The UK has published its second National Risk Assessment (NRA) of money laundering and terrorist financing. As with the first, 2015, Risk Assessment, this NRA assesses the risk of exposure to money laundering across 11 different sectors. Five of these, namely financial services, accountancy and legal professionals as well as cash and money service businesses, are identified as being at “high” risk of money laundering.
The NRA explicitly recognises that “high risk” does not mean that professionals working in these sectors are likely to be criminally or negligently involved in money laundering. Rather, the identification of a sector as 'high risk' is intended to signal that those individuals working in that sector 'should be vigilant towards the persistent efforts of criminals and terrorists to exploit… vulnerabilities'. Besides this, the meaning of the term “high risk” is not specified.
Following the release of the first NRA, the Law Society and other legal professional body supervisors engaged with the government to explore the evidence for extensive criticism of the legal sector. The 2017 NRA has rightly moderated that criticism, with most references to 'professional enablers' now removed.
Nonetheless, the latest NRA continues to view the legal sector as high risk, and suggests that the creation of trusts or companies, conveyancing transactions and client accounts are the legal services most likely to be exploited by criminals.
Disappointingly, the NRA does not provide evidence of the scale of the involvement of solicitors in money laundering and fails to distinguish between involvement that may be 'unwitting', rather than wilfully blind, negligent or complicit.
The NRA also mentions 'instances of lawyers falsely claiming legal professional privilege'. We hope to get more information from law enforcement agencies of examples of this.
While these services are no doubt seen by some criminals as an attractive means of laundering illicit finance, our sector does not make this easy. The NRA acknowledges that substantial improvements have been made since 2015 by law firms and practitioners who have put in place effective compliance frameworks.
The improved NRA is timely because next year will see the Financial Action Task Force’s mutual evaluation of the effectiveness of the UK’s AML regime. FATF is the intergovernmental body that develops global policy initiatives to combat abuse of the international financial system. It regularly conducts peer reviews of its members’ policies, and next year it is the UK’s turn to be assessed. The issues identified in the National Risk Assessment will likely feature prominently during FATF’s assessment, which will in turn have an important bearing on government policy development.