UK law firms in hot water over money laundering risk

Twenty-six law firms operating in the United Kingdom face disciplinary action for failing to ensure their clients could not use them to launder dirty money.

The Solicitors Regulation Authority, which oversees the profession, reviewed 59 law firms that were chosen as a representative sample. The authority, which is also known as the SRA, wanted to see how well they were complying with anti-money laundering measures introduced in 2017.

The regulator has now kicked off a larger review, of 400 law firms, and issued a warning to companies, reminding them of their need to comply with tough rules aimed at combatting money laundering.

Paul Philip, chief executive of the SRA, said too many companies failed the test.

"Those firms should be on notice that compliance is not optional," he told the Financial Times. "They need to improve swiftly. Where we have serious concerns that a firm could be enabling money laundering, we will take strong action."

The SRA's clampdown on money laundering is part of the UK government's efforts to stem the flow through the financial and legal institutions of the City of London of what is believed to be billions of pounds of dirty money.The National Crime Agency singled out law firms and accountants as especially at risk of being exploited by criminals wanting to launder money and complained some had not been proactive enough in identifying and reporting suspicious activity.

The government's crackdown includes the introduction of "unexplained wealth orders", which allow assets to be seized if the person controlling them cannot demonstrate they were acquired legitimately.

The SRA said its review did not find evidence of actual money laundering but of companies putting themselves at risk of participating by failing to conduct adequate checks and by being remiss in their risk assessments and operating procedures.

The SRA added that, separately, it is investigating 160 law firms in relation to money laundering and that, in the past five years, it has referred more than 60 cases related to money laundering to the Solicitors Disciplinary Tribunal, which subsequently barred more than 40 solicitors from practicing law in the UK.

The latest SRA review found some companies were not suspicious enough when dealing with wealthy clients, and particularly those with senior roles in government or the business sector.

The SRA's latest newsletter notes that counter terrorism police have connected money laundering with the funding of terrorism, people-trafficking, and drug smuggling.

"What we have found is a very mixed picture," the SRA, which regulates 7,000 law firms, noted in its newsletter. "There is excellent practice out there but, despite lots of information and support, we are seeing that firms are still struggling to get to grips with the 2017 regulations."