The Solicitors Regulation Authority (SRA) has recently investigated and fined a firm in the sum of £2,000 for multiple breaches of anti money laundering rules.

The introduction of the Anti Money Laundering and Terrorist Financing (Amendment) Regulatory Obligations 2019 brought in some major changes and an update to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which came into effect in January 2020.

The UK anti money laundering (AML) rules are in place to prevent people laundering money and prevent financial crime within all businesses, including legal professional businesses.

The AML rules require that a  Money Laundering Reporting Officer (MLRO) should be appointed within a law firm to oversee money laundering regulations. This is usually a senior member of the firm who has access to all files so that they can effectively design AML compliance systems and processes. All employees with access to client accounts within the firm should be aware of the warning signs and they should know who to report suspicious activity to.

According to Legal Sector Affinity Group (LSAG) Anti-Money Laundering Guidance for the Legal Sector;

“A core principle of AML compliance is taking a risk-based approach (RBA). In short, an RBA refers to adjusting the level and type of compliance work done (frequency, intensity and/or amount), to the risks present. In order to apply an RBA, it is necessary then to have information on the risks inherent to your practice and in any particular client or matter – and the pertinence of these risks which is why these assessments are so important.”

Full LSAG guidance can be found here.

Firm fined by SRA for AML Failures

Although Surrey law firm Buglear Bate & Co were fined for breaches of AML rules, they will not be required to attend a Solicitors Disciplinary Tribunal as a regulatory settlement agreement had been reached with the SRA.

Following investigation, it was found that the firm wide risk assessment “ failed to consider the firm’s delivery channels and failed to have sufficient regard for the Legal Sector Affinity Group guidance, or sectoral risk assessment and warning notice.”

It was further found that AML policies, controls and procedures did not cover the identification of politically exposed persons and source of funds information; nor did it cover ongoing monitoring of clients and their matters and identification and verification procedures.

The matter risk assessment form was also found to be non compliant as it “was intended to be filled in by the client, not the firm. The matter risk assessment is for the firm to complete, to identify and assess the risks posed by the client and matter.”

The firm further failed to identify red flags as listed within the SRA’s warning notices on terrorist financing and money laundering, “specifically with respect to source of funds being unusual and unexplained payments from third parties and loans from non-institutional lenders”.

As the firm had not benefited financially from the misconduct and there was no evidence that the failures had harmed consumers, a fine of £2,000 was found to be a “proportionate outcome in the public interest.” It was also acknowledged that the punishment “creates a credible deterrent to others and the issuing of such a sanction signifies the risk to the public, and the legal sector, that arises when solicitors do not comply with anti-money laundering legislation and their professional regulatory rules”.

How can Legal Practice Support assist with AML for Law Firms?

To assist with the compliance of the new AML obligations and to mitigate the risk of money laundering, the Legal Practice Support team has created a process to ensure a strong anti-money laundering process can be implemented for all case types within the Proclaim software itself. This process may also be implemented into other case management systems. We have set up the following to ensure compliance of AML is made as easy as possible for law firms:

Vetting Process

We have developed an anti-money laundering process to ensure all new clients are vetted for money laundering risks. This process can be set up as a mandatory element of any case type. As firms are required by legislation to have a risk assessment in place, it is therefore of paramount importance that you have fully compliant processes in place.

The process created by Legal Practice Support requires any new client to have been fully risk assessed. There is also a requirement within the process for warning signs of money laundering to be checked and for all ID documentation to have been provided from the outset.

Any high risks, or warnings signs identified are then flagged to the relevant person within the business.  From here, instructions can either be approved, rejected, or further information requested.

Reporting

To ensure compliance with the AML rules, a single report can be provided to offer a summary of Management Information. This will ensure that full money laundering checks are completed by all staff.  The report will flag all cases that have not had checks completed, or those with which there are outstanding Manager approvals.  This ensures no case is left unaudited, and that there is no way of cases ‘slipping through the net’.  This ensures a fully compliant anti-money laundering process is in place for all cases.

Suspicious Activity Reports (SAR)

Suspicious Activity Reports inform the National Crime Agency of any known or suspected criminal activity such as money laundering or financing terrorism Submitting an SAR will protect your firm against the risk of laundering the proceeds of crime. You may also need to submit a Defence Against Money Laundering (DAML). More information on such can be found on the Law Society website.

Proclaim can be useful with SAR’s as it can be developed to provide the ability to prepare SAR’s to authorities when required by your law firm.

Contact Legal Practice Support for assistance

The failures of Buglear Bate highlight the importance of law firms having procedures in place to prevent money laundering breaches. The Legal Practice support team fully understand the importance of AML within the legal services sector which is why we have created a robust process to ensure compliance with AML rules.

At Legal Practice Support we can offer a range of services for your business. We are experts in legal software and can use your data points to create interactive law firm dashboards. We can retrieve data from your Proclaim or other case management system to help you understand your data better.

We are experienced in taking the out-of-the-box Proclaim system and adapting it to your exact requirements, making it a bespoke system for your law firm. This ultimately will improve your business processes as it will be individualized for your firm, saving you time and money on tasks you would have otherwise have to do manually.

Whilst we excel in building advanced case management reports, perhaps more importantly its our ability to spot where your business would benefit from a report that really makes the difference. Our Developers are experts are creating bespoke software solutions for our clients, adapting Proclaim to suit you and your business.

If you would like to discuss how to incorporate rigorous anti-money laundering processes into your Proclaim or any other case management system, or to discuss general case management or Proclaim development, please do not hesitate to contact enquiries@legalpracticesupport.co.uk for further information. You can also get in touch using the form below or by calling us on 01204 930234.