SPEAKER INSIGHTS

SPEAKER INSIGHTS

Ahead of the Anti- Money Laundering for Law Firms conference in London on 19th June 2019, we spoke to a few of our speakers to find out some more context on their sessions, and their AML journeys so far.

 

Living with the AML Regulations and looming changes for the financial sector

Ensuring your business is compliant with the Anti-Money Laundering (AML) Regulations and related legislation has become a board room issue for all in the financial services sector…

It is set to stay there with The Financial Conduct Authority (FCA) indicating that AML compliance remains a high priority within its business plan for 2019. The Treasury Committee has also recently published the first installment of its report on Economic Crime and AML supervision, calling for one overarching supervision body or a supervisor of supervisors. This, in conjunction with Brexit and the uncertainty over UK implementation of Money Laundering Directive 5 (MLD5), will give the core financial services industry more to think about as we move towards 2020.

The landscape in 2019

The introduction of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) brought wholesale changes with increased requirements in many areas. In particular, firms must conduct a firm wide risk assessment with responsibility for compliance with the requirements being pushed right up to CEO level. The FCA's Decision Notice against Mohammad Prodhan, the former CEO of Sonali Bank (UK) Limited, makes it clear that the buck no longer stops with the MLRO as it may previously have done.

The Treasury Committee has also considered whether to change the law relating to anti-money laundering and fraud, with a failure to prevent financial crime or fraud offence being mooted, similar to that currently in place for bribery and facilitation of tax evasion offences. This would make it an offence for a corporate to fail to prevent its employees and/or those acting on its behalf from committing offences such as money laundering or fraud. The possible defence available to corporates would likely include having suitable prevention procedures in place, thereby placing additional responsibility upon the management of the company. Firms must ensure they have resource available to deal with these potential changes and ensure their policies and procedures are updated and appropriately circulated, particularly given the increased scrutiny on this aspect of compliance.

Ensuring compliance

At present, the MLR 2017 framework is not one size fits all. Each firm must undertake its own risk assessment and put in place appropriate systems and controls proportionate to the nature, scale and complexity of its activities. This is generally onerous for all, whether it be because resource is limited in smaller firms or because their business extends to many different sectors and, potentially, different jurisdictions. Foreign banks in particular, whose activities are regulated in a number of jurisdictions with different supervisory frameworks, must take care to allow adequate resource to ensure compliance.

We have seen many firms reach out to us for comfort that what they are doing is appropriate to satisfy MLR 2017, particularly given the FCA's (and other regulators') systematic and proactive supervision and evolving guidance.  

Changes impacting the supervision framework

2018 and 2019 have seen a range of heavyweight analysis of the UK's AML and counter terrorist financing measures and supervision structure including:

  • A Financial Action Task Force (FATF) visit and report into the UK's systems and controls. Whilst FATF considered the UK to have robust systems and controls and supervision framework it urged the FCA to ensure it maintained the appropriate intensity of supervision across its 19,600 supervisory population;
  • The office of Professional Body Anti-Money laundering Supervisors (OPBAS) report into the effectiveness and consistency of the 22 supervisory bodies. This report illustrated that, due to each supervisory body adopting its own risk-based supervisory framework there remained inconsistencies in approach between the different sectors; and
  • A Treasury Committee report into Economic Crime – Anti-Money Laundering supervision and sanctions implementations. In addition to considering a failure to prevent offence, this report deals with many issues, not least the challenges faced by Brexit. The Treasury Committee was keen to stress that the UK should remain a beacon of good practice and that the potential for more business relationships with parties outside Europe following Brexit should not mean a relaxation of the UK's approach. It also found that the UK's supervisory approach was fragmented. It was critical of membership organisations (in the accountancy and legal sectors) monitoring their own members and called for external supervision in those areas. Similarly, it questions whether HMRC should maintain its supervisory powers and whether these would be better transferred to OPBAS.  In respect of the FCA's approach, Alison Barker, Director of Specialist Supervision, told the Treasury Committee that good progress had been made by the UK's largest banks but that there had been fewer improvements in smaller foreign banks. Such smaller foreign banks will need to prepare for increased FCA scrutiny in this regard!

The majority in the core financial services sector will be supervised by the FCA and this is not set to change. However, there is likely to be a shake-up of the other supervisory bodies in an effort to bring more consistency and clarity to the whole market supervision system.

Irrespective of whatever the new wider supervision framework will look like, the priorities will remain the same. We will see higher financial penalties and potential criminal prosecution for non-compliant corporates and senior managers.  Corporates and their management must remain up to date with current requirements, ensure sufficient resource is devoted to compliance and may also wish to obtain independent external reassurance that the appropriate processes and culture are embedded.

