Anti Money Laundering Obligations for Lawyers
May 5, 2023 by Anne Deda-Ancel
The UK’s Money Laundering Regulations 2017 (as amended) are in place to prevent and detect money laundering (ML) and terrorist financing (TF). These regulations require firms in the regulated sector, including law firms, to have robust policies and procedures in place to identify, assess, and manage the risk of money laundering and terrorist financing. Failure to comply with these regulations can result in penalties, fines and reputational damage to the Firm and individual lawyers concerned.
Some independent legal professionals are authorised and regulated directly by the Financial Conduct Authority (FCA) because they conduct regulated financial services activities: for example, advising clients directly on investments activities such as stocks and shares in the course of their Recognised Professional Body (RPB) status. Those professionals should also consider the Joint Money Laundering Steering Group’s (JMSLG) guidance.
In accordance with Sections 330(8) and 331(7) of the Proceeds of Crime Act 2002 (POCA), section 21A(6) of the Terrorism Act 2000 (TACT), and Regulation 86(2)(b) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, a court is required to consider compliance with these provisions in assessing whether a person committed an offence or took all reasonable steps and exercised all due skill, care and diligence to avoid committing an offence.
Law firms, in particular, have a number of specific obligations under the UK Money Laundering Regulations. These include:
- Customer Due Diligence (CDD): Law firms must carry out CDD on their clients to verify their identity and assess the risk of money laundering and terrorist financing. This includes obtaining information about the client’s identity, the nature of their business, and the source of their funds.
- Enhanced Due Diligence (EDD): In cases where the risk of money laundering or terrorist financing is high, law firms must carry out enhanced due diligence. This may include obtaining additional information about the client and their transactions, as well as obtaining approval from senior management to enter into the business relationship.
- Record Keeping: Law firms must keep detailed records of all transactions and activity that they carry out, including CDD and EDD checks.
- Reporting Suspicious Activity: If law firms suspect that a transaction or activity may be linked to money laundering or terrorist financing, they must report it to the National Crime Agency (NCA).
- Training: Law firms must ensure that their staff are adequately trained to understand the risks of money laundering and terrorist financing associated with the business, and they are aware of their obligations under the UK Money Laundering Regulations.
It is important for law firms to take their responsibilities under the UK Money Laundering Regulations seriously and to have appropriate policies and procedures in place to comply with the regulations. This will not only help to prevent money laundering and terrorist financing but will also help to protect the firm and staff from potential penalties and reputational damage.
Challenges faced by law firms
It is however recognised that there are several challenges that law firms face in complying with the UK Money Laundering Regulations, including:
- Managing Compliance Risks: Law firms need to be aware of the constantly evolving methods and associated risks of money laundering and terrorist financing, (including UK OFSI and UN financial Sanctions) and ensure that policies and procedures are up-to-date and effective.
- Balancing Compliance with Client Confidentiality: Law firms must also consider both their obligations under the UK Money Laundering Regulations and their duty of confidentiality to clients, which can be a challenging balancing act.
- Complex and Time-consuming Processes: The process of conducting CDD and EDD checks can be complex and time-consuming, particularly in cases where the risk of money laundering or terrorist financing is high.
- Resource Constraints: Law firms may face resource constraints, including a lack of expertise or staff, which can make it difficult to effectively comply with the UK Money Laundering Regulations.
How can Effecta assist with these obligations
Effecta Compliance can assist law firms in addressing these challenges by providing a range of services, including:
- AML & CTF Risk Assessments: conducting a thorough risk assessment of a law firm’s business to identify areas of weakness and provide recommendations for improving your AML compliance.
- Developing AML & CTF Policies and Procedures: assisting law firms in developing and implementing AML policies and procedures that are tailored to the firm’s specific needs and risks.
- Assisting with AML & CTF file reviews: conducting assurance reviews, spot checks or helping a law firm with their AML & CTF obligations operating alongside your staff.
- Staff Training: providing initial and/or regular refresher AML & CTF training to law firm staff, ensuring that they are aware of their obligations under the UK Money Laundering Regulations and are equipped to carry out their duties effectively.
Outsourced Compliance Support can provide law firms with additional support by taking on some of the responsibility of Money Laundering compliance and ensuring that your firm remains up-to-date with current regulatory requirements.
 The United Kingdom (UK) imposes financial sanctions and these are implemented through a combination of statutory instruments (UK regulations) and primary legislation:
- Sanctions and Anti-Money Laundering Act 2018 (Sanctions Act)
- Counter Terrorism Act 2008 (CTA 2008)
- Anti-Terrorism, Crime and Security Act 2001 (ATCSA 2001)
The Office of Financial Sanctions Implementation (OFSI) is part of HM Treasury, which is the authority for the implementation of financial sanctions in the UK: www.gov.uk/government/organisations/office-of-financial-sanctions-implementation
 The United Nations (UN) imposes financial sanctions and requires member states to implement them through Resolutions passed by the UN Security Council: www.un.org/securitycouncil/sanctions/information