AML Compliance – the continuing challenge

anti-money laundering, aml compliance

As the year draws to a close, there is no escaping the fact that the topic that has proved to be the most problematic over the past 12 months has been that of anti-money laundering (AML) compliance. Our experience tells us that 2024 is unlikely to be much different and it seems likely that firms will continue to face increasing pressure to be able to demonstrate compliance with the ever growing demands of the law and the Solicitors Regulation Authority (SRA).

The combination of, on the one hand, the need to be aware of the statutory offences in the Proceeds of Crime Act 2002, as now extensively amended, and on the other hand the regulatory obligations in the Money Laundering Regulations (MLR) where they apply to the firm, remains a common cause of confusion. Non-compliance with the MLR can itself amount to a criminal offence regardless of whether any money laundering activity is actually occurring within the firm – a point that was graphically illustrated in the recent report that west country and London firm Ashfords had been fined £100,000 by the regulator. This was despite the fact that there was no suggestion that any money laundering or financial crime had been committed through the firm, and was purely on the basis of the failings of the firm’s controls.

As for the statutory offences, we saw last month the first conviction of a solicitor for the offence of tipping off under s.333 POCA. The fact that this is the first such case involving a solicitor might encourage us to think that this remains an exceptional event, which clearly it is, although others might consider it to be a sign of the times that it has occurred at all.

It has become clear in recent months that the SRA will be quick to use its now increased fining powers to penalise what they regard as failures to address the regulatory obligations to which firms are subject. By way of double jeopardy, this can of course lead to unwelcome complications when firms commence their efforts to renew their professional indemnity insurance. Most firms will now find themselves within the regulated sector, even in relation to contentious work as well as transactional work, following the wider definition of what it means to be a “tax adviser” introduced in the Amendment Regulations 2019. If the firm does find itself to be within the regulated sector, it will be necessary to adopt and keep under regular review its AML risk assessment and then also update its policy in line with the conclusions reached in that earlier exercise.

The further elements to be considered include the need for an independent audit of the firm’s AML controls and for regular training in relation to both the statutory offences and the regulatory requirements. The audit can be conducted on an internal basis as long as the reviewer is not “marking their own homework” or externally by an independent auditor.  As to the need for training, firms must not believe that having once provided AML training to staff that their duties are addressed.  Training needs to be regular and must ensure that all relevant personnel are kept up to date, not only to changes in the law and regulation but also to relevant changes within the firm.

For the time being, however, the greatest challenge in ensuring that firms remain AML compliant are the demands made by the SRA in their “Client and matter risk assessments – warning notice” of the 18th October.  This provided that firms must conduct client and matter risk assessments in much greater detail than had been expected to date. Please see our article from October “Managing AML Risk Assessments“.

Other than that, we now have an addendum to the Legal Sector Affinity Group AML Guidance Note from earlier this month. This new publication is in the process of being approved by HM Treasury but for the most part this makes technical, and mostly minor, amendments only. It also makes some welcome but very minor reductions in the need to address suspicious activity reports to the NCA in certain circumstances. We will take on board all such amendments in our review of our AML guidance materials in the new year.

And the purpose of all of this activity? There is a growing suggestion that all this increased pressure is not actually reducing the level of laundering activity in society and so might be seen to be “form over substance”. For the time being, however, ours is not to reason why ….

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