Authors

Michael Ruck leads TLT's FS Investigations and Enforcement team in London. He has a broad range of experience including advisory, regulatory liaison and large-scale, complex multi-jurisdictional investigations. Michael is a co-author of Anti-money Laundering Compliance for Law Firms, 2nd Edition.

Angela Craven is an associate in the Investigations and Financial Crime team at TLT LLP. Angela has experience in undertaking regulatory investigations and advises clients on various aspects of regulatory compliance, governance and disclosures. Angela is a co-author of Anti-money Laundering Compliance for Law Firms, 2nd Edition.

Jemma Shanks is a solicitor in the Investigations and Enforcement team in London. Jemma has significant experience in managing FS investigations on a variety of issues and advising on regulator interactions.

Michael Ruck will be leading a session on cross-industry benchmarking: how the financial sector has responded to AML regulations, at the upcoming Anti Money Laundering for Law Firms conference on 19 June, London.

Angela will be a panellist at the panel session on reviewing your processes, reporting and procedures. Limited early bird tickets available, BOOK NOW and save £100: bit.ly/2CNduJP

 


 

FATF identifies areas of concern for the UK

Last year, the Financial Action Taskforce (FATF) completed its much-anticipated mutual evaluation of the UK. Overall, the FATF findings were positive, with the UK demonstrating a robust level of understanding of its risks, measures and initiatives to counter money laundering and terrorism finance.

Leaving aside FATF's discussion of the UK's involvement in money laundering scandals, the evaluation highlights some areas of concern. The enforcement agencies were noted for a concern in the ability to make effective use of information gathered from suspicious activity reports. The agencies need to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions.

The resources and reporting measures required are ongoing concerns for the MLRO and wider risk and compliance function. And these issues will be discussed with opportunities for debate and solutions at the upcoming Anti Money Laundering for Law Firms conference on 19 June, London.

By Nick Stone, Conference Producer, the ARK Group


 

Horizon-scanning with Amasis Saba: the Fifth Money Laundering Directive

In June 2017, the Fourth Money Laundering Directive came into force across the EU. In what must have seemed like a blink of an eye to those rushing to demonstrate compliance with its mandates, April 2018 – a mere ten months later – was the month that the European Parliament announced it would be adopting the Fifth Anti-Money Laundering Directive…

Fast forward to a year later: whilst the mandates of the Fourth Directive may only have been recently implemented into national law across the EU, financial institutions and law firms are already scrambling to get to grips with what the Fifth Directive will mean for their organisation. It’s an uncertain time, especially for firms and businesses based in the UK. The only way to navigate these difficult waters is to seek out the right guidance.

What is the Fifth Directive, and what does it mean for UK firms?

In the first place, it’s a bit of a misnomer – rather than being a comprehensive piece of legislation that would require a wholesale change in how businesses approach money laundering, like the 4MLD, it is instead a series of amendments and additions to the structures already in place. However, this does not mean that the Fifth Directive isn’t important , nor does it mean its changes can be ignored. If anything, its provisions reflect exciting technological developments and a heightened awareness of the increasingly international context of business, in the form of the regulation of virtual currencies and improved safeguards for financial transactions to and from high-risk countries.

The deadline for EU member states to implement the first steps of the Fifth Directive is 10 January 2020. The countdown has begun. For UK law firms, with a prolonged and ever-delayed Brexit process and the uncertainty of its outcome hanging over the country’s future, the issue of how – or if – the Fifth Directive will translate to British law and what this will mean in practical terms is more pressing than ever. In the event of a cancellation of Brexit or the securing of a withdrawal agreement, the UK government will be bound to follow in the EU’s footsteps. However, a no-deal Brexit will generate even more ambiguity and concern around the UK’s approach to money laundering, with many fearing that a break with the EU will mean compromising the UK’s fight against financial crime.

What’s next?

In the current political climate, firms face an uncertain future. This is only exacerbated by the fact that compliance has been made a top priority since the introduction of the 4MLD and the Financial Action Task Force’s assessment of the UK AML regime. In a survey undertaken as part of the Flag It Up campaign, a staggering 96 percent of the firms sampled state that tackling potential compliance issues will become as much of an objective as increasing revenue and retaining clients. The National Crime Agency’s 2018 annual report on Suspicious Activity Reports (SARS), however, revealed that the legal sector made only 2,400 of the 420,000 or so SARs filed in total across all sectors. Despite the good intentions, there is evidently still a lot of work to be done.

Predicting the future is impossible at this stage; however, guidance from thought leaders and industry experts can provide insight into what may lie ahead.

