Are Law Firms Failing to Mitigate Increasingly Sophisticated AML Practices?

It’s good practice to check third-party relationships, not only to adhere to the law, but to mitigate other risks as well.

Here Chris Laws, Head of Product & Strategy at Dun & Bradstreet, looks at the role of the legal sector and government, the harmful impact of bad data, and how investment in clean data and smart technology can equip businesses to tackle financial crime.

From KFC’s supply chain issue to fish and chip shops around the UK unknowingly using illegally imported shark fins in produce, dirty supply chains can have serious reputational and financial risks for businesses.

It’s an issue that universally impacts all of us too. Take money laundering – latest government reports found that money laundering cost every household in the UK £255 last year. Couple that with the UK’s National Crime Agency (NCA) receiving a record number of reports related to money laundering, terrorist financing and similar suspicious activity, and it’s clear how serious of an issue this is.

The role of law and government

A recent SRA investigation found that a third of law firms fell short in mandatory risk assessments, while poor training processes meant firms could be unwittingly assisting money launderers. The government reacted by drawing up the Economic Crime Plan for government, law enforcement and businesses to work together to tackle money laundering, fraud and corruption.

The Law Commission’s recommendation of a dedicated advisory board, would enable the UK to improve and support anti-money laundering (AML) prevention practices. Prevention is key for all businesses because money laundering practices can manifest very early in the supply chain, meaning companies are often unaware of any issue.

While it is encouraging to see the government take action, businesses are equally responsible for knowing who they are working with in their supply chain.

Tackling your ‘dirty laundry’

The increasing sophistication of criminal organisations and their ability to hide illegal activities within supply chains is a significant challenge for businesses. That’s why it’s more important than ever to know the exact suppliers, partners and customers that a business works with. Access to details such as beneficial ownership and People with Significant Control (PSC) are necessary steps to take when vetting existing suppliers. Equally so, it’s important to run a Politically Exposed Persons (PePs) check that can uncover risk before onboarding new partners.

Many organisations fail to realise the goldmine of valuable internal information and, equally, fail to activate it. Internal data can highlight exactly where money is being used, which suppliers work with which departments and how resource is being divided. A failure to regularly audit this information can aid nefarious practices including money laundering. Data that is outdated, poorly formatted and inconsistent can damage effective compliance functions, helping bad actors to poison the supply chain.

Many organisations fail to realise the goldmine of valuable internal information and, equally, fail to activate it.

Is Technology is the next step?

It’s well known that clean data is crucial to business growth. But clean and accurate data also enables businesses to invest in and benefit from technology solutions that aid preventative measures in the supply chain.

PWC analysed the future of onboarding and suggested that technology can be a solution to help accurately identify and verify third-party relationships, using technologies such as biometrics, blockchain and artificial intelligence (AI). For example, law firm LLR is using AI to translate foreign documents for attorneys, saving time and helping to process vast volumes of data with ease. The same framework can be applied to a compliance model, untangling millions of data points and identifying – and therefore reducing – dishonest suppliers that could be laundering money.

Indifference will result in failure to stop illegal activity

Ignoring this challenge in today’s business world is no longer an option. By investing in a data-led strategy, businesses can uncover all processes in the supply chain and equip themselves to combat financial crime, even as it becomes more complex.

The only way to avoid exposure to regulatory fines and irrevocable reputational damage is through transparent data, and an investment in tech that aids compliance, complements a company’s existing regulatory processes and improves due diligence.