Before we touch on what anti-money laundering is and AML checks for solicitors, it's important to understand the reasons for anti-money laundering (AML). In a nutshell, AML is the process of tackling money laundering through detection, prevention, and punishment. So what is money laundering? Money laundering can be characterised in many different ways and forms, but we like to think of it in one simple description; money laundering is the process of hiding the proceeds of crime by turning dirty funds into clean funds. Hence the word laundering!
Money laundering was first coined hundreds of years ago following cases in Scotland that saw criminals using their illegal money for buying tea and silk.
Now that we have an understanding of what money laundering is, what is anti-money laundering? I suppose it isn't too difficult to figure that AML is the process of detecting, reporting, and stopping the cleaning of dirty money. It can be difficult to do, as often money laundering can be extremely discreet.
Why is anti-money laundering important for solicitors?
In 2020, financial crimes in the UK totaled more than £770bn, and this is with anti-money laundering regulations in place. But, why is it important to have anti-money laundering regulations?
Firstly, without them, the statistics and levels of organised crime would be going through the roof. Without regulations, there would be no way of monitoring or controlling. Secondly, the regulations and harsh consequences can lead to a Panopticon effect, where people are less likely to break the law due to the perception that someone is always watching their activity.
The Solicitors Regulation Authority (SRA) governs the anti-money laundering processes in the legal industry. The SRA has set out clear guidelines as to why law firms must conduct AML checks. The things that firms must do are:
- Appoint a Money Laundering Reporting Officer (MLRO) and Money Laundering Compliance Officer (MLCO)
- Identity and verify the identities of your clients and any beneficial owners of companies
- Identify the source of funds and wealth where relevant
- Train all staff in the firm to recognise the common red flags of money laundering
🚩 Multiple transactions across multiple accounts
🚩 Depositing unexplained large sums of money
🚩 An individual is a Politically Exposed Person (PEP)
Below are some real-world examples of where money laundering was found, and where AML solutions would have assisted in its detection of it. These examples show just how important AML checks are for not only solicitors but for many industries in the professional services sector.
Mischon de Reya was fined by the SRA for breaches around money laundering. This sum of this penalty was a record in the legal industry, totaling £232,500.
Another example was NatWest bank which was fined £264m for failure to properly monitor the activity of a commercial customer.
Russia and the War - https://www.bbc.com/news/business-60549927
Following the Russia / Ukraine war, a lot of laundered money was unearthed within the UK. The total is said to be £1.5bn of dirty money floating around the property that is owned by Russians.
This has not only shown the amount of money laundering but has put the UK on the map as a hotspot. Therefore, all regulated businesses in the UK must ensure that they are adhering to strict standards.
At Validient, we have secured the AML processes in law firms at our core. We work with law firms by providing a top-class solution that can detect and manage money laundering threats through Know your Business (KYB), Know your Customer (KYC), Anti-Money Laundering (AML), and Politically Exposed Persons (PEP) checks.
If you believe that we can help your law firm or any other firm in the professional services industry, you can either book a demo here or email us at firstname.lastname@example.org