European and Irish anti-money-laundering rules are complex, challenging and, at times, over-burdensome – and they are especially daunting for sole practitioners and small practices. At the same time, it is a fact that the legal profession across the world is consistently being targeted by money-launderers. Small practices are no less exposed than medium to larger firms.

Small practices must be as vigilant as ever in order to ensure they do not, personally, become involved in money-laundering where well-known long-standing red flags may be present. In Ireland, the money-laundering offence carries a penalty of up to 14 years’ imprisonment for a relatively low knowledge threshold offence, which also captures the proceeds of all crime. AML compliance failings discovered by the Society’s Regulation Department can result in referrals to the Regulation of Practice Committee and onwards to the Legal Practitioners Disciplinary Tribunal. Clearly, a legal service exhibiting serious money-laundering red flags presents significant risks to reputation, career, and livelihood.

Where can smaller practices start?

The Society has designed its AML resources with smaller practices in mind, with the aim of both reducing a firm’s vulnerability to being used to launder money and ensuring that the complex journey to AML compliance is as efficient as possible. AML resources are accessible any time by visiting the AML webpage (www.lawsociety.ie/aml), which has been visited over 6,000 times in the past year.

Key resources include:

• 2018 AML Guidance (which supplements the 2010 Guidance Notes),
• Three infographics that communicate solicitor AML obligations visually, and
• Four sample adaptable forms for:

1. Business risk assessment,
2. Policies, controls and procedures,
3. Risk factor questionnaire for customer risk assessment, and a
4. ‘Document your thought process’ form for customer risk assessment.

The infographics contain hyperlinks designed to help you quickly navigate the guidance notes. We recommend taking a birds-eye view of AML, as provided by the infographics, especially if you are new to solicitor AML. The sample adaptable forms are also especially helpful for small practices.

For smaller firms at the beginning of their AML compliance journey, the free AML training hour is a great place to start. Designed to help solicitors comply with their statutory AML duties, it is currently available via the Learnskills website by visiting www.lawsociety.ie/legaledtalks. Training covers the current statutory framework, becoming risk aware, and top tips for AML compliance. This free training will be especially helpful to everyone in a smaller practice.

Assessing potential risk

Why is it so important to assess potential money-laundering risk before agreeing to act or gathering AML CDD?

While the purpose of AML compliance is to prevent money-laundering, in some high-risk scenarios, there may never be a combination of AML documents that will remove the personal risk of participating in a money-laundering offence. This emphasises the importance of solicitors ascertaining whether any potential money-laundering red flags arise before deciding whether to act and proceeding to gather AML CDD.

Solicitors should always consider whether there may be a potential to commit the offence of money-laundering and should use their judgement to determine the risk posed by potential red flags. Practitioners should assess risk as early as possible and throughout as needed.

The Financial Action Task Force’s 2013 report Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals is essential for solicitors. The report outlines typologies and red-flag indicators for the legal sector and is key to developing a good understanding of legal-sector money-laundering risk, adopting the risk-based approach, preventing money-laundering, and also ensuring effective AML compliance.

Key potential money-laundering red flags (indicators of suspicion) include:

• Solicitor’s client account required as the first point of entry into the EU financial system,
• No mortgage/financing required from a credit institution,
• Large amounts of funds from private clients or companies outside the EU,
• Substantial, disproportionate private/third-party funding (for example, purchase moneys being provided by wealthy generous relatives, friends, or other third parties),
• Property purchases without inspecting property, with few concerns about location, condition, etc,
• Activities make no obvious economic sense, are unnecessarily complex, involve non-resident accounts, companies or structures, and/or activities without reasonable explanation,
• Instructions at a distance, non-face-to-face, never having met clients in person or by video-call.

When interpreting red flags, many solicitors find it helpful to follow the FATF’s recommended method: “…the methods and techniques used by criminals to launder money may also be used by clients with legitimate means for legitimate purposes. Because of this, red-flag indicators should always be considered in context. The mere presence of a red-flag indicator is not necessarily a basis for a suspicion of ML or TF, as a client may be able to provide a legitimate explanation ... Where there are a number of red-flag indicators, it is more likely that a legal professional should have a suspicion that ML or TF is occurring.”

Strategically reducing exposure

It is also possible to reduce a firm’s exposure to being used to launder money in a strategic way by completing a business risk assessment which, in turn, can help a firm to develop risk-appropriate polices, controls and procedures (PCPs).

Business risk assessments and risk-appropriate PCPs work in tandem to reduce exposure to being targeted by professional money-launderers on a firm-wide level. They can help determine a firm’s approach to serious red flags at a high level. For example, PCPs can establish risk-mitigation policies, such as a policy to not accept payments in cash. PCPs also help to ensure compliance with statutory duties, as well as the Solicitors (Money Laundering and Terrorist Financing) Regulations 2020.

Infographics 1 and 2 will be especially helpful, alongside the Business Risk Assessment Sample Adaptable Form and the Policies, Controls and Procedures Sample Adaptable Form – all designed to assist solicitors in de-risking their firms and ensuring compliance with their statutory duties. Section 2 and section 3 of the 2018 AML Guidance Notes also provide more detailed guidance.

Top tips to become AML ready

Sole practitioners and small practices have made up a significant percentage of enquiries to the Society’s AML Helpline (aml@lawsociety.ie) over the years, and these hundreds of interactions have provided the Society with insights into how to assist small practices with their AML compliance. Solicitors are invited to watch this 30-minute video, which covers five top tips for small practices to become AML ready and was recorded as part of the Autumn 2021 Small Practice Information Sessions.

AML Helpline

Solicitors are welcome to send enquiries to the AML Helpline by emailing a short note to aml@lawsociety.ie. Please include information about the type of legal service being provided and remember not to include confidential client data. While the Society cannot confirm the adequacy of AML documentation in specific scenarios or confirm whether a reporting obligation might arise, the AML Team will endeavour to identify relevant AML guidance.