UK law firms found wanting on AML checks

Ruth Green, IBA Multimedia Journalist

A fifth of UK law firms are failing to perform basic anti-money laundering (AML) checks despite repeated warnings that the legal profession is not doing enough to keep dirty money out of the City.

Following a review of 400 firms in March, the Solicitors Regulation Authority (SRA), which regulates solicitors in England and Wales, found that 21 per cent of firms had failed to comply with basic AML checks.

The SRA issued an initial warning notice in May 2019 after an earlier review resulted in 26 firms being referred to the disciplinary process for failing to comply with AML regulations. The watchdog has received 184 reports related to AML compliance so far this year and launched 172 investigations.

[Keeping illicit financial flows out of the UK] is the right thing to do, as part of upholding the rule of law and…failing to do so risks damaging the reputation of the profession

Simon Davis
President of the Law Society of England and Wales

SRA Chief Executive Paul Philip said in a statement: ‘The damage money laundering does to society means that every solicitor must be fully committed to preventing it. The vast majority would never intend to get involved in criminal activities, but poor processes open the door to money launderers.’ The SRA plans to question 7,000 firms on their AML checks and Philip said ‘immediate action’ would be taken against any firms found not to be complying with their obligations.

A recent report by Transparency International also identified ongoing failures by professional bodies, including lawyers, to mitigate third-party risk. The research identified 81 law firms engaged in acquiring assets and entities ‘used to obtain, move and defend corrupt or suspicious wealth’. Of the 81 firms identified in the report, 37 firms involved in high-risk property transactions and 23 firms that received laundromat funds were SRA-regulated. The names of all firms were referred to the SRA.

Ben Cowdock, Senior Research Officer at Transparency International and author of the report, says both his organisation’s research and the SRA’s findings are alarming. ‘It is very disappointing to hear that [lawyers are] continually failing – and, also from our research, being involved in this kind of activity – when they should really be the first line of defence,’ he says.

These revelations also echo warnings from government and enforcement agencies that the legal profession is falling short. In October, John Glen, Economic Secretary to the Treasury and City Minister, said that he would include a ‘very small minority of lawyers’ in a category he labelled ‘so-called professional enablers’ of money laundering in the UK. Earlier this year Donald Toon, director of the UK’s National Crime Agency, told MPs on the Joint Select Committee on the Draft Registration of Overseas Entities Bill that there was a ‘real dearth of reporting’ by lawyers and auditors of suspected suspicious activity related to money laundering.

Cowdock commends the SRA’s moves to heighten awareness of the risks facing the profession, but believes the regulator could still be doing much more. ‘The SRA has been good in terms of reaching out and identifying where risk lies within firms,’ he says. ‘There was a "week of action"; last year conducted by HMRC where they gave their biggest ever money laundering fines. It’s time for the SRA and other professional body regulators to step up to the plate and start issuing fines that are going to get people’s attention and start to create a credible deterrent against having these weak systems in place.’

However, Jessica Parker, Co-Chair of the IBA Business Crime Committee and a partner at corporate crime specialists Corker Binning, is unconvinced that fines will resolve this issue effectively. ‘The few that there have been have been relatively low,’ she says. ‘There may be a case for the SRA and other regulators taking tougher action where [there are] money laundering compliance failures.’ The highest individual fine issued for a straight AML offence was £40,000 in 2014.

Robert Barrington is Professor of Anti-Corruption Practice at Sussex University's Centre for the Study of Corruption and former head of Transparency International’s UK Chapter. He urges lawyers to take their obligations seriously. ‘Most lawyers have a very negative reaction to the idea that people in their profession might be unscrupulous, but they need to have a hard look at themselves,’ he says. ‘I really hope the legal profession will take ownership of this challenge. Lawyers are a hugely important part in the fight against corruption, but they can also be forces of darkness.’

President of the Law Society of England and Wales, Simon Davis, a Clifford Chance litigation partner, says the legal profession must remain committed to keeping illicit financial flows out of the UK. ‘It is the right thing to do, as part of upholding the rule of law and… failing to do so risks damaging the reputation of the profession,’ he says. ‘The Law Society will continue to assist our members to comply with the money laundering regulatory regime, including by providing assistance to navigate the upcoming changes under the Fifth Money Laundering Directive.’

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