Anti-Money Laundering for Law Firms
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Money laundering can be a complex and difficult issue for lawyers, and there are many traps and pitfalls for the unwary. The regular flow of advice and information since the regulations came into effect ought to mean that no practising lawyer should be ignorant of the law and the impact it has had on practice management. However, despite the torrent of recommendations and guidance, issues remain for the lawyer and the legal firm. These are practical problems which may not be easily dealt with by a quick look at the rules or the practice note. This new report* addresses the practical issues legal firms may have to deal with in order to ensure compliance with all relevant rules and regulations. It looks past the bare legal requirements, and attempts to tackle some of the more difficult and complex issues lawyers have to contend with when dealing with client affairs. This report is an essential practical guide, designed to provide information and advice that will aid the practitioner in avoiding some of the many pitfalls contained in the rules, and to ensure that their firm is both compliant with the legislation and, more importantly, alert to the dangers some forms of client activity can present. Topics covered in this report include: The issues surrounding legal professional privilege: The difficulties involved in client due diligence (CDD) procedures with particular reference to dealing with politically exposed persons (PEP): How to tackle ongoing monitoring of client activity: How the culture and ethos of a legal firm can lead it into the shark infested waters of non-compliance: and Future legislation emanating from the European Union (EU). The report also looks at lessons to be learned from recent legal cases, not only involving lawyers but also from the financial services sector, where enormous penalties have been handed out by the regulator for non-compliance. Advice is provided in dealing with the Serious Organised Crime Agency, and the various orders that can appear during the course of an investigation. Chapter 1 provides an overview of the current UK anti-money laundering regime. It includes a summary of the provisions of the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007, setting out the various offences, reporting and compliance obligations to which law firms are subject. This chapter provides the framework within which the more detailed issues in subsequent chapters can be considered. Chapter 2 looks to forthcoming changes to the anti-money laundering regime, and discusses the European Commission's proposals for a fourth money laundering directive. The Directive will implement the Financial Action Task Force's revised Recommendations published in February 2012, and is likely to lead to revisions in the Money Laundering Regulations 2007. The changes that are most likely to impact on solicitors in practice are considered. It is essential that firms that provide services in the regulated sector carry out client due diligence (CDD) procedures, however, there is often a danger of these being formalised into a tick-box checklist approach carried out hastily so the real legal work can begin. Chapter 3 provides an overview of a risk-based approach to CDD. It outlines an approach for identifying high risk areas, and classifying clients in such a way that the appropriate level of CDD checks can be carried out. This allows firms to isolate high risk cases and monitor client activity, so that the risks of becoming embroiled in money laundering activities are reduced to an acceptable level. A number of overlapping regimes impose obligations on law firms in respect of counter-terrorist financing and financial sanctions. This is an area which is likely to increase in importance, given the continued foreign policy focus on terrorism, and the increased use of country-specific sanctions as a foreign policy tool. Chapter 4 provides an overview of solicitors' reporting obligations in respect of terrorist financing, and guidance on how financial sanctions, in particular asset freezing measures, will impact their work. Solicitors and their money laundering reporting officers can face difficulties in reconciling their obligation to report suspicions of money laundering with the requirement to preserve their clients' legal professional privilege. Lawyers' actions will be dictated by the extent to which common law or statutory privilege (or both) applies to the information or other material on which their suspicions are based, as well as whether continuing to act on the client's instructions would (absent a report) involve the commission of a money laundering or terrorist financing offence. Chapter 5 examines the privilege exemptions that apply to the various reporting requirements to which solicitors are subject, and offers guidance on how to navigate this complex area. Chapter 6 provides an overview of several cases that have served to clarify aspects of the law, in relation to the criminal conviction of lawyers involved with money laundering. In addition, it reviews decisions of the court that interpret key aspects of the law, such as when assets actually become criminal property and when involvement becomes criminal, which serve to interpret the principles of the legislation. The lessons to be learned from convictions overturned on appeal are considered, as these have relevance to practising lawyers and a decision regarding Bryant that relates directly to solicitors' disciplinary proceedings. Lessons to be learned from the financial sector are also discussed. Chapter 7 examines the relevant issues in relation to a solicitors' practice that is approached by law enforcement conducting a money laundering investigation into a client, or the firm itself. It explains the legal and regulatory environment to which firms are subject, lists some of the powers investigators can use to obtain information under compulsion, and provides some practical advice on how to respond to requests for information. Chapter 8 looks at management issues in law firms. Clearly, there is a requirement that staff, particularly client facing staff, be alert to the possibilities of being involved in money laundering. This requires senior management to examine the culture of their firm and to consider how staff can become involved in dysfunctional behaviour because of the organisational culture, rather than by deliberately performing acts they know to be criminal. This chapter looks at some of the influences that make good people go bad, and suggests ways in which this can be prevented. The problems caused by politically exposed persons (PEPs) are well known in principle, but Chapter 9 provides key guidance on how a firm should be approached by such an individual, in order to protect itself from potential problems. This chapter also considers the impact of the Bribery Act 2010 definition of 'adequate procedures', and how these equate to anti-money laundering procedures established by legal firms. This final chapter also discusses how a firm monitors ongoing activity to ensure that a client's status within the firm hasn't changed, and the client isn't perverting arrangements put in place for legitimate business, for a more sinister purpose. Included in this chapter, is an expert view on monitoring changes in clients' circumstances, and what legal firms need to do in order to maintain regulatory compliance. *In 2008, Ark published Money Laundering Compliance for Law Firms (no longer available for purchase), a comprehensive review of the money laundering regulations: the legislation relating to the financing of terrorism: and the recovery of the proceeds of crime from convicted individuals. It was a comprehensive factual summary of the legislation and the Law Society Practice Note, designed to aid legal firms in the practical aspects of compliance with the regulations.