Organised crime costs the UK more than £24 billion each year – that’s £1 a day per citizen. The fact that criminals are using the services of legal professionals in order to try to hide the origins of their illicit funds is nothing new, but there are important questions that solicitors must ask themselves to avoid becoming drawn in without their knowledge.
Criminals are likely to have built what appears to be an authentic business to avoid unwanted scrutiny and this makes you and your profession vulnerable to becoming unwittingly involved in serious and organised crime. For solicitors, the consequences of being involved in money laundering, are severe. These can range from loss of your practicing certificate, damage to your own and your businesses’ reputation, significant fines and even a prison sentence. The creation of the Participation Offence in the Serious Crime Act 2015 makes it a crime – punishable by up to five years in prison – to participate in activities which an individual “reasonably suspects” contribute to organised crime.
With this in mind, it is imperative that solicitors continue to take responsibility to comply with money laundering regulations, particularly the obligation to complete adequate due diligence on new and existing clients. By doing their due diligence and submitting quality Suspicious Activity Reports (SARs) where appropriate, solicitors can play a significant part in tackling the threat through identifying potential cases of money laundering before they enter the economic system.
Spotting the red flags
The most effective way to ensure that solicitors remain compliant and are able to spot the red flags of money laundering is to implement an effective and well-documented risk-based approach. This will not only protect a legal firm from criminals, but in the unfortunate event that there is an issue it will reassure law enforcement and the regulator that the appropriate precautions have been taken.
In the first instance, they should step back and consider whether there are any immediately apparent warning signs. By considering whether there are inconsistencies in the information clients provide, if the client runs a cash-rich business, if there are unusual amounts or sources of funds, or any discrepancies in previous transactions, solicitors can begin to assess whether there are any suspicious activities that could ultimately lead to them becoming implicated in a crime.
In order to identify these red flags, firms should always continue to undertake comprehensive due diligence checks on new and existing clients in order to sweep for any risks. But due diligence extends beyond obtaining a passport and utility bill, and adopting a merely tick-box approach. It should be risk based, include lateral and critical thinking, and may include scrutiny of all beneficial owners with a controlling interest of over 25%, in addition to the client. Conducting internet searches on a prospective client could help to pick up any obvious warning signs with regards to their professional credibility.
Asking the right questions
Ultimately, while those working in the legal profession certainly have an awareness of money laundering, and how drastic its impact can be, there can sometimes be a lack of recognition of how it affects them personally. In all cases, solicitors should be looking at the whole picture, in order to build as comprehensive a client profile as possible.
For instance, a solicitor approached by a potential client that differs from their normal client profile should always ask “why me?” irrespective of the size of their firm. If a client is atypical of the regular client demographic, whether due to factors such as scale, sector, jurisdiction or any other reason, they should look to establish why their firm has been approached.
If something doesn’t stack up, asking a direct question is usually the most efficient way to get to the bottom of the irregularity. If the client is subsequently evasive, or if the answer is vague and lacks detail, that should immediately trigger suspicion.
Applying any local knowledge is critical when considering whether a business is legitimate or not. It might be helpful to make a visit to their premises during normal working hours. Often a lot can be taken from an organisation’s place of business that helps to reveal how authentic it is, and it allows legal professionals to make judgments on the accuracy of the information they are providing. For instance, if a firm is asked to work on behalf of a retail outlet that is empty at peak time, this could be an indicator that all is not as it seems.
If any due diligence checks call the credibility of the client into question, solicitors should ask themselves if this amounts to suspicious activity, and consider going through the proper reporting processes. As a starting point, they should educate themselves about how low the level of suspicion has to be in order to get to this point. It is critical to remember that this assessment is not about being beyond a reasonable doubt, or building a case against a client. In R vs. Da Silva (2006), it is simply defined as “a possibility, which is more than fanciful, that the relevant facts exist”.
If they decide that a particular client does meet this criterion, solicitors have a legal obligation to submit a suspicious activity report (SAR) in line with internal procedures. Submitting a SAR can be seen as a much more drastic move than it is, and can be a concern for legal professionals. Solicitors are trained to maintain the highest levels of client confidentiality, so there is often apprehension that if the information they have is vague or imprecise; it may appear as if they are taking an extreme step without possessing the requisite evidence.
However, it should always be remembered that submitting a SAR is confidential. And it is also worth noting that if a SAR is not submitted when there are grounds to, solicitors risk breaking the law under the Proceeds of Crime Act 2002, and potentially allow criminals to escape with the proceeds of their wrongdoing.
One additional consideration to take into account is the quality of SARs. If a solicitor is submitting a SAR, they should ensure that it is filled in honestly and correctly, without adopting a defensive tone. Bad quality SARs often lack the information needed to build a wider intelligence picture so it is important to get them right first time, every time. The National Crime Agency (NCA) has created guidance on submitting better quality SARs, and solicitors should review this regularly.
Making a difference
Money laundering is undoubtedly a pervasive influence on the UK economy, and as professionals that are often operating in the financial space, solicitors are at risk of being unwittingly caught up in criminal schemes.
However, by taking a risk-based approach to due diligence, being direct with clients about perceived discrepancies, and submitting SARs if they have suspicion, they can avoid becoming involved. Ultimately, solicitors are in a unique position when it comes to disrupting the risks of money laundering, and can play a huge role in ridding the UK of this threat.