This article talks about the need for solicitors to have a compliant firm-wide risk assessment in place to deal with issues such as money laundering in various transactions. The author says clients can expect more requests from lawyers to supply updated identification and financial information.

The following article, relating to anti-money laundering issues in the UK, comes from barrister Jonathan Fisher (pictured below), KC. AML laws remain an important, and central, part of private client advisory and wealth management life. The editors are pleased to share these insights; the usual editorial disclaimers apply. To respond, email tom.burroughes@wealthbriefing.com

Jonathan Fisher

Nothing irritates clients more than a request from their solicitors to update their identification records or explain the source of their monies. It is as if clients are being required to prove to a sceptical audience that they are law-abiding people, and criminality is not their game. 

But, however annoying, if the solicitor is well regulated with a strong reputation for integrity as well as competence, clients can benefit from the reflected image which the solicitor projects. Additionally, the better regulated solicitor is more likely to spot money laundering pitfalls into which a client may unwittingly fall. 

For example, if a client is selling residential property, and the counterparty has obtained purchase funds from involvement in criminal activity, a sharp-eyed solicitor with an understanding of money laundering practices is more likely to recognise the problem than a solicitor unversed in the practices of the dishonest.

Other scenarios may arise where criminality raises its ugly head. A client may be acquiring company shares from the seller, and due diligence enquiries reveal that in certain respects the company has been trading illegally. There are a multitude of criminal offences which can arise in the corporate context. 

From the client’s perspective, discovery of criminality can be important. Plainly, the client will not wish to run the risk of fending off civil or regulatory enforcement proceedings arising at a later stage.

In every case, the client matter risk assessment undertaken by the client’s solicitor is key. The assessment should identify and assess the money laundering risks. This includes counterparty risks where appropriate. As the Law Society Guidance advises, if a solicitor does not fully assess the risks present in any particular client or matter, they cannot then apply appropriate controls to mitigate those risks adequately and effectively.

Where criminally tainted funds are involved in a transaction, it is not simply the protection of the client’s interests which are at stake. There are broader interests to consider, such as the wider public concern to ensure that criminals are prevented from using the proceeds of their criminal conduct for commercial or enjoyment purposes. 

Where funds are used in this way, the monies are re-introduced into the financial system and their criminal origin is lost, making it difficult for law enforcement authorities to detect and investigate the criminal conduct in question. Solicitors assisting in the completion of a commercial transaction are regarded as “professional gatekeepers” who facilitate clients and counterparties to participate in the legitimate economy. 

As the profession’s regulator, the Solicitors Regulation Authority supervises the application of the anti-money laundering regime in a solicitor’s office, and it seeks to keep solicitors on their toes. 

Last year, there were 47 enforcement outcomes in relation to money laundering. In over half of the cases, the most common breaches related to AML controls. Most frequently, the solicitors failed to have a compliant firm-wide risk assessment in place. Some of these cases included elements of inadequate policies, controls and procedures and staff training.

Of the remaining cases, the majority concerned buying and selling of property and poor client due diligence. These generally involved inadequate identification and verification of clients (both individual and corporate), followed by failings in assessing and identifying the risks at client matter level. 

In October 2023, a solicitor’s firm was fined £100,000 ($127,729) for regulatory failures, and in January this year an international law firm was fined £500,000 after failing to carry out due diligence on a corporate client for more than four years.

Against this background, clients can expect ever-increasing requests from their solicitors for the supply of updated identification and financial information. It is nothing personal!

About the author
Jonathan Fisher KC practises from Red Lion Chambers London. Additionally, he is a senior fellow (and visiting professor in practice) at the London School of Economics.