The SRA has announced that, in light of its concern that law firms are an obvious target for criminals seeking to launder large sums of money, it is going to review the systems firms use to undertake AML checks, and increase scrutiny of firms they regard as at high risk of AML breaches.
This announcement does not come as a surprise to Lockton, as while anti-money laundering checks have long been an integral part of solicitors' engagement processes, the evidence suggests that many firms' procedures are not sufficiently robust.
Risk factors
There are a number of obvious scenarios where there is a heightened risk to be aware of, such as:
- remote clients (particularly if not established clients)
- foreign domiciled clients
- high-risk/ high-value transactions
Firms should also be alert to existing clients, who may originally have instructed the firm in relation to something fairly low risk, and low value, and who then, at a later date, instruct the firm in relation to a higher risk/higher value transaction. If you have already undertaken AML/client-vetting checks within a reasonable period, would you perform any escalated checks in these circumstances? If not - you should.
AML and Client Vetting Checks are not a one-off process. They need to be performed regularly, and the nature of the due diligence should match the degree of risk identified for each matter you are instructed on.
Fraudulent Documents
Many firms rely on photocopies of passport and a utility bill or similar as their only form of AML check. All too often these documents are simply presented to the receptionist or a secretary, who photocopies and returns them.
Did you know that fake identity documents can be legally obtained online under the guise of being 'novelty' documents? Check out http://www.myfakeid.biz/fake-id/fake-id-cards.aspx for just one example of this.
Do your staff have any training in identifying fake or doctored documents? If additional electronic checks are not going to be made, this should perhaps be a requirement?
We can advise firms on what to look for.
Remote clients
Do you have a significant number of remote clients? Do you know why they are instructing you? Is it because have a reputation as an easy target? How do they provide their AML documentation?
If you are using a third party to provide AML verification, always ask the client to attend your selected partner firm, rather than accept them from a firm of their choice - as that leaves you much more exposed to the risk of a scam.
Consider whether electronic checks would provide a worthwhile additional risk control. While the checks that can be performed on overseas clients are less comprehensive, there are still a number of electronic checks which can assist verify the authenticity of identification documents in many cases.
Escalating checks
We recommend all transactions being graded using a traffic lights (or similar) scheme. Lockton clients can access a very simple AML template on the guidance section of the logged-in site.
Be alert to the dangers of using support staff to complete these forms, or at least add a risk control by getting the forms signed-off by the matter manager, and, ideally, the firms MLRO. This increases accountability and helps ensure that the forms are not completed as a 'tick box exercise'.
For more information, contact our Risk Manager, Calum MacLean.
Coming up....
It's not just client-related frauds that are impacting on solicitors. There have been increasing incidences of solicitors being caught out by fake law firms. We've put together a practical alert, in conjunction with LawyerChecker - which will be available later this week.