Money Laundering Reporting Officers (MLROs) have a pivotal role to play in ensuring that a firm is compliant with anti-money laundering obligations.
They also ensure that the firm has appropriately considered its exposure to anti-money laundering risks and can respond effectively to those risks in a way which minimises the likelihood of criminal, civil or disciplinary sanctions.
The significance of this role for a firm's reputation means that management should take care in appointing their MLRO and should actively support them in the role.
Why have an MLRO?
Rule 5 of the Solicitors' Code of Conduct provides that a firm's management must ensure that there are arrangements for the effective management of the firm as a whole, including compliance with anti-money laundering regulations and risk-management.
Regulation 20 of the Money Laundering Regulations 2007 requires firms within the regulated sector to appoint an MLRO.
Firms who operate solely outside of the regulated sector may still need to appoint an MLRO to enable them to make a disclosure for a defence under the principal money laundering offences or in relation to suspected terrorism funding.
An MLRO should be a point of contact for all anti-money laundering enquiries within the firm. They should also be able to advise the management team on the firm's risk of exposure in relation to money laundering and how effectively the firm as a whole is managing that risk.
Who should be your MLRO?
There are no set requirements for who should be your firm's MLRO.
However, the following factors should be taken into account to ensure that they can undertake the role most effectively for the benefit of the firm.
Seniority within the firm
The MLRO needs to be sufficiently senior within the firm.
They need to have access to all files so that they have a full picture of the firm's risks. This will enable them to effectively design compliance systems and make decisions on whether there is enough information to require a disclosure.
They will make decisions on systems and procedures which may result in certain retainers being declined. They need sufficient authority to implement these systems and procedures in the first place and then to enforce them.
Decisions about making disclosures to SOCA have the potential to result in civil, criminal or disciplinary action against the firm, which will have an effect on the reputation of the firm as a whole. They need the experience and the authority to make these decisions on behalf of the firm.
Risk management skills
The MLRO needs a good appreciation of risk, both how to assess it and how to manage it.
To ensure that you have an anti-money laundering system which does not tend towards regular under-compliance or burdensome over-compliance, the MLRO needs to be able to understand the risks your firm faces with respect to anti-money laundering.
They also need to understand your firm's approach to risk and reputation to design a system which best suits your firm.
In assessing risks, it is not just important to understand the methodologies used by money launderers, but also to understand the normal cultural and business practices of your clients and the normal course of the retainers you undertake.
This will help an MLRO decide whether the explanations given by clients in relation to warning signs are reasonable or whether a reportable suspicion remains.
Legal professional privilege
The MLRO needs to have either an understanding of legal professional privilege themselves or easy access to good advice on privilege.
In any decision regarding a disclosure to SOCA, the issue of legal professional privilege will need to be considered. This is a complex area of law and some familiarity with it will really assist the MLRO to make sure that they are making any legally-required reports, while still protecting the fundamental human rights of your clients.
Adequate time to perform the role
The MLRO needs time to undertake their role.
While many firms do not have the ability to appoint a person to the role of MLRO full time, firms need to make allowance for the time it takes to be an effective MLRO.
A partner who is already over-burdened with fee earning work may not be able to give the time required to developing systems or to address concerns raised by staff at an early stage about possible money laundering on files. This may lead to only the most serious matters ever being looked at, with little time left to seek appropriate consent, leaving staff, management and clients unhappy and under pressure.
Management buy-in
Unfortunately, all too often, management can appoint an MLRO, tell them to set up systems and consider that this is the end of their role in complying with anti-money laundering obligations.
The MLRO is then left to argue with individual fee earners as to allocation of risk to retainers, the amount of identity verification required and whether or not a report needs to be made.
Anti-money laundering compliance becomes more effective and actually less of a burden for the firm as a whole where you have senior management:
- contributing to the formal risk assessment of the firm,
- adopting a cohesive anti-money laundering strategy,
- supporting the MLRO in the implementation of systems and procedures for compliance,
- demonstrating their own compliance to the rest of the firm and
- rewarding compliance by other fee earners and staff.