Anti-money laundering and terrorist financing national risk assessment
In December 2020, HM Treasury published its third national risk assessment (NRA) of money laundering and terrorist financing.
The NRA concluded that these are significant threats to the UK’s economic security.
The NRA shows that professional services are a crucial gateway for criminals looking to disguise the source of their funds.
The NRA states that, like banking and accountancy services, legal services remain at:
- high risk of abuse by money launderers
- low risk of abuse by terrorism financers
The NRA is clear that ‘high risk’ does not mean that professionals working in these sectors are likely to be criminally or negligently involved in money laundering. Instead, it suggests that high-end money laundering almost always requires facilitation by professional services, even if unwitting.
The NRA found that most legal service providers comply with their anti-money laundering obligations and supervisors have noted an improvement in technical compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended).
However, there is more work to be done: supervisors are finding that a significant minority of legal services providers do not prioritise anti-money laundering (AML) compliance and still lack an understanding of the risks.
The NRA acknowledges that substantial improvements have been made by the legal profession, which has put in place effective compliance frameworks since the first NRA in 2015.
What this means for solicitors
Identifying a sector as high risk means that those working in that sector “should be vigilant towards the persistent efforts of criminals and terrorists to exploit… vulnerabilities”.
Under regulation 18 of the Money Laundering Regulations 2017, law firms carrying out regulated activities must perform a practice-wide risk assessment which considers the NRA’s findings.
In your risk assessment, you should assess what proportion of your work is made up of regulated activities, especially those identified as high risk by the NRA.
You should make sure that the conclusions of the NRA are reflected in your firm’s AML policies, controls and procedures, as well as in your risk assessment.
Firms should also consider the Solicitors Regulation Authority’s sector-specific thematic reviews.
Types of legal services at highest risk
The NRA specifies the following services as most likely to be abused by money launderers:
- trust and company services
- client accounts (with sham litigation and fraudulent investment schemes being highlighted)
Other associated risks include:
- trade-based money laundering
- politically exposes persons
Overseas threats to the UK around illicit finance flows include:
- Hong Kong
- UK Crown dependencies and overseas territories
To reduce risks when operating in these specialist areas, solicitors must make sure they comply with the latest anti-money laundering guidance for the legal sector and pay attention to warning signs that could signal the presence of money laundering.
- February 2021 – the Solicitors Regulation Authority (SRA) updated its sectoral risk assessment and we summarised the emerging risks to the profession
- January 2021 – the Legal Sector Affinity Group (LSAG) updated the anti-money laundering guidance for the legal sector to reflect the amendments to the Money Laundering Regulations 2017
- December 2020 – HM Treasury published the third NRA
- July 2020 – we worked with members and government to represent our view on the scale of the money laundering and terrorist financing risk to inform the third NRA
- October 2017 – HM Treasury published the second NRA
- October 2015 – HM Treasury published the first NRA of money laundering and terrorist financing as significant threats to the UK’s economic security