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Report says Lawyers face near impunity for breaching money laundering rules in UK

18/10/2022

Law firms in the UK face almost zero risk of criminal enforcement if they breach money laundering rules, and very little prospect of meaningful fines, according to a report released on Monday by Spotlight on Corruption and Global Integrity.

  • THE REPORT = “A Privileged Profession? How the UK’s legal sector escapes effective supervision for money laundering” –

The report shows that a fragmented set of nine different professional bodies responsible for self-policing the legal sector’s compliance with UK anti-money laundering (AML) rules are providing uneven and inadequate enforcement.

The report also shows that a government target to strengthen the consistency of supervision for the legal (and accountancy) sector by spring 2021, has been substantially missed.

Drawing on detailed analysis of UK government and regulator reports, interviews, and Spotlight on Corruption’s own research, A Privileged Profession finds that:

  • Non-compliance with AML rules is still a significant issue for lawyers with 60% of firms visited by the Solicitors Regulation Authority (SRA) in 2020/21 failing to fully comply with duties to have adequate AML controls in place.

The nine professional bodies responsible for supervising the sector for money laundering are engaging in low levels of enforcement and are three times more likely to engage in quiet chats (informal actions) with those breaching the rules, than issue fines and public censures (formal actions).

The FCA by contrast takes more formal than informal action.

Some of these professional bodies are failing to impose any meaningful fines at all. The Council for Licensed Conveyancers imposed zero fines despite finding 62% of firms it supervises non-compliant in 2019/20. The Law Society of Northern Ireland imposed just one fine of £1750 during this same period despite finding 228 cases of non-compliance.

The highest ever AML fine for a law firm by the SRA – £232,500 for Mischcon de Reya – would have been £5.4 million (or 20 times the fine that was imposed) if it had been calculated with similar rules to those used by the FCA.

The Office for Professional Body Anti-Money Laundering Supervision, OPBAS hasn’t worked as well as it should have done.

  • It found that just 15% of legal and accountancy supervisors it oversees were effective at supervision in 2020/21.
  • Yet OPBAS has only used its powers to get supervisors to take remedial action 4 times – and none of these have been made public.

New measures in the Economic Crime and Corporate Transparency Bill going through Parliament at the moment – to ensure legal sector supervisors must help prevent and detect economic crime as part of their regulatory function – are a welcome step forward. However, it is clear that a step change in how the legal sector is supervised for money laundering is urgently needed.

Spotlight’s report calls for:

  • The Solicitors Regulation Authority (SRA) to be made responsible for policing money laundering across the legal sector, and to be beefed up in order to play this role
  • OPBAS to be super-charged into a “supervisor of supervisors” across all regulated sectors, including the FCA, HMRC and Gambling Commission, and to be able to sanction under-performing supervisors.
  • A new specialist ‘enablers’ cell at the National Crime Agency to ensure that law firms are investigated for criminal breaches of the UK’s Money Laundering Regulations.

Dr Susan Hawley, Executive Director at Spotlight on Corruption, said:

  • “The UK has a well-deserved reputation as the laundromat of choice for the world’s kleptocratic regimes. This couldn’t have been achieved without the legal profession – wittingly or unwittingly – playing an essential role. But our research shows that the efforts of professional body supervisors to deal with this long-standing problem are falling far short of where they need to be.
  • “Even on the vanishingly rare occasions when misconduct is identified, fines are negligible and criminal prosecutions non-existent.
  • “The government needs to act quickly to strengthen supervision of the legal sector, and across the board, to ensure the UK financial system cannot be exploited by Kleptocrats and criminals.”

Professor Paul Heywood, Director, GI-ACE Anti-Corruption Evidence programme, added:

  • “If we are going to tackle the issue of money-laundering in the UK, we need not just an appropriate regulatory environment, but also the means to ensure it is effectively enforced. This detailed report, based on extensive and far-reaching research, demonstrates that when it comes to the legal profession, the UK must do better on both fronts. The AML regulatory environment for the legal profession is fragmented and uneven, and even where breaches of duty are found, sanctions are weak and inconsistent.
  • “The report provides stark and compelling evidence that the UK is well behind where it needs to be regulating the legal sector’s engagement with money-laundering. Effective supervision of the sector needs to be strengthened if the UK is to lose its unenviable reputation as a hub for global money-laundering. Spotlight on Corruption’s report offers clear guidance on essential steps that should be taken.”

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UNITED KINGDOM