Whether you are a fee earner or a money laundering reporting officer (MLRO), recognising a money laundering sign when it walks through your office door is a continual challenge.
While criminals are continually adapting to changing markets and opportunities, in reviewing money laundering cases over the years, some warning signs remain the same.
An individual warning sign may not be enough to form a suspicion of money laundering, but it will be a basis for asking more questions. We look at some of the top warning signs and how they may appear in practice.
Is this an unusual client or transaction for you?
In difficult economic times, it can be tempting to see new clients, who are presenting new strands of business, simply as lifelines for the firm and to ask as few questions a possible.
However this is exactly what criminals are counting on. In such circumstances it is more important than ever that you make fully informed and risk-based decisions on new client intake or new types of business from new or existing clients.
For example, you should seek to understand:
- Why a client who lives a long distance from your firm is contacting you in relation to a retainer which has no geographic connection to your firm?
- Why a client is instructing you in a field or type of work you have not practised in before?
- Why are foreign nationals, who are overseas residents, instructing your firm when you have no connection or profile within that country?
Read more about the risks of unusual clients and transactions.
Usual source of funds and third party funding
While there is no requirement for you to prove that funds are clean, Regulation 8 of the Money Laundering Regulations requires you to scrutinise the source of funds on a risk-based approach.
Where you have a number of warning signs you should also make suitable enquiries to satisfy yourself that you do not have a suspicion of money laundering and so do not have to make a report to the Serious Organised Crime Agency (SOCA).
While cash is legal tender, large amounts of cash or private funding, even if held in a bank account, may be a warning sign of money laundering.
You should consider how the client is able to have this amount of private funding and whether that is consistent with what you know about them. You may even ask for documentary evidence to support their account in higher risk cases, which many firms do.
Third party funding is a normal feature of many conveyancing transactions and other retainers. However it can also be a way to layer criminal property.
You should consider why the funds are coming from the third party:
- Is this a gift or a loan, and what practical or legal consequences follow from the answer?
- How can the third party afford to provide this money?
- Have the funds come from someone else because your client is on the sanctions list and cannot access a bank account of their own?
Read more about checking the source of funds.
Sudden changes in instructions
In challenging economic times and a fast paced global economy – things change, which mean your instructions in a retainer may change.
The phrase ‘a week is a long time' applies equally as well to the legal sector as to politics. But, within a retainer there will usually be a good explanation for the change.
Where there is no clear explanation, particularly if there are other warning signs, you should take stock and ask more questions.
Is this sudden urgency a ploy to ensure that you don't ask too many questions or to encourage you to pay out funds before you realise that the cheque they gave you was fraudulent?
Does the sudden settlement of litigation or falling through of a property or company deal mean that the initial instructions were just a ploy to get money into your client account?
Read more about the risks of sham litigation, just one of the methodologies in which sudden changes of instructions feature.
Mitigating risks
With an estimated £15 billion laundered through the UK every year, the reality is that you will not be able to detect every single attempt to use your firm for money laundering.
You can however reduce the chance of this occurring and protect yourself from regulatory or law enforcement action with a few key steps:
- Stay alert to warning signs
- Ask questions
- Document the answers you are given
- Where you have a suspicion of money laundering (subject to legal professional privilege) make a report to SOCA