How the Legal Sector Can Flag Money Laundering
Article written by Amy Bell – Chair of Money Laundering Task Force, The Law Society
Criminals rely on the services of legal professionals to assist them – often unknowingly – in laundering the proceeds of serious and organised crime, which is estimated to cost £24 billion to the UK economy each year. Though harnessing professionals’ knowledge is a pattern as old as time, working practices have now changed along with the nature of organised crime. For starters, most money launderers will operate in businesses that strive to look legitimate, making the job of spotting illegal activity ever more challenging.
Yet since the creation of the Participation Offence in the Serious Crime Act 2015, the potential for being caught up in money laundering has grown, and consequences can include: losing your practising certificate, irreparable damage to your reputation, significant fines and up to five years in prison.
Risk-based compliance and due diligence procedures are key to spotting the signs of criminal activity, and submitting SARs (Suspicious Activity Reports) will not only ensure you comply with the law, but also play a part in tackling money laundering before unlawful funds enter the economic system.
Ask
The first question to ask when contracted for new business (regardless of your firm’s size or reputation) is “why me?”; this is especially relevant if a client is atypical to your usual client demographic. When determining if you are a logical fit, pay attention to your client’s scale, sector and jurisdiction.
If you suspect something, facing it head on by enquiring directly is the most effective tactic. Be alert to evasive and/or vague responses that could point to criminal behaviour. In your initial investigative work, you can use a variety of online tools to help verify client details, such as Companies House, which currently holds details of 3.5 million companies registered in the UK and has become one of the most open and extensively accessed registers in the world.
You could also try gathering more information by visiting your client’s premises during normal working hours, which will enable you to both gauge the authenticity of the business while also testing the accuracy of the information you have been provided. Empty premises at peak time should raise a red flag for starters.
Red Flags
Along with the aforementioned example, warning signs include: inconsistencies in the information provided, cash-rich or cash-only businesses, infrequent or atypical funds, along with inconsistencies in transactions. Following a well-documented risk-based approach can alert you to any red flags to be suspicious of.
The one way to safeguard your practice is by continuously carrying out comprehensive due diligence on both new and existing clients. Collecting copies of passport and utility bills alone may not always constitute an adequate due diligence process. Comprehensive due diligence should be risk-based, include both lateral and critical thinking, and if relevant, an examination of all beneficial owners with an interest of 25%.
Act
Once you are confident of your suspicions, you must make use of the proper reporting process. Keep in mind that this is not about proving criminal actions beyond any reasonable doubt or even about building a case against a client; rather it is alerting “a possibility, which is more than fanciful, that the relevant facts exist” (R vs. Da Silva 2006).
Further, under the Proceeds of Crime Act 2002, submitting a SAR is a legal as well as an ethical obligation. Due to the crucial role confidentiality plays in solicitors’ line of work, they are often fearful of putting their professionalism at stake. But if standard guidelines are followed, the solicitor is complying with the law, which is required by the SRA Code of Conduct. By providing the NCA with the necessary information to investigate suspicious activity, they can ultimately bring criminals to justice. If in doubt, consult the National Crime Agency’s guidelines to submitting good quality SARs.
Help
Because solicitors often work within the financial sector, we are in a unique position to mitigate the risks and rid the UK of this burden – remember, money laundering can continue the cycle of serious and organised crime, such as drug smuggling, arms trade and even human trafficking. By remaining alert and vigilant to the red flags and taking appropriate action, you can help tackle it.
