Lack of customer due diligence identified by SRA as main cause of AML breaches
This year, the Solicitors Regulation Authority (SRA) carried out 273 inspections and desk-based reviews of solicitors and law firms.
In good news for the profession, most (70%) were found to be either partially (51%) or fully (18%) compliant with their AML obligations.
However, the SRA investigated 252 reports of suspected breaches of the regulations and cases of suspected money laundering. It found:
- 49 failures to carry out or complete initial customer due diligence (CDD)
- 40 failures to carry out a money laundering risk assessment
- 39 failures to carry out a source of funds check
- 28 failures to identify a client
- 26 failures to have proper AML policies, controls and procedures (PCPs)
The SRA also reviewed the quality of suspicious activity reports (SARs) from 36 firms. It found that:
- 66% of SARs did not include glossary codes as recommended by the National Crime Agency (NCA)
- a quarter of defence against money laundering (DAML) SARs did not describe the criminal act that firms were seeking a defence against
- a quarter of firms did not include a phone number or email address
The SRA issued 29 fines (totalling £286,976), nine letters of advice, four rebukes or reprimands, and one finding and warning.
A further eight cases were brought to the Solicitors Disciplinary Tribunal, which went on to issue five fines (totalling £92,500) and three suspensions.
Common compliance issues
The SRA identified common themes linking the breaches, including:
- failure to respond to the SRA and provide declarations about AML compliance
- failure to declare whether a compliant, firm-wide risk assessment was in place
- poor CDD – including inadequate identification and verification of clients (both individual and corporate) and source-of-funds checks
- failure to apply enhanced customer due diligence (EDD)
- failure to have a, or an inadequate, firm-wide risk assessment
- poor PCPs
- failure to notify the SRA of appointments of money laundering reporting and compliance officers (MLROs and MLCOs); or to seek approval of a beneficial owner officer or manager (BOOM)
- failure to have sufficient regard for issued warning notices and red flag indicators
The SRA made a further 20 suspicious activity reports to the NCA, reporting on £149m of potentially criminal funds. Common themes included:
- conveyancing
- misuse of a client account (with no underlying legal transaction or rationale)
- tax evasion
- fraud
- client/funding links with high-risk jurisdictions
- complex offshore company structures or trusts to obscure source of funds or beneficial owners
- third party involvement
- property assets being sold over or under true market value
The SRA’s report should act as a guide for how firms should approach the areas where they are unsure and improve their understanding of AML compliance.
How we can help
We have a range of resources that can help you and your firm to detect and prevent money laundering.
Explore our anti-money laundering hub to access expert, practical and time-saving resources, including guidance on:
- carrying out customer due diligence
- practice-wide, client and matter risk assessments
- your source of funds obligations
The anti-money laundering guidance for the legal sector also contains expanded guidance on:
- understanding and evidencing source of funds and source of wealth
- risk assessments – firm-wide, client and matter
- governance and internal controls
Call our free and confidential AML helpline for support on customer due diligence, risk assessments and source of funds.
Complete our bundle of online AML courses, led by a leading expert in risk management. The courses cover suspicious activity, the money laundering offences, risk assessments, due diligence and source of funds.