Solicitors' AML compliance 'ongoing obligation'

The deadline for the Law Society’s anti-money-laundering (AML) thematic review of business-risk assessments is 30 September.

However, in his presentation to the DSBA webinar, Focus on Clients: Care, Complaints, GDPR and AML Considerations (2 September), Niall Cawley suggested that AML compliance should be treated as an ongoing practice-management obligation, rather than simply a matter of producing a policy for an inspection.

Cawley, a sole principal, member of the Law Society Council, and former DSBA president, outlined the purpose of the thematic review and the obligations arising under the Solicitors’ Money Laundering and Terrorist Financing Regulations 2020. 

The review, which was notified by email to practices on 13 July, is intended to establish whether solicitors are providing AML-regulated services and to examine practices’ compliance with their obligations under the 2020 regulations.

It asks practices whether they undertake a range of activities that may bring them within the AML regime. These include buying or selling land for clients, managing client money or other assets, opening or managing bank or securities accounts, and acting for clients in financial or land transactions.

BRA must be documented

Cawley warned against assuming that a practice had no AML exposure simply because it did not routinely hold client money. The nature of the work undertaken and the solicitor’s involvement in a transaction must also be considered.

A central requirement is the preparation of a business-risk assessment (BRA) under regulation 6. The assessment should consider the risks arising from the particular nature of the practice, its clients, services, transactions, and geographical exposure.

Cawley highlighted that the BRA must be documented, adding that it was not something to be considered informally and left undocumented: the outcome must be recorded, and the Law Society can require a copy.

The BRA is distinct from the practice’s internal policies, controls, and procedures required under regulation 5, which govern the day-to-day operation of the practice – including matters such as client due diligence and transaction monitoring.

The Law Society has produced precedents to assist practices. Cawley stressed, however, that these were not intended to be a simple 'copy and paste' exercise.

“You need to go through it; you need to make sure it applies to you, because it's not one size fits all,” Cawley said.

Risk factors

The regulations also require practices to consider risk at the level of individual clients and matters.

Factors that may increase risk include:

• One-off or unfamiliar clients,
• Clients based outside the EU, 
• Complex or unusual transactions, 
• Transactions involving funds or parties from outside the jurisdiction, and 
• Circumstances in which the solicitor has limited visibility of the client or the source of funds.

The source of funds is an important consideration, particularly in property transactions.

Cawley suggested that practices should consider appropriate safeguards on third-party payments and, where appropriate, require funds to be transmitted through the solicitor acting for the other side, rather than directly from a third party.

The Law Society’s materials include a 'Document Your Thought Processes' form, which can be used to record the solicitor’s assessment at different stages of a matter.

Cawley suggested that practices could record whether the matter presented a low, medium, or high risk and briefly explain the basis for that assessment.

The approach should reflect the circumstances of the individual matter. A straightforward probate involving a long-established family home, for example, may present a very different risk profile from an unusual transaction involving an unfamiliar client, overseas parties, or unexplained funds.

Law Society powers

The Law Society has powers under regulation 4 to inspect and investigate practices for AML purposes. These powers operate separately from those contained in the Solicitors’ Accounts Regulations.

There are also significant reporting obligations. Regulation 19 requires relevant reports to be made to the Financial Intelligence Unit and Revenue where the statutory threshold is met – including where there is knowledge, suspicion, or reasonable grounds to suspect money-laundering or terrorist-financing.

He reminded practitioners of the prohibition on informing a person of a suspicious-transaction report made about them.

Cawley also highlighted the potential consequences of a conviction for a relevant offence. In addition to any penalty imposed by a court, the regulations can prevent a convicted person from performing a management function or being a beneficial owner of a solicitors’ practice.

There is also an obligation to notify the Law Society within the prescribed period.

Suspicious-transaction reports

Practices that might need to make suspicious-transaction reports should be familiar with the GoAML reporting facility operated by the Financial Intelligence Unit (FIU), Cawley advised.

Registration with the FIU ensures that a practice is set up to make a report if required.

The Law Society provides support to practices in meeting AML obligations. This includes adaptable forms and precedents, CPD material on suspicious transaction reporting and the GoAML portal, and training aimed at non-solicitor staff who may have an important role in day-to-day AML compliance.

An AML helpline is also available to practices seeking guidance.