The political context around money laundering in the legal sector is complex. Last Autumn, when I researched the February 2015 conference, there was very much a feeling amongst law firms (and a view held by the representative body too) that the enforcement agencies and regulators were whipping up negative impressions of corrupt City lawyers to serve their own agenda. The view held at the time was that these stories got published by the mainstream media, without a response, because journalists prefer negative news and the public is currently sympathetic to stories about rich City professionals behaving badly.
Things had moved on somewhat by the time the February 2015 ARK conference was held. After conducting 50% of their thematic visits (held September 2014 to May 2015), the SRA found that the majority of law firms do have good policies and processes in place to protect themselves from money laundering. The regulator eventually found it would only need to revisit 10% of firms and that some of these re-visits would be focused on updating policy and ensuring the MLRO had sufficient gravitas, rather than intentionally corrupt activity.
This view aligns better with how the profession sees itself. During my research, most compliance professionals said they felt that most lawyers, most law firms, are willing to comply. After all, lawyers are professionals and as such behave in an ethical and responsible way. There are a handful of individual lawyers that are corrupt and that handful is hard to stop.
But the National Risk Assessment published only last month still categorises the legal sector as high risk, riskier than estate agents who were categorised as medium risk and the gambling sector which was categorised low risk.
At the time that the legal profession was being lambasted in the press, the focus was very much on the number of SARs being made to the NCA. The number of reports was felt to be too low. Some debate then ensued about whether this was because firms had got on top of money laundering detection, or because firms simply weren’t reporting when they should have been. The SRA was leading here, presenting the concern of the enforcement agencies to the profession.
Now, the NCA has said that it is not the number of reports it is worried about (it doesn’t ‘prescribe the correct volume of SARs reporting from different sectors’) but instead the appropriateness of those reports and that the legislation is being followed. The team that processes SARS for the NCA is very small, particularly in relation to the size of some large law firm compliance departments.
Added to this there has been a tendency for law firms to depend on the NCA to make commercial decisions about client on-boarding that really the firms themselves should be making. Typically, when in doubt, law firm MLROs are reporting suspicious activity to the agency because they want the NCA to tell them whether or not they can proceed with on-boarding a client, separate from how this fits with the firm’s own risk strategy and appetite. In Shah v HSBC a suspicious activity report was made and assets frozen too quickly when Shah was actually innocent of money laundering, so there are also more immediate risks that go alongside such a strategy.
The SRA works closely with the NCA and the regulator is keen, in general, to ensure that lawyers and law firms take responsibility for their own compliance, rather than relying on rules or indeed upon regulators. So we can expect the SRA to push the message home that law firms need to be making their own commercial decisions about whether or not to take on clients and not relying on the hard-pressed NCA.
Where that is the case, the ability of MLROS to detect suspicious activity among their firm’s clients and decide what action to take will become all the more critical.
ARK’s February conference, its 12th Anti-money laundering compliance for law firms, includes a scenario based session, led by the former Chair of the Money Laundering Task Force, Suzie Ogilvie, Global Head of Money Laundering at Freshfields and Sue Mawdsley, Partner, Legal Risk. The session will explore several money laundering and financial crime scenarios and refer to guidance created by the International Bar Association; the American Bar Association; the Council of European Bars and Law Societies. The aim will be to empower participants with judgement making skills so that when a real situation arrives in their firm, they will not only know whether or not to report it but more importantly whether or not their firm should work with that client.
The SRA’s Director of Intelligence and Investigations, Steve Wilmott, will also be speaking at the conference and will specifically cover the topic of how firms should be working with the NCA, including what data is relevant to a Suspicious Activity Report and what isn’t.
One great way to work out whether you are faced with a real financial criminal or not is to speak to those that have both defended criminals and investigated crimes.. Robert Rinder, a barrister at 2 Hare Court, will flip the defence case on its head at the conference to help you fine tune your money laundering radar. He’s also been involved in uncovering complex financial crime in Turks and Caicos, by appointment of HM Government. Rinder also goes by the alias ‘Judge Rinder’ and stars on ITV television.
So that you don’t miss anything, the conference will also look at new types of criminal behaviour emerging in the UK property market, and at the issue of tax evasion versus tax avoidance which is likely to take on a growing prominence in 2016 due to the current political environment.
Registration for the conference is now open at https://www.ark-group.com/event/12th-anti-money-laundering-compliance-law-firms#.VlXDsnbhDIU and early bird discounts are available.
In the meantime, the LCA is waiting to see how the context around money laundering will develop further. We eagerly await HM Treasury’s implementation of the Fourth Directive. We are interested to see whether any extra resources will be given to the NCA, while the Government talks about a ‘crack down’. We anticipate that, related as it is to tax avoidance and with the current political spotlight on that subject, money laundering will remain in the media’s attention for some time. The LCA will keep you updated. To sign your whole firm up for £25 per month please visit www.legalcomplianceassociation.co.uk/membership or email Emily-Jane Beechey
Leah Darbyshire, Head of Events, ARK and Community Manager, Legal Compliance Association