Beyond Reasonable Doubt: 80% of Law Firms Find Process-Oriented AML Screening Challenging

Survey conducted by Accuity, in connection with the Law Society of England and Wales, reveals firms’ challenges as the sector tightens up on financial crime

Accuity recently surveyed a range of law firms to uncover the current challenges in anti-money laundering (AML) compliance.

Legal firms are required by law to play a role in policing the financial system. Firms are obligated to help in the fight against financial crime by putting in place measures to detect and report any suspicious activity relating to their clients.

The legal industry is finding that it has to meet many complex financial crime compliance obligations, which can be challenging.

The Evidence

The survey, which was completed by over 80 professionals from a range of firms, revealed that:

  • 86 percent find establishing a client’s source of wealth a challenge
  • 80 percent find the process-oriented nature of AML difficult to overcome
  • 78 percent struggle with identifying and verifying beneficial ownership and corporate structure of overseas customers
  • Performing ongoing monitoring checks efficiently (i.e. not manually) is difficult for 71 percent of legal firms

The Crime

According to the Financial Action Task Force (FATF), the reason criminals seek out the involvement of legal professionals is often “because a legal professional is required to complete certain transactions” or “to access specialised legal and notarial skills and services which could assist the laundering of the proceeds of crime and the funding of terrorism.”

This means that the onus is increasingly on lawyers, who may be vulnerable to the risk of inadvertently facilitating money laundering, to detect, monitor and mitigate potential red flags.

Closing Argument

Regulators around the world are clamping down on areas of weakness in legal firms’ financial crime compliance efforts.

In the UK the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 – based on the terms stipulated by the EU in the 4th Money Laundering Directive (4MLD) – has altered the political and regulatory context. It has added a new layer of rigour and complexity, for example, by introducing the requirement for practice-wide risk assessments and the screening of domestic PEPs (politically exposed persons).

Legal firms worldwide need to review their practices to ensure they remain compliant with increasingly stringent regulations. They need to put systems and processes in place that enable them to verify the identity of clients, and ensure they understand the true nature and purpose of the business relationships they engage in.

Conducting these due diligence checks enables them to take a risk-based approach and avoids exposing the firm to any potentially damaging circumstances.

The Verdict

The Law Society exists to represent, promote and support all solicitors in England and Wales. It is “committed to making the UK a hostile environment for illicit finances by helping solicitors in England and Wales act as gatekeepers to the UK financial system”.

The Law Society is the named supervisory authority under the Money Laundering Regulations 2017, though it delegates regulatory functions to the independent Solicitors Regulation Authority.

To help firms meet their AML-CTF obligations, the Law Society has endorsed Accuity for its provision of AML solutions.

Accuity works in close collaboration with the Law Society, and provides financial crime screening solutions to enable legal firms to understand the risk of doing business at every stage of a client engagement.

In the words of Andrew Goodall, International Risk and Compliance Director at Withers LLP, “Using a solution that is respected by the Law Society helps to give confidence that our business and reputation is adequately protected from financial crime risk.”

To learn more about financial crime compliance in the legal sector, download the The Challenges of AML for Law Firms – Industry Report, and find out how Accuity is providing more effective financial crime compliance for law firms.