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AML Compliance. What you shouldn’t be doing.

Money Laundering continues to top the regulatory landscape. With the Russian invasion of Ukraine last year, the issue is now at the political forefront. The Register of Overseas Entities, launched in August 2022, is one mechanism by which the ultimate owners of UK property should now become transparent. However, it is still early days and only time will tell if the Register is fit for purpose. The Economic Crime and Corporate Transparency Bill, which at the time of writing is at committee stage in the House of Lords, could give the regulator unlimited powers to fine law firms who breach Money Laundering Regulations.

With so much change on the horizon we thought that it would be a good time to outline several key areas that you should avoid when dealing with Money Laundering compliance.

  1. Your Policies, Controls and Procedures should be fit for purpose, current and relevant. Although the SRA do have some suggested templates available on their website, you should really think about the Money Laundering risks that apply to your business. Your Policy documents should be updated at ‘regular’ intervals and make reference to the most recent legislation and guidance notes. The SRA recently imposed a £20,000 fine on a firm for failing to have Money Laundering systems in place. Interesting to note, the SRA did not actually find evidence of any money laundering taking place.
  2. Don’t be afraid to challenge what your client is telling you. One running theme that we come across is where a firm will accept a client’s instructions as they have a long-standing relationship with them. Yes, this does mitigate the risk but does not completely eradicate it. For example, if your client is a corporate entity and has had a recent change in ownership, which you have not recorded on file, new individuals would have come into the business. Do they need to be formally onboarded?
  3. Do not presume that delivering training to your staff when they join the firm is sufficient to meet the requirements. Money Laundering is an ever-changing landscape, and the risks around this will continue to develop. We have already seen the implications of the Russian invasion of Ukraine. Cryptocurrency is another emerging risk that the regulators have identified. You will therefore need to ensure that refresher training to all staff is delivered on a regular basis (once a year would work).
  4. Clients provide you with statements to confirm that the money is sitting in a bank account. Problem solved then? No. Don’t assume that the bank has carried out sufficient checks against that money. Again, the risk is mitigated but not eradicated. Even UK banks have been levied with fines for Money Laundering failures. Look at the matter as a whole to see if the pieces of the jigsaw fit. Electronic verification providers are useful here.
  5. Don’t think that ticking boxes on your client and matter risk assessments is enough. It’s not. When, and not if, the SRA come in to carry out an Audit of your Money Laundering controls they will pick up a file and want to see evidence of how you have come to risk assess a matter. Narratives are good, they tell a story.
  6. Don’t assume that your firm does not require an independent audit of its Money Laundering controls. Otherwise known as a Regulation 21 Audit. It probably does, and you will have to demonstrate pretty cogent reasons to the SRA for not carrying one out. Oh yes, make sure it’s ‘independent’ as you can’t be seen to be marking your own homework.

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