Conveyancing solicitors and CILEx lawyers play a critical role in preventing money laundering. They are the gatekeepers of property transactions and must remain vigilant whilst upholding professional standards. What are the best practices, firmwide, to follow and adhere to when it comes to handling money that could potentially be dirty?
ILFM's Key Takeaways of Conveyancing Firms and AML Compliance
- Conveyancing solicitors must undertake thorough checks to prevent money laundering and comply with AML regulations.
- Solicitors should be aware of red flags, implement measures such as client due diligence and staff training, and report suspicious activities promptly to their Money Laundering Reporting Officer (MLRO).
- Best practices for mitigating risks include enforcing strong controls, policies and procedures, staying informed of threats & trends, using technology to streamline processes & reduce risk.
Further to the SRA's Compliance Conference in October 2023, they spotlighted the following:
SRA Warning Notice - Client and Matter Risk Assessment
SRA template client and matter risk assessment
Client and matter risk assessment thematic review
The Money Laundering Threat in Conveyancing
Money laundering in conveyancing is a very real threat. Criminals often use property transactions to legitimise illicit funds and incorporate them into the legitimate economy. Conveyancing solicitors form an integral part of the money laundering prevention measures by undertaking thorough verifications to authenticate buyers’ identity, proof of address, and source of funds. These checks are mandated by the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
Effective legal practice management is pivotal to the efficient execution of these checks in a law practice. For maintaining the integrity of property transactions, conveyancing solicitors should establish sturdy AML policies, keep abreast of emerging threats and trends, and uphold transparency and due diligence. Incorporating law practice management strategies can further enhance the overall efficiency of the legal practice, and law firm practice managers play a crucial role in ensuring this. By offering comprehensive legal services, a law practice can effectively meet the needs of its clients and maintain a strong reputation in the industry.
Using practice management software can help practice managers streamline case management processes and ensure that all necessary checks are carried out efficiently. The ILFM's Law Firm Software Suppliers Guide can be a useful resource in this regard.
How money laundering occurs in conveyancing
Money laundering in conveyancing can be carried out through a variety of means, whether that's criminals using shell companies or third parties to obscure the original source of funds. A legal practice manager and their colleagues should be aware of these methods and ensure that their firm is taking the necessary steps to prevent money laundering.
The ILFM's leading AML Masterclass is an online training event that is an invaluable 3 hours for the protection of client funds and business reputation.
Conveyancing solicitors play a significant role in deterring money laundering by undertaking stringent checks to authenticate the identity of buyers, proof of address, and the source of funds. By guaranteeing transparency and due diligence in property transactions, conveyancing solicitors assist in preventing the use of real estate as a means to legitimise illicit funds.
Money Laundering Red Flags for Solicitors in Conveyancing Firms
Signs of money laundering in conveyancing may include:
- Third-party funding
- Modifications in account details
- Substantial sums of money
- Unconventional or intricate transaction structures
A dedicated legal cashier, receptionist, legal secretary or practice manager can help identify these signs and ensure that the firm takes appropriate action to prevent money laundering. Continued professional development and training are extremely important for everyone in the firm.
Third-party funding refers to when a third party provides the necessary funds for a transaction, such as a loan or a gift. This can be a potential indicator of money laundering, as it can be used to obfuscate the source of the funds. Law societies and regulators often provide guidance and resources to help solicitors identify and prevent money laundering in conveyancing transactions. Here is the Law Society of England & Wales' guidance.
Changes in account details should be carefully monitored as they may be indicative of money laundering activities, such as altering the name of the account holder, the account number, or the bank details. Law practices should have procedures in place to detect and report such changes to prevent money laundering.
Anti-Money Laundering Regulations for Solicitors
To combat the money laundering threat in conveyancing, anti-money laundering regulations for solicitors have been put in place. Conveyancing solicitors must adhere to the Money Laundering Regulations 2017 ("MLR 2017"), by performing comprehensive checks to authenticate the identity, proof of address, and source of funds of individuals involved in property transactions. Efficient risk management is vital to the effective execution of these checks and to ensure the firm’s compliance with AML regulations.
The Solicitors Regulation Authority (SRA) is responsible for overseeing compliance with these regulations. Should any solicitor fail to comply with the regulations, the SRA will probably take disciplinary action.
