Cleaning House: Money laundering & the legal profession
July 1, 2019
2 min read
What's going on here?
Following a recent review, 26 law firms have been referred by the Solicitors Regulation Authority (SRA) to the Solicitors Disciplinary Tribunal and now face potential disciplinary action for instituting inadequate ‘money laundering’ safeguards.
What does this mean?
Money laundering refers to the global practice of attempting to conceal the true origin of illegally obtained funds (usually flowing from the proceeds of organised crime). Typically, this is done by a series of transfers that involve foreign banks and legitimate businesses and follows a tri-fold process:
- ‘placement’ of the funds;
- ‘layering’ of the funds; and finally
- ‘integration’ of the funds.
Once the funds are ‘integrated’ they can once more be called upon by the very criminals that originated the process.
What's the big picture effect?
Historically, money laundering has been driven by a host of anonymous corporations, shell companies, fake transactions and permissive bankers.
Yet, as the authorities have become better at detecting such activity, organised criminals have been required to resort to more sophisticated techniques such as ‘back-to-back’ deals (which involves securing loans with dirty money), ‘mirror trading’ (where for example Russian shares are traded for European shares), and ‘smurfing’ (multiple small scattered deposits) to name just a few.
The recent review, which can be seen as a UK-wide crackdown on ‘dirty’ money (witness also the recent cases concerning Unexplained Wealth Orders) has targeted law firms. The review considered a representative sample of 59 firms and found a staggering 26 of them (some 44%) were lacking with regard to their compliance with anti-money laundering measures. However. the SRA were at pains to clarify: “[they] did not find evidence of actual money laundering but did find poor checks, procedures and risk assessments.”
After the National Crime Agency identified law firms and accountants as being particularly at risk of being exploited by criminals to launder money, a larger review that plans to include 400 firms is in the pipeline. However, the writing is clearly already on the wall as highlighted by Paul Philip, the SRA’s chief executive, who stated “those firms should be on notice that compliance is not optional. They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action.”
Report written by Mark P
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