This article was originally published in 2012.
Many legal practices will have delegated to their money laundering reporting officer (MLRO), the responsibility for ensuring there are strong systems in place to help the legal practice avoid being involved in money laundering.
In many cases the first line of defence is the fee-earners, who will carry out client due diligence and be on the look-out for warning signs of money laundering.
But there is an important second line of defence - the accounts team. It is equally important to ensure they are alert to the warning signs and know how to respond when concerns are raised.
Your accounts team are handling and managing client money on a daily basis. They will be able to spot patterns and unusual transactions that fee-earners may not see, making them one of your most effective defences against money launderers and terrorist financiers.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 require you to train relevant staff on their legal obligations and on how to recognise and deal with money laundering risks. The SRA Handbook also requires you to give staff training that is appropriate to their work and level of responsibility.
Anti money laundering (AML) training for accounts staff may need be to be different to the training given to fee-earners to ensure that they can effectively identify risks and concerns as they will see them. It is useful to put the financial flows in context of the broader retainers to help them assess what is normal business and what requires further consideration.
Some of the key warning signs that the accounts staff may be able to alert the legal practice to include:
- large cash payments deposited into the legal practice’s bank account,
- large amounts of private funding transferred into the legal practice’s bank account, especially if the transfer is made by a third party,
- transfers from high risk jurisdictions,
- over payments or double payments of fees,
- payments received which cannot be attributed to any existing client or current retainer and
- transfers from and attempted transfers to sanctioned individuals or entities.
What your accounts team can do
Your accounts team should check whether funds received from clients come from credible sources. They should watch out for money coming from third parties, or over the counter as a branch deposit, and alert the fee earner to this if necessary. They should be also be made aware of the sanctions regime and know when to tell you about any transactions involving countries on FATF's high-risk country checklist.
One of the ways in which money is laundered is by placing funds into a solicitor's account, cancelling the instructions and asking for the money to be returned. Your accounts team should be aware that a request for a refund could be a suspicious circumstance which requires further investigation.
The next important step is having in place a process for accounts staff to raise concerns when they spot warning signs.
It is useful to include the relevant fee earner within this feedback loop, as they may already have raised queries with the client and received adequate information to allay concerns.
However, accounts staff should also have the opportunity and confidence to raise matters directly with the MLRO, should they not be able to get satisfactory information from the fee earner or partner on the retainer.
Chapter 3 of the sector AML Guidance provides more information about putting systems and procedures in place, and 3.7 goes into some detail on giving regular and appropriate training.