16 February 2004
30 August 1999
2 September 2003
8 March 2004
5 February 2001
16 September 2002
The Financial Services Authority’s decision last December to fine Abbey a record £2m for slack money laundering checks highlights a common problem that affects the legal profession. UK law firms represent thousands of clients every day, a percentage of which are likely to have engaged in illegal financial dealings. Blind trust could potentially lead to serious problems – not least criminal sanctions, threats to profitability and ultimately, irreparable damage to the firm’s reputation.
An estimated £25bn is laundered in the UK each year. Given the role of law firms in most aspects of life, it is inconceivable to assume that everyone is exempt from the problem.
Abbey’s fine followed those handed out to Northern Bank and the Royal Bank of Scotland for £1.25m and £750,000 respectively. Both related to money laundering lapses and inadequate procedures. The fines against banks have been large, but then they are large institutions. It is difficult to predict the size of fine a law firm would suffer for any particular offence. It is likely that it would not be the size of the fine that would destroy the law firm’s business, but rather the damaging effect on its reputation and the loss of current and future clients that would do so. Insurance premiums might also increase, as the firm that cannot even implement money-laundering procedures is unlikely to be good at case management.
So what should we be doing about it? The immediate answer is everything possible, especially to ensure that the integrity of our profession is maintained. 2003 saw the implementation of Part 7 of the Proceeds of Crime Act. This makes it an offence to fail to disclose the laundering of the proceeds of all crimes, where the firm is engaged in carrying out a business in the regulated sector. More importantly, March 2004 will see the Money Laundering Regulations 2003 come into force. New anti-money laundering controls will be extended to solicitors who are participating in financial or real property transactions, or who provide services in relation to the formation, operation or management of a trust. So, although solicitors are already subject to the existing Money Laundering Regulations regarding certain types of business, this expands our responsibilities.
It is now vital that all firms ensure that their money laundering procedures are fully documented, and that there is hard evidence that these procedures have been followed in every case. In the event of a firm being accused of money laundering, it is this hard evidence that is looked into.
The evidence should also reveal that money-laundering issues are dealt with quickly. The Abbey was criticised for the amount of time it took to deal with money laundering issues, taking many weeks to report suspicious issues to the National Criminal Intelligence Service (NCIS).
Resourcing of personnel to deal with money laundering issues can be challenging for even the very largest firms, but it is important that responsibilities are assigned, understood and can, if necessary, be taken as part of the general compliance and risk roles.
With procedures in place, the real challenge for law firms is to ensure that the ethical culture of honesty, vigilance and disclosure is fully embedded within the workplace. Everyone within the firm must know that a good fee will be turned away if it involves money laundering, and most importantly, everyone within the firm should know about money laundering from senior partner downwards and appropriate learning processes should be in place to re-enforce this.
Whistle blowing is reasonably straightforward and experienced money laundering officers will know how helpful the NCIS can be, but given their lack of resources, it is important to comply with their disclosure routines.
These are challenging times with more regulations on the way. It is a time of uncertainty and change, elements that firms are not always good at dealing with. But the news is not all bad – the crux of the matter is all about knowing your client. Professionals who know their clients and learn to understand them will have a stronger business than those willing to take money from anyone and anywhere.