Wine as an investment – the wine merchant’s risk
Law firms are the latest sector to face scrutiny in the crackdown on money laundering. The Solicitors Regulation Authority (SRA) has launched a new initiative to investigate money laundering procedures within law firms to ensure that there are robust systems in place to enable solicitors to uphold their professional and legal obligations to report suspicious transactions.
As Paul Philip, the Chief Executive of the SRA, pointed out, “law firms often handle large sums of money, and this means they attract those who seek to launder the proceeds of crime”. This review, which commenced on Monday 8 September 2014, is expected to be completed in May 2015, after which the SRA will formally report its findings.
Solicitors, like all those working in the regulated sector must submit Suspicious Activity Reports (SARs) to the National Crime Agency (NCA) when they have knowledge or a suspicion that a person is engaged in, or attempting to engage in, money laundering, in accordance with Part 7 of the Proceeds of Crime Act 2002. The usual process involves a submission of a report, either in hard copy or online, detailing the information relating to five essential elements:
For solicitors, submission often requires the request for consent to carry out ‘prohibited acts’, such as to handle suspicious funds. Delays in granting consent have been attributed by the NCA to the submission of incomplete reports, which contain insufficient information for the UK Financial Intelligence Unit (UKFIU) to reach a decision.
Therefore, in order to speed up the system, as of today (15 September 2014), the NCA has stated that any submissions of SARs which are found to contain insufficient information for the UKFIU to reach a decision may be ‘rejected’ without any request for further information being made. This will result in the UKFIU closing the case immediately after a letter has been sent to the submitting party stating that the UKFIU is not in a position to exercise its discretion to grant or refuse consent. Further information will not be added to the case once it has closed. In order for a decision to be made regarding consent, a new SAR will need to be submitted.
In addition to the extra time it will take to submit a new SAR from scratch, in light of the current investigation launched by the SRA, this procedural change has the potential to cause further issues for those solicitors who do correctly identify the risk of money laundering and report this in the prescribed format, but for whatever reason fail to fully document the basis of their submission. Following a formal report next year, if in the course of the investigation, the SRA does happen to find the reporting quality amongst solicitors to be lacking (which the NCA has suggested is the case in relation to consent SARs across the reporting sectors, not specifically the legal sector), law firms must be alert to the possibility that in addition to clear failings in anti-money laundering procedures, the SRA may also choose to take a hard line against those who do not fully discharge their professional duty under the Code of Conduct to comply with relevant legislation, by falling short of the requirement to provide a detailed picture of the matter from the earliest opportunity.
In order to prevent any problems down the line, it remains of paramount importance that all those working in the regulated sector (including solicitors) ensure that they are as thorough as possible when complying with anti-money laundering legislation in order to not expose themselves and their firm to unnecessary work and risk.
Emma Scott and Michael Caplan QC
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