Anti-money laundering

Lawyers seek to Flag It Up

Each year the legal and accountancy professions, in partnership with the UK government, remind practitioners of the positive impact that quality anti-money laundering (AML) checks can have on tackling ‘dirty’ - in other words, laundered - money.

This year, the Flag It Up campaign - the fifth in a row - is the biggest yet.

Along with reminders of red flags that could indicate the rare but very real instances where a prospective client might be attempting to launder money, the campaign offers advice on submitting a Suspicious Activity Report (SAR) to the UK Financial Intelligence Unit - part of the National Crime Agency - once suspicion is triggered.

Together with resources offered by the Law Society, Flag It Up gives lawyers a powerful set of tools to help them make a quality SAR that might just fit jigsaw that the UK Financial Intelligence Unit are making about the criminals out there.

As part of this year’s effort, the Flag It Up campaign has conducted a poll with legal and accountancy professionals. The poll, which sampled 100 lawyers from firms of various sizes, reveals some interesting findings.

Flag It Up survey findings - AML matters

A huge 96% of the sample prioritised AML compliance going into 2019. AML emerged as the top priority for law firms, over and above increasing revenue and retaining clients.

With the Money Laundering Regulations 2017, the assessment by the Financial Action Task Force of the UK’s AML regime and now the upcoming transposition into UK law of the Fifth AML Directive, firms’ focus on AML is hardly surprising.

But prioritisation of AML by 96% of respondents demonstrates the legal sector’s overwhelming willingness to do the best they can on compliance and shows professionals’ appreciation of the essential role they play in keeping the UK’s financial system closed to illicit funds.

One finding of the poll indicates that more than 75% of lawyers wish to spot this dirty money not only to safeguard their firm and reputation of the profession, but also to stop the criminals.

In fact, preventing criminals from adding a veneer of legitimacy to their ill-gotten assets emerged as the single biggest motivating factor encouraging quality compliance across law firms.

The finding sounds intuitive, but it indicates awareness within the legal sector of the criminals, the crimes and therefore the victims behind the crimes.

Findings on compliance

While most firms are already on top of AML compliance, there is always more to do, and the Law Society offers advice through our AML helpline and resources through our website on streamlining firms’ procedures to help spot more criminals.

The HM Treasury-approved AML guidance for the legal sector, based on a former Law Society practice note, is the most comprehensive guidance available to the legal sector on AML.

The poll indicates that lawyers are also very concerned by the prospect of being targeted by money launderers and becoming unwittingly involved even where compliance policies and procedures may already pass muster.

Assistant professor of Economic Psychology at The London School of Economics, Dr Michael Muthukrishna said: 'Lawyers need to remain alert to the red flags of money laundering. However, it is also important to be mindful of the potential cognitive and cultural barriers which distract us from taking action and submitting a SAR. What the mind sees is largely based on our past experiences.

'When something doesn’t add up, our brain tells us that something in our model of the world needs to be fixed. We feel suspicion as a gut feeling of slight distress or unease. To ease this, we seek out information that will once again leave us able to predict the world. In this crucial moment, various cognitive biases can lead us from suspicion to carrying on with our day rather than further investigating and filing a SAR.

'To help us overcome these barriers, we must become aware of our own biases, how they are influenced by our environment and directly address concerns collaboratively with colleagues or speak to your professional body.'

The National Crime Agency’s 2018 annual report on SARs shows that the legal sector made 2,400 of the 420,000 or so SARs made by all sectors combined.

While there are very good reasons for solicitors making relatively few SARs - ranging from privilege to the scale of transactions and mode of detecting potential money laundering being very different to the scale and automated technology used in the banking sector - the NCA suggests that there is more we could do to make SARs.

The number of SARs submitted by the legal sector fell by 12% in 2018 and 10% in 2017, while other sectors’ SARs have increased.

Nonetheless, the Flag it Up poll findings suggest that 89% of legal sector respondents had spotted potentially suspicious activity at least once in the last year and all of them had subsequently made a SAR.

It is also important to remain alert to the risks potentially posed by existing clients. Ongoing monitoring is a key focus area in the Money Laundering Regulations 2017.

If a current client changes their instructions without warning, there is a change in the identity of the lead beneficial owner or client, or a change in the nature and/or purpose of their relationship with a firm, or their spending increases in a manner that is not consistent with the solicitor’s knowledge of the client, due diligence ought to be refreshed. Chapter 4 of the legal sector AML guidance offers further information on ongoing monitoring.

The poll also found that 62% of the legal sector respondents had received formal AML training. While formal training through, for example, certification is not compulsory and many forms of training are acceptable, firms must ensure that the training they offer and the frequency of this training is commensurate with the risk exposure of the firm. Please see Chapter 3.7 of the legal sector AML guidance.

Visit our events page to keep an eye on future AML training events or contact the Risk and Compliance Service for a tailored training programme.

For resources and advice on how to make a SAR - whether it’s a first SAR or not - please visit our SARs page. To make a SAR, please use SAR Online.

* Poll undertaken by Coleman Parkes in January 2019 for the Flag It Up Campaign in collaboration with partners. The research findings are based on responses from 100 legal professionals in the UK.

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