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UK legal regulator finds poor AML compliance among trust and company services providers

Thursday, 9 May, 2019

The Solicitors Regulation Authority (SRA) has launched disciplinary action against 26 law firms, after a review of the trust and company service providers found many breaches of the anti-money laundering regulations.

The review, conducted in 2018, examined 59 law firms in England and Wales that conduct trust and company service provider (TCSP) work. Two TCSP files at each firm were examined for compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017): the UK's implementation of the EU Fourth Anti-Money Laundering Directive.

The review found that a significant minority of law firms who carry out TCSP work are not meeting their obligations to tackle money laundering, with some falling seriously short.

Risk assessments and appropriate customer due-diligence were the weakest points, especially concerning politically exposed persons (PEPs). Four of the firms visited had conducted no risk assessments at all, and 20 could not show that their risk assessments addressed TCSP work in particular.

PEPs featured on six files reviewed by the SRA, which was satisfied with only 45 of the PEP processes it reviewed. Three of the firms did not even understand what a PEP was, and accordingly did not do any checks on clients. The eight firms that had no PEP processes were all referred into the SRA's disciplinary process.

Only ten firms had submitted suspicious activity reports (SARs) in the last two years, despite the SRA regarding TCSP work as an acknowledged high-risk area. This confirms concerns raised by the National Crime Agency (NCA) and Financial Action Task Force (FATF) that law firms are generally not being proactive enough in looking to identify and then report suspicious activity, said the SRA: 'Based on the firms we saw, we have real concerns about this area...Given the concerns raised by the NCA and FATF, this is an area that we will continue to scrutinise.'

However, no evidence of actual money laundering or criminal intent was found. Moreover, 15 of the firms reviewed had turned away TCSP business, typically because of client evasiveness.

The SRA says it will judge each of the 26 disciplinary cases on their facts, and will be looking for evidence that firms are 'moving swiftly to comply with their obligations'.

'We will take strong action against firms where we have serious concerns that they could be enabling money laundering, and/or those who fail to address our concerns promptly', it warned. 'Where firms do not cooperate or the breaches are significant, we will consider disciplinary action.'

The body has also set up a new dedicated AML unit, and has written to a further 400 law firms asking them to demonstrate their compliance with the MLR 2017 regulations.