At ARK’s upcoming Anti-Money Laundering for Law Firms conference, taking place on 19 June 2019, delegates will hear from Amasis Saba – chair of The Law Society’s Money Laundering Task Force – as he addresses the forthcoming Fifth Directive, delving into the ongoing efforts of firms (including his own) to implement and review the legislation’s mandates. A combination of horizon-scanning and sharing of best practice, this talk will act as a solid foundation for your firm’s continuing compliance enterprise.

Limited early bird tickets available, BOOK NOW and save £100: bit.ly/2CNduJP

 

By Francesca Ramadan, Assistant Commissioning Editor, the ARK Group


 

You can't manage what you don't measure 

 

There are plenty of lessons that law firms can learn from the financial services industry in terms of strengthening their anti-money laundering (AML) compliance programmes...  

Looking at financial services' AML and combating the financing of terrorism (CFT) regulatory regimes is a precursor to what will occur in the designated non-financial professional bodies (DNFPB) space as global regulatory expectations across diverse sectors of the economy converge. There are three reasons why law firms should start paying attention now: 

 

  1. 1) Legal services continue to be rated as high risk of association with abuse for money laundering in the 2017 UK National Risk Assessment;  

  1. 2) The 2018 FATF Mutual Evaluation Report for the UK noted that the scope to enhance sanctions against lawyers and law firms (and accountancy) has already been identified as an issue by the government; and 

  1. 3) The UK Treasury Report in March 2019 recommended that the relatively new agency of the Financial Conduct Authority (FCA), called the Office for Professional Body Anti-Money Supervision (OPBAS), should have real AML supervisory powers over lawyers in place of the Law Societies. 

 

The banks haven't exactly 'got it right' given the continuation of investigations and fines more than ten years post the financial crisis. However, they have incrementally enhanced their risk and compliance capabilities and use their historical strengths to better identify and manage AML and CFT risk.   

 

Banks have always kept meticulous data and voluminous risk metrics on their lending portfolios as interest rate spreads have historically been a primary driver of profit. Everything from capital risk to volatility is monitored.  Banks have largely had to learn the hard way that investing similarly in improving the data quality of their underlying customer data and collating reporting from disparate legacy systems is crucial to managing AML and CFT risks at a global level. 

 

If law firms used simple metrics such as reporting on global client risk ratings by partner, practise area, office location, sector and country (to name a few), an empowered risk and compliance team can provide a whole new perspective on weighing the risk-benefit ratio, particularly when this information is combined with relevant financial data.  

 

By Tamara Vanmeggelen, Global Chief Risk and Compliance Officer, Mourant 

 

Want to hear more? Join Tamara’s session on risk and compliance processes in the finance sector at the Anti-Money Laundering for Law Firms conference on 19 June, London.

 


 

SRA: Money laundering – it’s good to talk

According to Colette Best, director of Anti-Money Laundering (AML) at the SRA, one of the most enjoyable aspects of her money laundering role is getting out and meeting the profession to discuss how to effectively prevent money laundering...

We regulate 7,000 law firms in England and Wales that fall within scope of 2017 Money Laundering Regulations. They operate in lots of different ways. It’s vital that we as regulators understand the practical realities of work at the coal face, so we can make sure we are regulating as effectively as possible. I’ll be at the Anti-Money Laundering for Law Firms (AML) conference on 19 June doing more of the same.

Eliminating the fear

My experience from these public forums is that solicitors can be reluctant to ask questions. There’s a fear of admitting to others, and perhaps to us as the regulators, that they don’t know something or are unsure of their approach. This is understandable.

In response, at our own conference for compliance officers we provided an app for delegates, giving them a more discrete way to ask questions. The results spoke for themselves; we received dozens of questions which we could address in the session. I am pleased to say that there will be a similar facility for the AML conference with the use of sli.do.

We would rather people ask questions than stay quiet. Money laundering damages society, supporting terrorists, drug dealers and people traffickers. The stakes are too high for solicitors to be anything but fully committed to preventing money laundering and the crime it supports. Good intentions are not enough - good systems, processes and training are essential. We would much rather help firms comply, and reduce the risks of money laundering, than stay quiet and remain at risk of unwittingly getting involved with criminals.

Prevention is better than cure

Preventing money laundering is a priority risk for us and the profession. It remains a very serious threat not just to legal firms, but to society as a whole. The type of work law firms do - and the credibility of solicitors - makes them an attractive target for terrorists and criminals who want to process their ‘dirty money’.

We are undertaking a range of activities to make sure firms are taking all the necessary steps to prevent and detect money laundering. This includes regular reviews of law firms. This month we published the results of a review of those providing trust and company services. This has been highlighted by the government as one of the legal service areas at highest risk of exploitation by criminals.