The roles of the SRA and the ILFM
The SRA (Solicitors Regulation Authority) is responsible for the firms they regulate to comply with anti-money laundering regulations. The SRA has an obligation to safeguard the public from the perils of money laundering and ensure that firms handling considerable sums of money or engaged in transactions are not abetting money laundering activities.
To achieve this, the SRA provides guidance and support to solicitors to ensure they are compliant with anti-money laundering regulations. Such compliance is crucial for upholding the integrity of the legal profession and safeguarding the public from the adverse effects of money laundering.
The ILFM has client money protection at its heart, along with supporting those in the law firms, including legal cashiers, COFAs, and practice managers with knowledge and training with AML.
Key AML Legislation
Key AML legislation includes:
- The Proceeds of Crime Act 2002 (POCA), which criminalises the laundering of money and the concealment, disguise, conversion, transfer, or removal of criminal property
- The Money Laundering Regulations 2017 (MLR 2017), which set out the requirements for businesses to prevent money laundering and terrorist financing
- The Criminal Finances Act 2017 (CFA 2017), which introduced new measures to combat money laundering and tax evasion
Additionally, legal businesses are obligated to report any suspicious activity to the National Crime Agency.
The Money Laundering Regulations 2017 require businesses to implement measures to prevent money laundering and terrorist financing, such as customer due diligence, risk assessments, and staff training and awareness.
The Criminal Finances Act 2017 makes it a criminal offence to fail to prevent the facilitation of tax evasion and requires businesses to take reasonable steps to prevent the facilitation of tax evasion by their associated persons.
Implementing AML Measures in Law Firms
The implementation of AML measures in law firms is key to thwarting money laundering in conveyancing transactions. In order to guarantee adherence to the most recent regulations and guidance provided by regulatory authorities, it is crucial for each law firm to remain informed of AML regulations.
Adhering to best practices and implementing potent AML measures can seriously lower the risk of money laundering in law firms’ conveyancing transactions. These measures include:
- Client due diligence
- Risk assessments
- Staff training and awareness
- Reporting suspicious activities
Client due diligence
Client due diligence involves verifying the identity of clients and understanding the nature of their transactions. This is a vital part of the AML process, as it helps to ensure the authenticity of the client and deter money laundering.
To effectively carry out client due diligence, law firms should have access to up-to-date information on clients, their transactions, and any associated risks. This information can then be used to make informed decisions about the level of due diligence required for each client and transaction.
Risk assessments help law firms identify potential money laundering risks and implement appropriate controls. By evaluating the risk of money laundering in their business activities, law firms can proactively mitigate the risks associated with money laundering and other financial crimes.
To conduct effective risk assessments, law firms are wise to consider factors such as the nature of their clients, the types of transactions they handle, and the jurisdictions in which they operate. This information can then be used to develop tailored risk management strategies and controls to prevent money laundering.
Managing risk in a law firm protects not only the reputation of the business but of course the employees and clients.
Staff training and awareness
Staff training and awareness are pivotal for making sure all employees truly understand their AML responsibilities and are adept at identifying suspicious activities. It shouldn't be a simple tick-box exercise. Money laundering is a huge problem faced by conveyancers. By equipping employees with knowledge regarding money laundering, associated legislation, and procedures for reporting suspicious activities, law firms can significantly reduce the risk of money laundering in their property transactions.
It's imperative to include all employees in conversations surrounding the potential repercussions of not adhering to AML regulations. Breaches can result in fines, criminal prosecution, and damage to the firm’s reputation. You just have to look in Legal Futures or the Law Society Gazette to know this. Regular AML training and awareness resources can help conveyancing firms maintain a strong AML culture and ensure their compliance with all the (ever-growing) regulations.
Reporting Suspicious Activities
Reporting suspicious activities is a legal obligation for solicitors, conveyancers, and compliance officers. It helps to combat money laundering in the property sector. Firms are legally obligated to report any suspicious activities to the appropriate authorities, including the National Crime Agency, the Serious Fraud Office, and the Law Society.
As the ILFM always says and guides on, conveyancing firms who are regulated by the SRA, need to adhere to SRA Accounts Rules to ensure compliance with financial regulations. We run regular training sessions on the Accounts Rules' updates and reminders. You can find all the dates and sessions for our SRA Accounts Rules training HERE.
