The Solicitors Regulation Authority (SRA) has published its AML annual report.  The report identifies several common areas of weakness which accord with our experience from conducting law firm audits, including failures in relation to client due diligence, firmwide risk assessments (FWRA) and policies, controls and procedures.   In particular, the SRA said firms need to do more work on source of funds.  Misuse of client account as a banking facility where there is no underlying transaction has been a key theme in matters which the SRA reported to the National Crime Agency; the SRA’s updated guidance on Integrity mentions the case of a solicitor struck off for being reckless, but not dishonest, in making improper transfers from client account.

29 firms or individuals have been fined for a variety of AML breaches and eight referred to the Solicitors Disciplinary Tribunal which has imposed five fines and three suspensions.

The report notes that ‘[in] some of the best examples the SRA saw it was clear the person undertaking the FWRA had worked closely with various teams and partners across the business to assess the risks’.  This is something we have always done when assisting firms in preparing their FWRAs.   The report also noted the need to update FWRAs regularly – and that some firms had not done this.

Note that the Legal Sector Affinity Group (LSAG) guidance states that the FWRA must be a distinct written document, rather than part of a general overall risk assessment.  As mentioned in our September 2022 Risk Update, it needs to cover proliferation financing, on which LSAG guidance is expected soon, and we have been assisting firms with this when reviewing and updating their risk assessments.

Perhaps surprisingly the number of firms regulated by the SRA within the scope of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is only 6,408 out of 9,770 (April 2020 figures).  We query whether there may be some which have not recognised, and hence not declared, that they are doing work within the scope of the regulations.  Tax advice is a risk area, as it can creep into many areas of practice such as employment, personal injury and family, particularly following the changes introduced by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

There are constant changes to assessment and treatment of country risk and high risk jurisdictions.  Links are provided on www.legalrisk.co.uk/News.  Myanmar is added to the Financial Action Task Force (FATF) black list, Democratic Republic of Congo, Tanzania and Mozambique added to the grey list, and Pakistan and Nicaragua removed from the grey list.   Many firms rely solely on the Transparency International Corruption Perceptions Index but other sources should also be considered; see for example the Basel AML Index 2022.  We use a weighted compilation of these and a number of other sources for our assessment.

A proposed amendment to section 1 of the Legal Services Act 2007 in the Economic Crime and Corporate Transparency Bill will, if passed, add ‘promoting the prevention and detection of economic crime’ to the regulatory objectives.

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