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Help I'm a new MLRO: auditing procedures

12 June 2012

Becoming the MLRO can be a very scary time. There are significant criminal penalties under the Proceeds of Crime Act (POCA) and the Money Laundering Regulations 2007, and you are at the end of the line. The responsibility falls on your shoulders. So how can you feel comfortable in your new role?

Unless this is a new firm, you should find that there are already policies and procedures in place governing due diligence, suspicious activity reporting and training. The important question for you to ask is: are they working?

Due diligence

You should consider auditing your procedures in relation to due diligence and whether they are actually being followed. Some questions you may wish to consider include:

  • Have you identified the areas in which due diligence investigations are required?
  • If you allow exemptions for due diligence, are these signed off at an appropriate level and do your procedures reflect this practice?
  • Do the fee earners identify who the client or the beneficial owner is on transactions or is this done through a central team?
  • Do you have a procedure in place to identify politically exposed persons or other high risk situations?
  • Are the checks actually being undertaken or are is work being undertaken on retainers without due diligence in place?
  • Do you keep documents for 5 years?
  • What questions are asked about the source of funds and are these documented?
  • If you are using an electronic verification service, do you understand how it works, and does it provide the verification you require?

Every practice will have different procedures depending on the risk factors arising from the work it does. Chapter 4 of the Law Society practice note outlines the range of issues you need to consider when undertaking due diligence.

View the anti-money laundering practice note

Suspicious activity reporting

While due diligence procedures will help you to spot warning signs of money laundering, ensuring that the firm responds appropriately when such warning signs are discovered is crucial from a legal, ethical and reputational perspective. Understanding how effectively your firm is meeting its obligations in making suspicious activity reports (SARs) is an important part of your role and will help to limit the risks of your personal criminal liability.

  • Do you have an effective reporting procedure in place?
  • Do your staff know what it is?
  • Have you let everyone know that you are now the MLRO?
  • Have you informed the Serious Organised Crime Agency (SOCA) (now known as the National Crime Agency (NCA)) that you are the new MLRO, by registering for SARs online?
  • What reports have been made and are there any pending action?

A thorough review of the reports which have been made in the past may help you understand what the risk areas (and training needs) are for your practice, particularly for those areas which are outside your personal practice area.

For more tips on making SARs read our seven tips for SARs success

Training

Under the money laundering regulations, those who are undertaking regulated work are required to have regular training. While there are no set intervals for these training sessions, the Law Society recommends that full formal training should occur at least every two years, while more regular informal updates are considered advisable.

The first step is to check whether your staff have been trained in relation to POCA and the money laundering regulations as well as your own procedures. Can you locate the register from the last training session?
Have all relevant staff been trained? Often training is given to fee earners, but what about your support staff, accounts team and receptionist? They deal with clients and therefore should be aware of the warning signs in relation to money laundering.

Assuming training has been provided, you may want to consider refresher training. An interesting way to assess the need for training could be a quiz, to check the level of knowledge, before deciding on what areas to concentrate in during update training.

Going forward, you should also ensure that any relevant new starters receive appropriate training on AML issues.

Amy Bell is a senior associate at Pannone and a member of the Law Society Money Laundering Taskforce