May 7, 2019

Legal industry regulatory body finds some UK firms deficient in AML protections

The Solicitors Regulation Authority (“SRA”), which regulates the professional conduct of solicitors in England and Wales, has published “A thematic review of trust and company service providers” in order to provide information for law practitioners about money laundering and terrorist financing risks.  As noted by the SRA, because trusts and companies can be used to obscure beneficial ownership of assets, to control multiple legal entities economically, to create complex and opaque structures, to cross over jurisdictions, and to avoid taxes, they are a choice vehicle for both legitimate business and criminals.  

In order to assess the robustness of anti-money laundering programs in firms within its jurisdiction, the SRA reviewed two trust and company service provider (“TCSP”) files in each of the 59 law firms it examined, and found that most law firms that carry out TCSP work meet their obligations to address money laundering risks.  However, the SRA also found that:

  • A significant minority of firms do not adequately meet AML obligations, and some were failed to comply with Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR 2017”).
  • Risk assessments in 24 of the firms did not satisfy legal requirements for the assessments. Some had inadequate processes to manage risks connected with politically exposed persons, and did not perform satisfactory customer due diligence.
  • Although most firms provide AML training, 17 firms failed to provide training about trust and company work, and seven of them did not include beneficial ownership in their training; of these, five have been referred for disciplinary processes for violations of MLR 2017.
  • The majority of the firms examined do not appear to be sufficiently proactive in identifying and reporting suspicious activity.

As a result of the review, the SRA referred 26 firms for disciplinary processes.  The SRA also published a warning notice enunciating the deficiencies, has established a dedicated AML team within the SRA, and intends to write to 400 firms about MLR 2017 compliance and carry out further proactive, thematic reviews of AML risks.

SRA news release | SRA thematic review | SRA warning notice