By promptly reporting suspicious activities, solicitors, lawyers, conveyancers and MLROs can:
- Fulfil their legal obligations
- Contribute to the fight against money laundering and other financial crimes
- Protect the integrity of the legal profession and the property sector as a whole.
When and how to report
Law Firms must report suspicious activities to the National Crime Agency as soon as they become aware of it, even if no crime has been committed. Failure to report suspicious activities in a timely manner can result in legal consequences, including fines and imprisonment.
To report suspicious activities, solicitors should gather evidence and submit a Suspicious Activity Report (SAR) to the National Crime Agency. By providing accurate and comprehensive information in the SAR, solicitors can assist law enforcement in identifying and prosecuting those involved in money laundering and other financial crimes.
Legal implications of not reporting
Failing to report suspicious activities can result in legal consequences for solicitors and their firms. These consequences may include financial penalties, criminal prosecution, and reputational damage.
Moreover, solicitors may also be held liable for any money laundering activities that occur because of their failure to report suspicious activities. Therefore, it is crucial for solicitors to remain vigilant and report any suspicious activities they encounter to protect themselves, their firms, and the integrity of the legal profession.
Case Studies: Money Laundering in Conveyancing
Case studies of money laundering in conveyancing highlight the importance of robust AML measures and the consequences of non-compliance. By examining real-life examples of money laundering in conveyancing, solicitors can better understand the risks associated with this criminal activity and the crucial role they play in preventing it.
These case studies also serve as a reminder of the potential repercussions for failing to adhere to AML regulations, including financial penalties, criminal prosecution, and reputational damage. By learning from these cases, law firms can further strengthen their AML measures and ensure compliance with regulations.
You can find more CASE STUDIES on the SRA Website, but here is a sample:
Example 1: Compliance Officer detects inappropriate use of client money
The following case illustrates the importance of having a consistent approach to compliance with the Money Laundering Regulations throughout the entire firm.
Mr A is a partner in a medium-sized law firm. A year ago, he started acting for XYZ Ltd ('XYZ'). XYZ specialises in purchasing high value properties and selling them on at a profit. The directors of the company advise that their funding comes from profits and bank loans. Their bank statements support this.
A few months after instructing Mr A, XYZ directors tell him they are having some difficulties with the company's bank account. They ask if the company could use the firm's client account as a temporary measure. XYZ is one of Mr A's most valued and lucrative clients, so he agrees.
Over the next two months, Mr A allows more than 100 deposits and withdrawals on the client account in relation to XYZ, for both personal and business expenses. None of the transactions relate to any legal matter in which Mr A is involved.
The transactions are discovered by the firm's Compliance Officer during a routine file review. The firm launches an internal investigation and reports the matter to us.
Investigations reveal that XYZ used the firm's client account to accept substantial investment from a politically exposed person. Mr A had not been aware of this.
Mr A had placed his firm at risk of becoming a professional enabler of money laundering and terrorist financing. The Compliance Officer had prevented the risk from escalating by spotting it and preventing the firm from continuing to act for XYZ. We are currently investigating Mr A's conduct, and the police are carrying out a separate investigation.
The red flags in this case are that the client asked to use the firm's client account improperly, they used corporate funds to fund personal expenses, and the client account was used to accept funds from unknown third parties.
If your conveyancing firm is regulated by the CLC, then here are their CASE STUDIES.
Consequences of non-compliance
Non-compliance with AML regulations can lead to severe consequences, including:
- Financial penalties
- Reputational damage
- Confiscation of assets
- Other sanctions
Law firms that fail to implement adequate AML measures and report suspicious activities may face some or all of the above consequences. When you have affordable AML training at your fingertips there really is no excuse to end up
Non-compliance can result in real reputational harm, including customer and client attrition, harm to the business's image, Google and Trust Pilot negative reviews, and of course, potential legal ramifications. These consequences highlight the importance of sticking to AML regulations and continuously refining AML measures to protect both the firm and the wider community.
Legal Practice Management for AML Compliance
There's a vast range of software and legal tech that can help your law firm stay compliant with AML necessities.
