What Do Law Firm Professionals Need to Know About Risk Intelligence?

What Do Law Firm Professionals Need to Know About Risk Intelligence?

Law firms are increasingly seen as vital gatekeepers in the fight against financial crime. As the pressure to comply with Anti-Money Laundering (AML) regulations intensifies, firms must navigate a myriad of risks while maintaining their client service standards. This article outlines the key risk factors law firms face regarding AML compliance and offers best practices to establish robust risk assessment programs, drawing on insights from Amy Bell, founder of Teal Compliance and Chair of the UK Law Society’s Money Laundering Task Force, as featured in our recently launched guide, developed with First AML

Understanding Client Risk

Law firms play a critical role in preventing money laundering, with non-compliance carrying severe consequences such as reputational damage, regulatory sanctions, and criminal liability. AML legislation requires firms to conduct client due diligence to determine whether clients are engaged in criminal activities, which is made more challenging by the ever-evolving nature of money laundering schemes and regulatory demands. 

Evolving Legislation: A Risk-Based Approach

AML regulations have shifted from fixed requirements to a risk-based framework, enabling firms to tailor risk assessments based on national, industry, and firm-specific factors. This approach allows firms to address their unique risk exposures more effectively.

Key Risk Indicators

Risk assessments require an understanding of various factors that can signal potential money laundering, including: 

• Services Offered: High-risk services, such as real estate transactions, involve significant values and opportunities to obscure fund origins. 

• Geographical Jurisdictions: Transactions in high-risk countries identified by the Financial Action Task Force (FATF), necessitate enhanced due diligence due to inadequate AML controls or significant corruption concerns.

• Client Profiles: High-risk indicators include international clients, complex entities, unusual transaction patterns, and wealth sources like cryptocurrency. 

Tailored Risk Assessments

AML risk assessments should be customized to each firm’s circumstances. For example, a multinational firm handling high-value transactions faces different risks than a local firm focused on wills and divorces. 

Practical Challenges and Solutions

Implementing effective AML programs often encounter hurdles, including: 

1. Weaponised incompetence: Staff may see AML processes as barriers to client service.

• Solution: Provide concise training and workflow-integrated guidance to empower staff to execute AML procedures effectively.

2. Excessive effort: Manually switching between systems wastes time and friction.

• Solution: Integrate AML functionality into practice management systems like Actionstep to streamline processes.

3. Lack of understanding: Lawyers may struggle to apply due diligence consistently.

• Solution: Use dynamic prompts tailored to clients and matters to guide informed decisions.

Best AML Practices for UK Law Firms

UK law firms can strengthen their AML programs with these six strategies: 

• Define normal practices: Establish baselines to identify unusual or high-risk activities.

• Customise assessments: Tailor risk assessments to reflect the specific needs of each department in your firms.

• Provide continuous training: Invest in ongoing education to keep staff informed of regulations and best practices. 

• Collaborate with peers: Learn from industry colleagues and other firms to share insights. 

• Leverage technology: Simplify workflows by integrating AML tools like those from First AML into your practice management system. 

• Be proactive from the start: Avoid shortcuts to build sustainable, compliant programme from the outset and reduce your law firm’s risks long-term.

By adopting these practices and using technology-driven solutions, law firms can effectively manage AML compliance while enhancing operational efficiency and maintaining strong client service. Proactively addressing AML risks not only mitigates potential liabilities but also reinforces a firm’s reputation for integrity. 

For a deeper dive into these strategies, we invite you to download our comprehensive guide on AML compliance tailored for law firm professionals. 

Oliver Tromp

Regional Vice President, UK at Actionstep