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Law Society of England and Wales considers money laundering compliance checks "an assault."

The Law Society of England and Wales has, since the early 1990s, fought a rear-guard action against the engagement of solicitors in counter-money laundering efforts. The Regulator, which was first a division of the Law Society and then spun off to become a ludicrously politically charged enforcer of any passing social fad had, at that time the correct view that solicitors were within the scope of the original Money Laundering Regulations. At last, the regulator, now known as the Solicitors (sic) Regulatory Authority (it's so trendy it doesn't use an apostrophe where its name demands one) has decided that money laundering is something it needs to pay attention to. The Law Society is on a war footing, declaring the SRA's action "an assault."

In an article in yesterday's Law Society (sic) Gazette, the newspaper of record for the solicitors' profession in England and Wales, an article written by Paul Philip, the chief executive ofthe SRA said "we will be writing to a large number of firms in the coming weeks asking to see evidence of compliance with the Money Laundering Regulations. Those who fall short should expect to enter our enforcement process. We will judge each case on its facts, but where we find serious issues or a lack of willingness to resolve issues promptly, we will take strong action."
Read the article here: https://www.lawgazette.co.uk/5...

The Law Society's response, in an article at https://www.lawgazette.co.uk/n... is headlined "SRA targets hundreds of firms in new anti-money laundering assault"

So, let's look at the reality: first, when Nigel Morris-Cotterill, then a solicitor in practice, reviewed the then new Money Laundering Regulations in 1994, he discovered that, possibly by accident of drafting, all solicitors who were conducting business for which they were regulated under the Financial Services Act 1986 were within the scope of the Regulations. The Law Society, then split into the "trade union" section and a "regulatory section" formed a split opinion. The trade union part, which continues as The law Society, argued that this interpretation was not correct. The regulatory section, which over time mutated into the SRA, agreed with Morris-Cotterill's interpretation. "Warning cards" were issued which "borrowed" from notes he presented. Law enforcement agencies agreed with Morris-Cotterill's view but expressed the view that compliance with the Regulations was not an arrestable offence and so while if there were demonstrable failures, they were unable to inspect a firm's records although if, for example, during a Value Added Tax inspection, matters came to light, inter-agency co-operation would mean that the police could act on "information received." Once the door was open, they could prosecute for failure to comply.

In this way, solicitors in the whole of the UK were under a higher duty under the Money Laundering Directives than lawyers in the rest of Europe. During the negotiations for the Third Money Laundering Directive, lawyers banded together and, alongside other professional bodies, the Law Society fought for a narrow interpretation of who was required to put measures in place and, because the Financial Services Act was repealed, the automatic inclusion fell with it. As a result, British solicitors became subject to a less stringent regime than before.

The SRA, since then, has been pre-occupied with social engineering within the profession. It has abrogated much of its responsibility in relation to failing law firms by creating mechanisms to avoid interventions and it has focussed on time consuming and, in many cases, offensive demands for reporting to meet its political agenda. What it has failed to do, in large measure, is to regulate the fundamentals.

In the mid-1990s, Rowan Bosworth-Davies, a former police officer, said that in every large scale laundering scheme, a lawyer is involved. Prosecutors were able to obtain a small number of convictions against solicitors although some prosecutions were hopelessly ill-advised and charges were brought by officers who did not understand the niceties of the law or evidence and that brought the process into some disrepute. Even so, lawyers have persisted in the view that while money laundering is an offence, money laundering risk management and compliance is not really their concern.

Poor levels of reporting by all professional firms, not only lawyers, has long been a point of contention with the authorities although some of that is a self-inflicted injury after the FIU announced that it wanted only "quality" reports to be filed which, in effect, reduced the filing of reports from an obligation to a discretionary activity. But the lack of reporting of even serious matters has become interesting to the media, both "serious" and tabloid, especially in relation to foreigners buying property for large sums. That has kicked off considerable interest in all those involved in the property market, of which solicitors are part. That same media, which would not want to offend the large proportion of its readership that has an interest in soccer has for decades paid no interest to those same, or similar, people buying all or large stakes in football clubs.

The SRA, never one to miss a passing bandwagon, is jumping on that one - years too late. And it's doing it in the way that it has dealt with all its social engineering - by requiring firms to self-report on their own systems. This, to be fair, is not a new approach: in the 1990s, the then financial regulators adopted it. It was actually amusing because the Insurance regulator had produced "the green book" which defined systems which were, to say the least, lowest common denominator. In the questionnaire that followed, there was a question "does your company comply with the green book," to which at least one insurance company replied "no, we do it properly" or words to that effect.

The SRA says that "We have produced a package of support for solicitors to highlight good practice and understand what is needed." It is to be hoped that this is better than the green book was.

At least the SRA has one important point right: "a risk assessment is required in legislation and should be the backbone of a firm’s anti-money laundering approach. Firms which do not have one or are not implementing it properly, may be committing a criminal offence and are leaving the door open for criminals to launder money." That's exactly what Morris-Cotterill said all those years ago. His book "How not to be a money launderer" was in the Law Society's Library. It's good to know that, albeit a quarter of a century later, his message is being distributed, even if the SRA doesn't know where it came from. It's bad to know that the Law Society is continuing to consider that any attempt to enforce compliance is an act that is hostile to the profession.

Further Reading: https://www.antimoneylaunderin...

Author: 
World Money Lau...

 


 

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