Anti-money laundering

UK's third national risk assessment published

After many months of anticipation, the UK’s third National Risk Assessment (NRA) was published on 17 December 2020.

Key findings

There was nothing unexpected in the NRA around the risk and threats impacting the legal profession.

For the legal profession, the head risk scores remain unchanged with money laundering high and terrorism financing low.

There was a significant positive change from the negative rhetoric in the 2015 and 2017 NRAs, where the legal profession (notably solicitors) had been labelled as “professional enablers”.

Areas at high risk

Legal service providers (LSP) offer a wide range of services. The services most at risk of exploitation by criminals and corrupt elites for money laundering purposes continue to be:

  • conveyancing
  • trust and company services
  • client accounts (sham litigation and fraudulent investments schemes being highlighted)

Other associated risks across the international front included:

  • trade-based money laundering (TBML)
  • politically exposed persons (PEPs)

Overseas threats to the UK around illicit finance flows include:

  • China
  • Hong Kong
  • Pakistan
  • UAE
  • UK Crown dependencies and overseas territories

Money laundering mitigations

The NRA found that most legal service providers comply with their anti-money laundering (AML) obligations and supervisors have found an improvement in their technical compliance with the Money Laundering Regulations.

However, there is more work to be done, as supervisors are finding that a significant minority of legal service providers do not prioritise AML compliance and still lack an understanding of the risks.

The main non-compliance trends in legal service providers observed by supervisors are:

  • many legal service providers treating AML compliance as a low priority or ‘tick-box’ exercise which comes second to their day jobs
  • insufficient or weak risk-based controls in place
  • a lack of legal-sector-specific AML training available for legal service providers

The main observation in the NRA was a failure to:

  • apply customer due diligence to all clients involved in further transactions and
  • conduct “ongoing monitoring of a business relationship” by scrutinising transactions and source of funds in compliance with the regulations

This increases the risk of legal services being exploited by criminals as there are insufficient controls in place.

There have been significant improvements in the capacity and capability of the legal sector supervisors.

Changes to the Money Laundering Regulations 2017 have boosted supervisors’ capability to tackle non-compliance.

The low level of SARs from the legal sector was also subject of continued comment. However, the NCA acknowledged the work by the sector in engaging with UK Financial Intelligence Unit to improve quality and reporting levels.

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