SRA review

Our review found a mixed picture. Some firms are on top of the issues and there are examples of excellent practice, but a significant minority of law firms are still not doing enough, with some falling seriously short.

One area where we had particular concerns was firms’ risk assessments. This is required in legislation and should be the backbone of a firm’s anti-money laundering approach. Too many firms are not covering all the areas required by legislation, while a small number had no risk assessment at all.

There were also issues around appropriate customer due diligence. This included inadequate processes in around a quarter of firms to manage risks around Politically Exposed Persons. However, in some instances, effective customer due diligence did result in firms turning down work, often due to evasive clients.

Moving forward

As a result of the review, we have referred a number of firms into our disciplinary process and issued a warning notice, setting out our expectations in this area. We know the majority of solicitors want to do the right thing. Many are already stepping up to that challenge, but many is not enough.

Our message to all law firms is that compliance is not optional. We have published a range of materials to help firms comply, and will take a proportionate approach where we find firms falling short. We will be keen to see evidence that firms are moving swiftly to comply with their obligations. However, we will take strong action against firms where we have serious concerns that they could be enabling money laundering. That is a risk that cannot be tolerated.

Want to hear more? Join Colette’s session on the SRA’s outlook for anti-money laundering at the Anti-Money Laundering for Law Firms conference on 19 June, London. 


 

5 things lawyers need to know about AML

With the SRA reporting last week that 44% of the firms they recently visited in an Anti-Money Laundering (AML) thematic review have been referred through to their disciplinary procedure, the level of compliance in law firms has again been called into question...
 
There have also been concerns expressed by the National Crime Agency that out of nearly half a million Suspicious Activity Reports (SARs) last year, only 2,660 were from the legal profession.
 
The legal sector has been labelled “professional enablers” for a few years now. It’s a description of my colleagues that I don’t adhere to personally, but statistics like this really don’t help.
 
Due diligence is key
 
I run a consultancy helping law firms with compliance, in particular AML. The people I meet are genuinely trying to do their best to prevent money laundering, recognising not just the importance of complying with the law, but also their responsibility for stopping organised crime and the damage it does to their communities.
 
However, I do sometimes hear of challenges in getting staff to understand the importance of client due diligence in law firms, and that it isn’t just a tick box. Lawyers can sometimes be concerned about their clients’ reaction when being asked to provide due diligence information, about losing the client if we require them to provide information about source of funds and source of wealth – on occasion lawyers don’t understand why they have to ask because they’ve known the client for years.
 
These challenges can show a lack of appreciation for the risks of money laundering or the lawyer’s key role in preventing it. Firms need to make it very clear what compliance looks like and why it is necessary, not least to protect the lawyers!
 
Here are the 5 things I think lawyers need to know:
 
1. They must do a matter-based risk assessment. The recent thematic review demonstrated a lack of matter-based risk assessments in some firms. Many firms are just starting to put these in place, and lawyers need to comply with them; the SRA will check this. They are an important tool, and should be used in all matters, even for existing clients. The lawyer should be reviewing each instruction, and in particular, whether there are any red flags for the matter. For existing clients, they should be considering whether the matter is outside the client’s usual activities, as this could be a trigger to carry out further due diligence. 
 
2. Knowing the client for years and being sure that they aren’t laundering money is not a reason not to do client due diligence (CDD). It is the fact that you are carrying out a transaction for the client which triggers the CDD requirement, not who they are. Firms have to consider the risk of money laundering from the services they offer, decide what measures they will put in place to prevent that (of which CDD is one) and the lawyers need to follow that process. If there is a departure from the process it needs to be recorded, as does the rationale.  
 
3. Clients often don’t mind being asked about identity and source of funds and in fact, expect it. Staff need to be comfortable with explaining why we ask about it, and what we will do with the information.
 
4. All staff need to come to training even if they have had it before. Things change, the way criminals operate evolves but above all we need reminding. It is worth noting that the firm has to produce training records to the SRA should they request them.
 
5. There are consequences of non-compliance. Firms will need to be able to demonstrate to the regulator how they will deal with non-compliance with the firm’s policies and procedures. We should remember the COLP is under a duty to monitor breaches and report them if appropriate to the regulator and many firms state in their policies that non-compliance is a disciplinary offence.
 
AML measures are not just to pay lip service to legislation. Money Laundering causes real damage to our local communities, to our clients and their families, to their businesses, and we all have an important role to play in stopping it.
 
Want to hear more? Amy Bell, Director, Teal Compliance, will be taking part in a panel discussion on the dual responsibilities and functions of the fee-earning MLRO at the Anti-Money Laundering for Law Firms conference on 19 June, London. 
 

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