HM Treasury’s annual anti-money laundering and counter terrorist finance supervision report has revealed that law firms and independent legal professionals are increasingly being examined over how they mitigate threats from abetting terrorist financing and screen clients for anti-money laundering.
“Our primary objective is to attack the cancer that is serious organised crime and terrorism,” Paul Simkins, the report’s author and chairman of the Anti-Money Laundering Supervisors, said in the report. “What is clear to many of us is that to be as effective as we could and should be – supervisors, regulators, government, law-enforcement and the people and businesses we regulate must all work together much more effectively.”
The number of inspections in the legal sector has significantly increased over the years. Supervisory bodies carried out 4,424 legal sector inspections across 2014-2015, in comparison to 974 inspections during 2013-2014, according to the report. Of the 1,119 unidentified law firms visited by inspectors, there were a total of 18 cases of non-compliance found.
The UK has 27 supervisory bodies, including the Financial Conduct Authority (FCA). These bodies oversee a range of firms, including financial institutions, law firms and accountancy firms.
Inspections involve interviewing senior management to access the business’s risk-based approach to anti-money laundering and terrorist financing, according to the report.
Law firms often follow the same AML and finance checks for all practices, a spokesperson for one UK law firm told pfm. Therefore, the increased scrutiny is something that firms with private equity practices need to keep in mind.
The HM Treasury and the Home Office have also issued an action plan to address anti-money laundering and counter-terrorist finance. The action plan seeks to address four main areas: a stronger public-private sector partnership; strengthening the law enforcement response; increasing the UK Financial Intelligence Unit's (UKFIU) international reach, and improving the effectiveness of the supervisory regime.
The Law Society, the representative body for solicitors in England and Wales, is still preparing its response to the action plan, according to its latest newsletter.
The report comes as the UK prepares for its mutual evaluation by the Financial Action Task Force (FATF) in 2017/2018.