Legal software systems can help manage and automate all your correspondence, documentation, financial records and contact databases, helping you keep everything up-to-date and AML compliant.
Maintaining compliance with various laws, rules, and ethics requirements is a necessary fundamental part of running a conveyancing practice. In addition to performing your core legal work, your law firm colleagues are required to keep abreast of ever-changing rules and regulations related to complex topics such as conflicts of interest, data security, and of course anti-money laundering regulations.
It's worth investing time to research software that can help with your firm's compliance. A strong practice management system can aid compliance efforts by supplying integrated accounting and detailed financial analytics that help firms monitor financial transactions and identify out-of-bounds activity.
Your legal cashier, COFA, and practice manager must be privy to new software decisions.
Best Practice for Conveyancing Solicitors’ AML
For maximum protection against money laundering in conveyancing transactions, solicitors ought to enforce sturdy AML policies and keep themselves updated about new threats and trends. By adopting these best practices, solicitors can effectively mitigate the risks associated with money laundering and ensure compliance with anti-money laundering regulations.
The ILFM not only offers AML training by leading UK compliance experts, but we also have a variety of specialist speakers on compliance, fraud, and regulations at our bi-annual conferences.
Implementing robust AML policies
A strong AML (Anti-Money Laundering) policy should include:
- Client due diligence
- Risk assessments
- Staff training
- Clear reporting procedures
By implementing these measures, law firms can effectively reduce the risk of money laundering in their conveyancing transactions and ensure compliance with AML regulations.
In addition to these core components, law firms should also consider the use of technology and practice management software to streamline their AML processes and improve the overall efficiency of their firm. By leveraging technology and adopting best practices, law firms can better protect themselves and their clients from the risks of money laundering.
The ILFM's AML training masterclass is carried out by experts in fraud and money laundering, the online sessions are live, and delegates can receive answers to any questions in real time. Have a look at ILFM training dates here.
Staying informed about new threats and trends
Keeping pace with the emerging money laundering threats and trends is crucial when tailoring AML measures and ensuring continued compliance. This can be achieved through regular training, participation in industry events, and consultation with specialists in the field. The ILFM welcomes enquiries by members and non-members in this regard.
We should all be well-equipped to identify and respond to potential money laundering risks in our conveyancing transactions, consumers of law want to know their client funds are protected.
In conclusion, conveyancing lawyers play a crucial role in preventing money laundering and ensuring the integrity of the property sector. By implementing robust AML policies, staying informed about new threats and trends, and diligently reporting suspicious activities, law firms can effectively combat criminal fraudsters who target conveyancing firms to launder their money. Following these policies will protect clients from those associated risks.
We cannot emphasise the importance of responsible AML prevention enough, as the consequences of non-compliance can be severe, for conveyancing solicitors, their colleagues, their client, their PII renewal, and of course the firm's reputation.
Frequently Asked Questions
How are solicitors at risk of money laundering?
Conveyancing solicitors are at risk of money laundering as they may unknowingly become involved in activities that help to disguise criminal transactions = washing "dirty" money. They may handle significant amounts of money or provide services that facilitate the laundering process. Sole practitioners and high street lawyers are often targeted by criminals; it could be a long-standing client that manipulates the working relationship, or a client asking if the lawyer can hold some transactional monies in their client account.
Which area of law is most at risk of money laundering?
Conveyancing transactions are the highest risk area for money laundering, with 70% of Suspicious Activity Reports (SARs) linked to sole practices or law firms with ten or fewer fee-earners.
The Solicitors Regulation Authority (SRA) reported transactions potentially involving money laundering worth over £75m to the National Crime Agency (NCA) in the last financial year (as of July 2023), with small firms dominating.
Work with your legal cashier and keep an updated AML policy to trigger any warning signs.
What are the requirements for money laundering for conveyancers?
Conveyancing solicitors must undertake rigorous checks to verify identity, proof of address and the source of wealth and funds when a property is being purchased, to ensure that these are not the proceeds of crime and to combat money laundering.
A property transaction is like a sitting duck for washing dirty cash. Consumers of law must be protected, and the lawyers themselves need to protect highly regulated client accounts.
If you'd like to talk to someone at the ILFM with regards to anti-money laundering, compliance and training, please don't hesitate to contact us: firstname.lastname@example.org