https://www.legalfutures.co.uk/latest-news/sra-warns-over-emerging-money-laundering-risks-for-law-firms

Acting for cash-intensive high street businesses and relying on existing due diligence are “emerging” risks in the fight against money laundering, the Solicitors Regulation Authority (SRA) has warned the profession.

However, it has removed concerns expressed last year about the decentralised nature of consultant-led law firms.

The SRA is required to issue a money laundering and terrorist financing sectoral risk assessment under the 2017 Money Laundering Regulations and keep it updated.

The latest update, published this week, has added cash-intensive businesses and nominee arrangements for being “commonly associated with heightened money laundering risk because beneficial ownership, control and source of funds may be more difficult to establish”.

It continued: “Law enforcement reporting continues to identify some cash-intensive businesses as being vulnerable to exploitation by organised criminal groups, including for money laundering and other criminal purposes such as modern slavery.

“News reports also suggest that these businesses use ‘ghost directors’ who act as nominees for the parties who exercise genuine control over the business.

“These are unrelated to, and may be unaware of, the company and its operation but are willing for their name to appear on company documentation for a fee.”

Last October, the National Crime Agency, in conjunction with local police, raided 2,734 high street premises throughout the country – such as mini-marts, barbershops, vape shops, nail bars and car washes – arresting 924 people, seizing £10.7m of suspected criminal proceeds and destroying £2.7m worth of illicit commodities.

The SRA urged solicitors to take care when conducting commercial property work involving cash-intensive businesses, company matters involving nominee or otherwise unconnected directors, and transactions funded by businesses whose turnover, profitability or activities appeared inconsistent with their size, age or apparent operations.

Another new risk was ‘passporting’ – moving clients from a firm’s office in one jurisdiction to its office in another. This posed an inherent risk of money laundering “if proper controls are not applied”, the regulator said.

“Risks may arise where firms rely on due diligence undertaken by another office, jurisdiction or business unit without adequately considering whether it remains appropriate for the instruction being undertaken.

“More broadly, the same issues can apply to movements within a firm in the UK, with firms relying on a prior instruction on a matter out of scope of the regulations. Firms must ensure that when working on a matter within scope of the regulations, they apply a level of due diligence appropriate to the risk assessment.”

The update highlighted Companies House reform as well. This has included purging the Companies House register of misleading information and improper company listings. In the past year, 920 companies entered expedited strike-off as a result.

“Criminals using such companies may still possess their existing Companies House documentation and try to use it to prove their credentials. Conduct checks when acting for companies to make sure they are properly and currently listed,” the SRA said.

The array of global sanctions against Russia has led to “various techniques to circumvent them”, the update said.

Government guidance explains that Russia is seeking to procure goods from UK companies to support its war effort, often using particular third countries.

These can include some goods which appear unrelated to military applications, such as printing inks, oil lubricants, paints, varnishes, enamels, lacquers and industrial heat exchange units.

Previous emerging risks – relating to client account, politically exposed persons and supply chains – have been integrated into the established risks detailed by the assessment, while risks relating to firm business models and external support have been removed “as not specific to the AML sphere”.

Last year’s update said the decentralised nature of consultant-led law firm could carry risks. “We have noted that it is sometimes difficult for these firms to keep a central AML policy in operation, to monitor compliance, and to ensure a consistent standard across the firm.”