SRA identifies emerging money-laundering risks

The Solicitors Regulation Authority (SRA) has identified a number of emerging money-laundering risks in the sector.

On 5 March 2024, the SRA updated its anti-money laundering (AML) sectoral risk assessment to identify emerging risks.

Emerging risks:

Vendor fraud

The SRA warned of the risk of solicitors and law firms facilitating vendor frauds.

According to the SRA, this involves fraudsters targeting properties (often residential) and selling these without the consent or knowledge of the genuine owner.

This type of fraud often involves the fraudster impersonating the property owner.

To combat the risk of vendor fraud, the SRA says firms should:

• • • • exercise caution when clients are not met face to face
      • make sure the vendor’s title is properly established
      • properly scrutinise any identity documents to make sure they appear authentic and show no apparent signs of being forged or altered

Pooled client funds

‘Pooled funds’ refers to transactions where a large number of participants, often strangers, contribute to fund the purchase of a property or asset.

The SRA highlights the challenges in establishing the source of funds, especially where there are numerous separate sums.

Without knowing the source of funds, the SRA says it is “impossible” to assess the level of risk involved or to determine whether the funds have been laundered or are subject to sanctions.

Third-party managed accounts

Where client money is held in a third-party managed account, the SRA notes that you will be less able to monitor the movement of client monies, but that responsibility for any breach of the MLRs would still rest with the law firm.

The SRA says you should carry out due diligence on the account provider to make sure they are properly defended against risks (such as cyberattacks or ransomware).

Irregular methods of transferring funds

If a client insists on depositing money in portions or tranches, or asks for sums to be transferred to them or third parties in a similar way, the SRA says you should investigate.

Other changes:

• • The SRA has also updated the sections of its risk assessment covering:
  • COVID-19
  • modern slavery and cash-based industries
  • artificial intelligence (AI) and cybercrime
  • domestic politically exposed persons (PEPs)

Read the SRA’s full sectoral risk assessment

What this means for firms:

Law firms should regularly identify and assess the risk of money laundering they face, in the form of practice-wide, client and matter risk assessments.

All firms within scope of the Money Laundering Regulations 2017 (MLRs 2017) must comply with the regulatory requirements.

This includes taking appropriate steps to identify, assess and maintain a written record of the risk your firm is being used for money laundering or terrorist financing.

The SRA may ask to see your firm’s written risk assessment and policies, controls and procedures as the AML supervisor for solicitors and firms.

The Law Society’s guide on risk assessments explains your obligations under the MLRs 2017.

Protect yourself and your firm from money-laundering:

• • Complete the Law Society’s online course on risk assessment and client due diligence, led by a leading expert in risk management.
  • Call the Law Society’s AML helpline for support on issues such as due diligence, source of funds, sanctions and the high-risk jurisdictions list
  • Join the Risk and Compliance Section to stay up to date with your regulatory obligations.
  • To learn more and gain practical know-how, read the Law Society’s Anti-money Laundering Toolkit (3rd edition) and Assessing and Addressing Risk and Compliance in Your Law Firm (1st edition).

Kindly shared by The Law Society of England and Wales