Impacts of economic instability on money laundering risk
Economic instability can change the risks faced by legal practices and practitioners.
It also has the potential to reduce economic viability or income streams – which may in some cases increase risk appetite, increase money laundering risk or lead to a reduction of requisite controls.
Examples of risks
Non-exhaustive examples include:
- de-prioritisation of compliance work including:
- placing more competing burdens on individuals with compliance responsibilities either due to a lack of resource (other staff to fulfil compliance responsibilities) or due to existing staff having to split their time with more emphasis on fee-earning duties
- less financial capacity to use technology and other compliance support services (for example, external training providers)
- seeking to alleviate financial pressure by accepting greater levels of risk from clients and matters onboarded in order to seek increased income
- accepting sources of capital into the business to ensure financial viability, without undertaking requisite checks on the source of this funding
- undertaking or transacting in areas of legal practice you are unfamiliar with, and in which, consequently, anti-money laundering risks are less well understood or mitigated by existing policies, controls and procedures
Client red flags
When the economy enters a period of uncertainty, practitioners and practices should be particularly alert to the following red flags in new or prospective clients:
- being asked to work with unusual types of client or on unusual types of matter
- resistance from a client regarding compliance with due diligence checks, for example being pressured to forego necessary due diligence checks or to 'speed up' the process
- becoming involved in work that is outside of the practice’s or practitioner’s normal area of experience/expertise – without full understanding of the money laundering and counter terrorism risks associated with the new area of work
- any attempt to gain access to your client account where not accompanied by the provision of legal services
- transactions where the business rationale for the transaction is not clear
Always ensure that you are comfortable as to your understanding of the matter, including its purpose and why it is happening in the particular way it is happening.
Recording risk assessments and documenting undertaken due diligence is crucial at all times.
This note is supplementary to the main Legal Sector Affinity Group (LSAG) anti-money laundering guidance for the legal sector and does not supersede it.
It’s not for your supervisor to provide specific legal advice and/or confirmation on the application of the money laundering regulations (MLRs).
You are required to satisfy yourself on your legal/regulatory obligations under the MLRs and that you have complied with them.
While care has been taken to ensure that this advisory note is accurate, up to date and useful, members of the LSAG will not accept any legal liability in relation to this advisory note (which has not been HM Treasury approved).