On 12 May 2016, the Solicitors Regulation Authority (SRA) published its thematic review of anti-money laundering (AML) in England and Wales. The report draws on evidence gathered during visits to more than 250 firms, from sole practitioners to large firms, to assess what processes firms have in place to guard against money laundering and whether staff are able to use them.
The SRA’s general conclusion is that, whilst the legal sector is viewed as a high-risk for being used by criminals for money laundering, the profession itself and the way it manages AML compliance is mitigating this risk. In particular:
- all firms visited had a designated Money Laundering Reporting Officer (MLRO);
- most firms visited had effective AML compliance frameworks in place;
- in general, firms and their staff displayed a positive attitude towards AML compliance and were trying hard to meet their duties and obligations in relation to ML;
- there was adequate application of client due diligence (CDD);
- most large firms had dedicated client inception teams which undertake a large part of the CDD activity, whilst in smaller firms the individual fee earner was responsible for carrying out CDD;
- all but a few firms had good controls in place to restrict work being conducted on a client matter prior to adequate CDD being completed;
- most firms had a good understanding of their recording and reporting obligations; and
- almost all firms had suitable processes and procedures in place to enable staff to report suspicions of money laundering. The review also threw up a number of perceived weaknesses in the legal profession’s compliance with AML requirements. In particular:
- many of the smaller firms and a number of the larger firms did not have a deputy MLRO or a contingency plan in place to provide cover in the MLRO’s absence;
- in several cases an inexperienced or inadequately trained MLRO had a detrimental effect on the overall adequacy of a firm’s AML compliance;
- the frequency with which firms reviewed their AML policies to ensure that they remain fit for purpose was not always adequate;
- a number of firms had either no or inadequate processes in place to test and measure the effectiveness of their systems and controls;
- in some firms, there was a lack of understanding, and weaknesses in applying, enhanced due diligence, identifying and dealing with politically exposed persons, establishing source of funds and wealth, on-going monitoring and the requirements under the sanctions regime; and
- in some instances the MLRO did not have sight of the level of attendance at AML training or the identity of non-attendees and there was a lack of appropriate training for finance staff.
Overall, the findings are described as “encouraging”, however the SRA highlights the need for firms to continue to guard against seeing AML as a tick-box exercise rather than a continuing duty needing constant vigilance, active engagement and judgement. In particular, the presence of an informed, engaged and approachable MLRO, an effective CDD policy, and regular staff training are seen as essential requirements for safeguarding firms and the public.