ARTICLE
Money laundering I
t was Phaedrus who commented in the first century that ‘things are not always what they seem.’ This is the essential paradox that underlies current Money Laundering regulation. Detailed regulation demands that solicitors take steps in their risk assessments to satisfy themselves that they may proceed or cease to handle matters, and whether they must report a case to the National Crime Agency (NCA). The uncomfortable reality that lies behind even the most scrupulous of risk assessments is that the truth may remain hidden from view to the solicitor. In January this year the Legal Sector Affinity Group (LSAG) published its Anti-Money Laundering Guidance for the Legal Sector 2021 written because of the changes made to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 that came into force on 10 January 2020 (MLRs). There are organisational requirements in relation to governance and policies for firm wide risk assessment, matter assessments, for record keeping, monitoring, and training that are formidable. Firms must establish and maintain written policies, controls, and procedures (PCPs) for identifying, managing, and mitigating the risks identified in the mandatory Practice Wide risk assessment completed as required by R18 of MLRs. A core principle of AML compliance is taking a risk-based approach and adjusting the level and type of compliance work to the risks present. That requires firms to have information on the risks inherent to their practice and in any particular 10 | The Bill of Middlesex
client or matter. If the risks present across a business or in any particular client or matter are not assessed, it will be clear that the appropriate controls and procedures to mitigate those risks are not being deployed. The PCPs must be proportionate to the size and nature of the business and must be approved by senior management and reviewed regularly with a record kept of all changes made to these records over time. The guidance goes on to say that ‘Just because a practice is smaller and serves a smaller quantity of clients at any given time, does not necessarily mean that it is lower risk. Smaller practices may be targeted more than large law practices by money launderers, as they may be perceived as lacking resources to effectively guard against them. Equally, smaller practices may practice higher risk types of work, develop a niche in services or have cultural, social or language connections or other features which may be attractive to money launderers.’ It also goes on to say ‘that risk is a judgement relying on considering multiple factors holistically. Generally speaking, a single factor may not automatically make a matter or client high risk in and of itself, exceptions include where a client or counterparty is based in a high risk third country or is a Politically Exposed Person (PEP). It should be all the risk factors taken together that informs whether a matter or client is deemed to be high risk.’ These complexities leave many solicitors worried at the level of compliance required by the Solicitors Regulation Authority (SRA) but unable to be certain whether or not the assessments
