AML expert joins calls for radical reform of legal sector compliance

A leading anti-money laundering expert has welcomed the findings of a damning report into non-compliance in the legal sector.

The findings by Spotlight on Corruption revealed “significant levels of non-compliance with AML rules” in the sector and made urgent calls to reform the sector’s “broken” self-regulatory system.

The report highlights a recent on-site review by the Solicitors Regulatory Authority (SRA) – the sector’s largest supervisor – where 60 per cent of firms were either not compliant or only partially compliant with the requirements of the UK’s Money Laundering Regulations.

Worse still, firms demonstrated a lack of information on the source of funds, a “continued failure” to do proper checks and a failure to collect any information on the ultimate owners of companies.

The critical report also highlights a clear lack of action from supervisors when non-compliance has been found. Formal action was taken in just a third (34.6 per cent) of cases by legal sector supervisors in 2019/20. By comparison, both HMRC and the FCA took action in 100 per cent of cases.

In addition, it shows the disparity between the size of fines. The largest fine imposed by a legal sector supervisor was £232,500 compared to a Gambling Commission record fine of £17 million. And while the number of fines may have risen in recent years, the total value has actually decreased.

Martin Cheek, managing director of AML software provider SmartSearch, and a qualified lawyer, has joined calls for robust action and reform.

Martin Cheek said:

“While the shocking findings of this report are clearly a black eye for the industry, it demonstrates that non-compliance with AML rules has long been the elephant in the room. The only natural conclusion to draw is an urgent need for reform to make AML compliance a fundamental priority.

“As the report highlights, the combination of high-levels of compliance failures and low-levels of enforcement has created a systemic culture of enablement for money laundering.

“While the sector must look at consolidating AML supervision and creating a truly independent watchdog, solicitors, conveyancers and legal professionals on the front line must invest in technology to make processes far more efficient and robust.

“Advancements such as electronic verification, real-time monitoring and full sanction screening are absolutely vital if the sector wants to reverse this reputational crisis and uphold its position as a “gatekeeper” of the UK’s financial system.”

SmartSearch’s digital AML solution is trusted by one in three of the UK’s top 200 law firms, including three of the top five, helping them deploy hundreds of detailed checks in seconds through a single platform. In total, SmartSearch supports more than 5,500 clients and 50,000 users worldwide across financial services, legal, property, accountancy and more.

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