This is part of a sustained and wide-ranging strategy to tackle money laundering in the business community.
Law firms are a prime target for criminals. If firms need any reminder, the key practice areas particularly targeted by criminals include property, trusts and company formation and tax evasion.
When it consulted on the ‘economic crime levy’ last year, government said it will be introduced, but even though the consultation closed in October it has not yet published its response. In its consultation document, government made clear its view that “it is fair that those whose business activities are exposed to money laundering risk pay towards the costs associated with responding to and mitigating those risks”.
But how fair will it be to the profession? The regulator and The Law Society do not agree on the levy as proposed. The Solicitors Regulation Authority (SRA) concurs with government that a levy should be imposed, saying regulated firms should contributed towards the costs of battling money laundering.
It does, however, acknowledge that the collection costs for smaller law firms might outweigh the benefits. But it doesn’t go as far as arguing for small firms to be exempt from the levy.
The Law Society, on the other hand, is strongly opposed to a levy on the sector given that firms already play an important role in tackling money laundering. It has argued that this is demonstrated by the substantial costs and resources already allocated by the profession in complying with its AML and financial crime obligations. A levy would, says the Society, harm the profession and damage its international reputation.
While the profession awaits further details as how government will finalise the levy, firms must keep up to date with other developments on AML. We highlight two key matters here:
1. New AML guidance - A new iteration of AML guidance for the legal sector has been published, replacing the previous Law Society AML practice note. The guidance, coming from the Legal Sector Affinity Group, should be consulted by firms when reviewing their policies and complying with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended).
The issue of risk assessments is one of the key focuses within the detailed, 212-page guidance, with three levels set out: practice-wide risk assessment; client level risk assessment; and matter risk assessments.
Firms should note that other additional areas now covered include sources of funds and wealth, areas and jurisdictions of high risk, and clients with ‘cash-intensive businesses’. There is also new guidance on technology. Also note that the guidance warns against viewing the various risk factors in isolation: “Risk is a judgement relying on considering multiple factors holistically”, it states. All risk factors should be taken together to inform whether a matter or client is deemed high risk.
2. Financial cost to firms - Recent figures from the SRA are a salutary reminder of the financial cost to law firms of financial crime. Last year, to the end of October, the regulator had made 26 suspicious activity reports (SARs) to the NCA which involved more than £200m in suspected proceeds of crime. Another 122 potentially suspicious matters were being monitored, of which 31 were internal SARs.
Firms will have no doubt that the threat of financial crime to the UK and, specifically, the legal sector remains high. That will not change. The profession needs to prepare for the additional levy – when it is finally introduced.