Eight ways to ensure your firm passes an AML inspection

The stark reality, as shown in the Solicitors Regulation Authority (SRA’s) Anti-Money Laundering annual report for 2022-23, is that one in three legal firms are deemed to be non-compliant with their anti-money laundering (AML) measures.

This means they could also be risking prosecution alongside their client.

You can mitigate the chances of facing reputational damage, penalties or criminal charges for AML lapses by ensuring you’re doing everything correctly – protecting yourself and your business.

This is where to start…

AML leadership

Your firm’s AML policy must be steered by senior management. It is important to have a money laundering compliance officer (MLCO) or money laundering compliance principal (MLCP), who is ultimately responsible for ensuring full compliance.

You also need a money laundering reporting officer (MLRO) who acts as the gatekeeper for internal suspicious activity reports (SARs), among other responsibilities.

These roles must be filled by individuals who have authority and profound AML knowledge. Sole practitioners undertake both roles.

Employee training

Implement comprehensive training for all employees and agents, including management, detailing legal obligations, your specific AML policies, controls and procedures (PCPs), and guidelines for identifying and reporting suspicious activities.

This training must be part of both the onboarding process and their ongoing education.

Tailored AML PCPs

Generic, one-size-fits-all AML policies won't suffice. Craft detailed, bespoke AML PCPs that mirror the unique risks your business faces.

These should encompass customer due diligence, suspicious activity reporting, risk management and more, providing clear guidance for your team.

Conduct risk assessments

A nuanced understanding of the AML risks specific to your business and clients is fundamental.

Regularly updated risk assessments for your whole firm, separate service lines and individual clients offer insight into potential vulnerabilities, informing your strategies for mitigation.

Keep in mind the dynamic nature of risk; changes in your operations or client base should prompt updates to your assessments.

Up to date client information

Running identity checks (electronic or manual) for your clients is only a fraction of your AML responsibilities.

Included in this is accurate client identification and verification, clarifying beneficial ownership, and screening them against sanctions, PEP lists and adverse media. But as you can see by the rest of this article, there’s much more to AML compliance than this.

Record keeping

If it’s not written down, it didn’t happen. Documentation is your defence. Maintain comprehensive records of all AML actions and decisions.

This is not just a regulatory requirement but a critical component of your protective measures.

Suspicious activity reports (SARs)

The key reason for your AML obligations is so that you can report suspicious activity. Cultivate a culture where raising internal SARs is standard procedure.

The MLRO’s role is to evaluate these reports and decide on external submissions to the National Crime Agency (NCA).

If they decide not to report to the NCA, their reasoning needs to be meticulously documented.

Stay up to date

AML isn’t a one-off task. Regular updates to your policies, training and risk assessments ensure your firm stays aligned with evolving regulations and sector guidance.