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Lawyers who break AML rules face bigger, more public fines

In May 2022, the Fair Business Banking and Anti-Corruption and Responsible Tax all-party parliamentary groups (APPGs) published a joint Economic Crime Manifesto. The statement sets out a “comprehensive list of pragmatic reforms” designed to tackle the UK’s dirty money crisis and stop Russian oligarchs, criminals, kleptocrats and wrongdoers who have been using London to hide their corrupt wealth.

Reform is indeed necessary. The UK is rife with corrupt cash and, according to the National Crime Agency, billions of laundered capital floods through the country each year. Something must be done.    

To tackle the issue and expose wealthy Russians to proper scrutiny, in April 2022, in the spotlight of the Ukraine war, the UK passed the Economic Crime (Transparency and Enforcement) Act. But, despite warmly welcoming the new legislation, the authors of the new joint manifesto don’t believe that the new rules go far enough.   

The APPGs have called for a more radical overhaul of AML regulations. In particular, the manifesto calls on the Government to urgently consider four principles for reform. These are: 

Transparency. Identify who really owns companies, trusts & assets so that law enforcement, journalists, civil society & more can readily follow the money.  
Enforcement. Toughen up policing agencies with enough resource to consistently enforce existing laws & deter wrongdoing.  

Accountability. Empower Parliament, journalists, civil society, the courts and whistleblowers to unearth criminality & hold Government to account.  
Regulation. Strengthen supervision of the professions so that the enablers of economic crime answer for their actions. 

Highlighting that there are currently 25 professional body supervisors which oversee how solicitors, barristers, accountants, and other professionals are applying money laundering regulations, the manifesto calls for a “radical overhaul of anti-money laundering supervision”.

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) currently oversees the UK’s legal and accountancy AML supervisors. The report recommends strengthening the OPBAS with new powers to sanction supervisors, and a streamlined system with fewer supervisors. Significantly for the legal profession, regulatory powers to fine lawyers who fall short with “bigger, more public” fines are also included in the proposals.

According to the manifesto, “Professionals that breach the Money Laundering Regulations are rarely fined for their wrongdoing. The Office for Professional Body Anti-Money Laundering Supervision must ensure that there is a credible deterrent against breaking the rules.” To do this, the APPG’s proposal states that “professional body supervisors, of sectors such as lawyers or accountants, must issue bigger, more public civil fines for wrongdoers.” The report also calls for the creation of a new Professional Enabler Unit at the National Crime Agency (NCA) to investigate and prosecute wrongdoing.

As it stands, solicitors who fail to carry out proper checks already face severe penalties. In 2021, several SRA firms were subject to fines after failing to meet their AML requirements. This spate of rule breaching caused the SRA to urge firms to be more vigilant when checking the source of client funds. But it seems as if the message still hasn’t sunk in. Earlier this year, a partner at London firm Karam, Missick and Traube LLP was fined £25,000 by the Solicitors Disciplinary Tribunal (SDT) and ordered to pay £20,000 in costs for allowing the firm’s client account to be used as a banking facility and failing to make adequate identity checks. Despite there being no dishonesty involved, a lack of customer due diligence led to the misconduct.   

Now that the Government has introduced the Economic Crime Bill, solicitors are already facing harsh punishments for non-compliance. For example, the new legislation requires entities who currently own or wish to own property in the UK to identify beneficial owner(s) and register them with Companies House. Any solicitor who acts outside of the new rules could face up to 5 years in prison. If the recommendations in the new manifesto are adopted, a failure to carry out proper AML checks could result in even more penalties.

To future-proof and ensure compliance in an already heavily regulated environment, law firms across the UK must act now to ensure excellent due diligence and to protect themselves if they find themselves subject to scrutiny. For many, this means investing in new compliance tools. 

The good news is that compliance doesn’t have to be complicated, and there is no need to reinvent the wheel. With quote management, ID and AML checks, forms, and secure online payments, all in a single digital solution, Minerva already gives firms everything they need to ensure compliance with KYC, AML, and Safe Harbour requirements when on-boarding clients. 

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