Managing Anti-Money Laundering Compliance

Table of contents

• Introduction
• What is money laundering?
• What is failure to report money laundering offences?
• What is a Suspicious Activity Report?
• Who is affected by the Money Laundering Regulations 2017?
• Is there a defence for offences under the Money Laundering Regulations 2017?
• How do I comply with AML requirements?
• Wrapping up

Introduction

It is estimated that around $660bn to $1.26tn of illicit wealth flows into global financial systems annually, ‘often facilitated by professionals working within legal frameworks but at the edge of ethical boundaries’. This is one reason anti-money laundering (AML) checks must be undertaken by Solicitors, and compliance is strictly enforced by the Solicitors Regulation Authority (SRA). At the launch of this week’s Institute of Business Ethics report on client acceptance, Law Society President Richard Atkinson said:

 “Law firms often have sophisticated client onboarding approaches which factor in a whole range of issues. These approaches are underpinned by the firm’s own institutional values, which should be rooted in strong professional and business ethics and adhere to the SRA framework of professional obligations, rules and guidance.”

What is money laundering?

Money laundering is the process of legitimising funds derived from criminal activities, such as drug or human trafficking, terrorism, and fraud, to integrate them into the legal economy. At its core, money laundering involves three stages:

Placement: Illegally obtained money is introduced into a financial institution. Criminals deposit “dirty” money into a bank account registered to an anonymous or shell company or utilise professional intermediaries. This initial step is risky for criminals, as significant, illegitimate sums attract scrutiny from governments and regulators.

Layering: Funds are further distanced from their origin through multiple transactions across various financial institutions. Increased fund movement complicates the tracing process for regulators and law enforcement agencies. Shell companies are often used to invest illegal funds in the stock market, though increased scrutiny follows leaks such as the Panama and Paradise Papers. Casinos are another popular layering method involving collaboration with employees to manipulate games and boost the funds being laundered. Purchasing luxury items, such as gold bars, jewellery, and cars, is also a typical means of layering funds.

Integration: The ultimate objective is to invest the “cleaned” funds in legitimate assets like property, businesses, and even sports teams. Despite the funds appearing clean, they continue to benefit criminals and contribute to their wealth.

What is failure to report money laundering offences?

There are four offences in POCA 2002 concerned with the failure to report money laundering:

• Section 330 states that a person in a regulated sector commits an offence if they know or suspect another person is engaged in an offence under sections 327 to 329 of POCA and does not tell a relevant nominated officer.
• If a nominated officer fails to reveal, as soon as practicable, a disclosure of a known or suspected offence under sections 327 to 329 of POCA 2002, they will be committing an offence unless they have a reasonable excuse for the non-disclosure.
• Under section 333A, it is an offence to tip off a person that an investigation is being contemplated or made under sections 327 to 329 of POCA 2002.
• Any interfering with relevant evidence or making a disclosure likely to prejudice an investigation into offences under sections 327 to 329 of POCA 2002 is an offence under section 342 of POCA 2002.

What is a Suspicious Activity Report?

A Suspicious Activity Report (SAR) is the mechanism for making a formal disclosure regarding knowledge or suspicion of offences under sections 327 to 329 of POCA. Typically, this type of report is made to the National Crime Agency (NCA). 

Who is affected by the Money Laundering Regulations 2017?

The regulations apply to several different business sectors, including accountants, gambling institutions, financial service businesses, estate agents, and solicitors. If the regulations apply to your organisation, you must register your business with a supervisory authority. Not doing so is a criminal offence.

Is there a defence for offences under the Money Laundering Regulations 2017?

If you disclose any information regarding knowledge or suspicion of a money laundering offence to a relevant officer (for example, your firm’s Money Laundering Reporting Officer), you will avoid committing a money laundering offence. Section 338(4)(A) of POCA 2002 protects those making a confidential report from subsequent civil legal proceedings.

How do I comply with AML requirements?

If you are required to undertake AML checks, it is crucial to put the following in place:

• Provide training to all your staff on AML processes, regulations, and obligations including how to spot AML red flags.
• Regularly assess and monitor your law firm’s and its clients’ AML risks.
• Have clear and consistent AML policies and procedures to confirm the identity of your clients and any beneficial owners of your clients’ companies.
• Check the source of any funds or wealth where necessary (for example, if your client is purchasing property with cash).
• Depending on the size of your law firm, nominate a Money Laundering Compliance Officer (MLCO) to supervise your AML compliance.

Wrapping up

Managing your AML risk is a key part of operating as a legal consultant or a law firm under the umbrella of a New Model Law Firm (NMLF). If you have any questions regarding your compliance obligations, the administrative team will be able to help you.

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