AML Update – October 2024

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS), the body tasked with overseeing legal regulators’ AML work, has said it was not seeing “the consistent, effective improvement we need”, and that there needs to be a “combined commitment… to effectively fulfil the ongoing AML supervisory roles to protect the UK against the threat of money laundering”; in effect, expect more pressure from the SRA on AML compliance and increased penalties!

The SRA has published revised guidance on complying with the UK sanctions regime, so firms’ Money Laundering Reporting Officers (MLRO), Money Laundering Compliance Officers (MLCO), and Compliance Officers for Legal Practice (COLP), will need to read and digest the changes and update their firm-wide risk assessments (FWRA) accordingly, even if this is just to say it has been read but does not apply.

The Office of Financial Sanctions Implementation (OFSI) has updated its frequently asked questions on UK financial sanctions, and again any appropriate changes or notes need to be reflected in FWRAs.

OFSI has imposed the first monetary penalty under the Russian sanction's regime, which related to a concierge company providing services to high-net-worth individuals. They were fined £15,000 after providing property management services to a designated person, which included rent collection, making and facilitating payments.

The most relevant point for firms to note relates to OFSI's policy on voluntary disclosure, which did not happen in this case.

This case emphasises the importance of entities or persons voluntarily disclosing breaches of the regulations to OFSI … OFSI considers voluntary disclosure under Case Factor J as to the enforcement action taken, and if a penalty is imposed, will make up to a 50% reduction in the final monetary penalty amount to a person who gives a prompt and complete voluntary disclosure.

A number of firms have been fined since the last update in July, including:

• Fined more than £12,000 for not complying with anti-money laundering rules.
• Fined £21,843 for failing to have in place the right documents as required by money laundering regulations.
• Alternative Business Structure (ABS) fined more than £46,000 for failing to have proper anti-money laundering procedures in place, one of the largest such penalties to date.
• Fined £18,000 for failing to have proper anti-money laundering procedures in place

The ABS could have been fined up to £250m and individuals up to £50m, so it got away quite lightly!

Firms may want to use the Law Society’s Core Practice Management Standards to assess their levels of compliance; here are the specific AML requirements:

Practices must have a policy, approved by senior management, to mitigate and manage money laundering and terrorist financing risks and to ensure compliance with anti-money laundering (AML) legislation. The policy must include:

a)     A documented, practice wide risk assessment that identifies and assesses the risks of money laundering and terrorist financing to which the practice is subject, and which complies with Regulation 18 of the Money Laundering, Terrorist Financing and transfer of Funds (Information on the Payer) Regulations 2017.

b)     The appointment of a nominated officer usually referred to as a Money Laundering Reporting Officer (MLRO).

c)     A procedure for making disclosures within the practice and by the MLRO to the authorities.

d)     A procedure for checking the identity of the practice’s clients and for monitoring clients on an ongoing basis.

e)     A plan for the training of personnel.

f)      Procedures for the proper maintenance of records.

g)     A procedure for responding rapidly to AML enquiries from the authorities.

h)     Where appropriate with regard to the size and nature of the practice:

                                                      i.         Appoint a person of sufficient seniority as the officer responsible for the practice’s compliance with the current money laundering regulations (MLCO).

                                                    ii.         Carry out screening of relevant employees.

                                                   iii.         Establish an independent audit function to evaluate, monitor compliance with and improve the effectiveness of the practice’s AML policies, controls, and procedures.

i)      A procedure for checking and analysing the source of funds/wealth and keeping on file both the evidence obtained and the documented analysis.

j)      A procedure for dealing with the transfer of clients from one department of the practice to another.

k)     A procedure for ensuring that a documented individual AML risk assessment is present on every file addressing the risks of money laundering specific to that file.

Guidance on the information sharing measures in the Economic Crime and Corporate Transparency Act 2023 has been published, and should assist with the sharing of information, however, don’t confuse this with sharing information that relates to client due diligence (CDD), for example, estate agents can’t share their CDD with a law firm unless there is a formal ‘reliance’ agreement in place under section 39 of the Money Laundering Regulations, but a key aspect of this is that the law firm would remain liable for any errors or omissions made by the state agent.

Watch Brian Rogers and Mariam Dobosz discuss all of the above in more detail along with extra updates on the changes to AML regulation over the past three months.