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Anti-money laundering and terrorist financing national risk assessment
In October 2017, HM Treasury published the second 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.
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 legal services, even if unwitting.
However, the NRA does not provide evidence of the scale of the involvement of solicitors in money laundering. It also fails to distinguish between involvement that may be 'unwitting', rather than wilfully blind, negligent or complicit.
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, Terrorist Financing and Transfer of Funds (Information on the Payer) 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 anti-money laundering (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 formation
- the operation of a client account
To reduce risks when operating in these specialist areas, solicitors must make sure they comply with the latest AML guidance for the legal sector and pay attention to warning signs that could signal the presence of money laundering.
- July 2020 – HM Treasury is due to publish the third NRA by mid-2020. We’ll work with members and government to represent our view on the scale of the risk, and what has changed since 2017
- 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