reduce the overall regulatory burden, benefitting all regulated businesses,' it said.

'This would also reduce delay, uncertainty and cost from those facing the disciplinary process and would support fast, fair and firm regulatory action.'

'The SRA needs to prove itself as a regulator'

Frank Maher is a partner at Legal Risk 

The SRA has been angling for increased fining powers for a long time. Parliament gave them the power to impose massive fines on ABSs because it was thought that the ABS market would be dominated by large institutions which might be tempted to misbehave. That may have been right or wrong, but by itself does not warrant a hike in the SRA’s powers in relation to the rest of the profession. They need to provide the evidence to show that it will lead to better regulation. That they have not done. 

One of the key differences between the SRA’s and SDT’s fining powers, of which they make some play, is that the SRA adopts the civil standard of proof and the SDT the criminal standard, and they suggest that this might incentivise firms to appeal. I don’t think anyone has ever undertaken any analysis to identify the cases where a different standard of proof might in practice have made a difference. Be that as it may, the SDT’s last annual report showed that there were no such appeals in the period covered, so it can’t be an issue.

The SRA needs to prove itself as a regulator.  Our experience of defending solicitors, and I know we are not unique in this, is that they delay the process interminably, and the simplest of investigations can take years to unfold. I have many cases where they have taken nine months to answer a letter, and even some over a year. This needs urgent attention to find the causes of the delay and eliminate them.