LAW firms under aml pressure - REGULATORY FINES TRIPPLE in five years, from £87,000 in 2017/18 to £299,925 2021.
- Mischon de Reya – Jan 2022
- In Jan 2022, a Record-breaking fine of £232,500 was issued to law firm Mischon de Reya [MDR] by the SRA
- The firm [MDR] permitted a £965,000 payment into its client account and x3 payments of USD 1,099,015, USD 10,000 and £10,000 out of the firm’s client account.
- Transactions amounted to
- “permitting the client account to be used as a banking facility,” contrary to the AML rules governing the use of law firms’ client accounts.
- READ MORE HERE https://www.ft.com/content/842799c6-6c7a-40e4-a9b0-951a181c58ea
- Data from the Solicitors Regulatory Authority (SRA) shows a substantial increase in the number and amount of fines issued to law firms.
- Data reveals the main cause = law firms are failing to meet their obligations to detect and prevent money laundering.
- Twenty-three of the 37 fines issued against law firms by the SRA in 2021/22 were connected to anti-money laundering compliance program failures.
Law Firm Fines Quadrupled Over Two Years, Mostly Due to Money-Laundering Compliance Failings
The SRA is ramping up enforcement, according to a City A.M. report.
The regulator, which oversees over 11,000 England and Wales law firms, issued
- 37 fines in 2021/22—up from 16 in 2020/21 and
- just seven in 2019/20.
- Twenty-three of the 37 fines issued by the SRA in 2021/22 were connected to money laundering.
WHY ARE SO MANY LAW FIRMS BEEN FAILING TO MEET THEIR AML OBLIGATIONS?
- A spokesperson from the SRA told City A.M. that the increase in fines was connected to an earlier crackdown on law firms’ compliance with anti-money-laundering (AML) rules.
SPECIFIC REASONS ARE BELOW
Call for AML risk assessments in 2019
- A requirement to develop firm-wide AML risk assessments is one area in which solicitors have been falling short.
- Since June 2017, certain law firms covered by the UK’s Money Laundering Regulations have been required to implement a written firm-wide risk assessment setting out how they address money-laundering risks.
- According to SRA guidance, the regulator called in 400 firms’ risk assessments in 2019 and found “high levels of non-compliance”.
- Under regulations, a firm-wide AML risk assessment must include, among other things, information about the types of clients instructed by the firm, the regions in which the firm operates and the firm’s transactions.
- Ten per cent of the firms contacted by the SRA failed to send the regulator a relevant risk assessment, instead sending “something else”, according to the SRA’s website.
- A further 43 firms failed to address the money-laundering risk assessment requirements fully.
- Furthermore, the SRA found that 38% of the risk assessments it received were dated after the request was made, suggesting that some firms had not been fulfilling their legal obligations until they were contacted by the regulator.
AML visit, 2019-20
- Together with its call for law firms to submit their firm-wide AML risk assessments, the SRA made visits to 74 firms between September 2019 and October 2020 to review their AML policies and practices.
- Again, the SRA found issues with many law firms, some of whom were badly failing to meet their AML obligations.
- According to the SRA’s report on the visits, 64 percent of firms visited by the regulator required “some form of engagement”, including revising their AML policies or following a compliance plan.
- Around 12 percent of the firms visited by the SRA were referred to the AML Investigations Team due to a concern that they may have committed “serious breaches” of AML rules.
- The SRA’s report states that in one case, a firm’s money-laundering compliance officer “did not appear to understand their obligations”. A senior member of staff at another firm had “failed to carry out sufficient AML checks on a politically exposed client from a sanctioned jurisdiction.”
Record-breaking Mischon de Reya fine
- City A.M.’s report suggests that as well as a large increase in the number of AML-related fines issued by the SRA, the overall amount of fines issued has increased more than three-fold: from £87,000 in 2017/18 to £299,925 in 2021/2022.
- The comparatively large total is skewed, however, by a record-breaking fine issued to law firm Mischon de Reya in January 2022.
- The SRA issued the £232,500 fine after finding that the law firm had failed to keep records of its due diligence processes, and had enabled a client to pay large sums of money into its account that “did not relate to an underlying legal transaction.”
- Mischon de Reya was also ordered to pay £50,000 in costs.
- The investigation into the firm focused on work for two clients that took place between September 2015 and April 2017. Throughout this time, Mischon de Reya admitted that it failed to maintain appropriate risk assessment procedures and that it failed to properly document some of its activities.
- Between 22 and 28 July 2016, the firm permitted a £965,000 payment into its client account, and three payments of USD 1,099,015, USD 10,000 and £10,000 out of the firm’s client account.
- These transactions were found to amount to “permitting the client account to be used as a banking facility,” contrary to the AML rules governing the use of law firms’ client accounts.
- In deciding on a penalty, the SRA found its record-breaking fine to be appropriate due to “serious breaches” of the rules that had the “potential to cause significant harm.”
- However, the regulator also noted that there was “no evidence of lasting harm to consumers or third parties” and that Mischon De Reya had been cooperative throughout the investigation and had made subsequent changes to its practices and systems.