Annex B
THE LAW SOCIETY
ANTI-MONEY LAUNDERING COMPLIANCE BY THE
LEGAL PROFESSION IN ENGLAND AND WALES
A REVIEW OF COMPLIANCE BY A NUMBER OF FIRMS
ONE YEAR AFTER IMPLEMENTATION OF THE THIRD MONEY LAUNDERING DIRECTIVE
IN THE UK
BACKGROUND
In August 2008, 115 solicitor's firms in England
and Wales volunteered to take part in a detailed survey considering
the processes adopted by solicitors to comply with the Money Laundering
Regulations 2007 and the associated costs.
The survey was conducted in September 2008, with
print copies of the surveys sent to participants. We received
55 responses, some of which were only partially completed.
HEADLINE RESULTS
— AML compliance pervades the whole
firm. Half of the respondents were training 88% or more of their
staff, with 36% of respondents training all of their staff.— The
2007 regulations have required significant changes in existing
systems; although that does not mean that there is the same level
of sophistication in firms' systems. There was a general trend
towards an increase in the complexity of the system and the amount
of data it can capture. There was also an indication of increased
staffing.
— The UK is exporting AML compliance
for lawyers world-wide, with 62% of respondents with international
offices advising that they are applying the UK standard to all
of their offices.
— Documentation and audit of compliance
activities remains an area for development:
— 76% of firms had conducted a risk
assessment on their firm as a whole, but only 72% had formally
documented these risks.
— 54% of respondents rely on fee earners'
normal file notes to provide evidence of ongoing monitoring, only
23% have set deadlines for these notes to be made to ensure they
are done.
— 65% are auditing compliance through
file checks undertaken internally. This suggests auditing of compliance
on individual matters, rather than the auditing or review of the
compliance system as a whole. While this is understandable given
that the regulations have only been in place for 12 months, it
is an area for future development.
— Greatest reported challenges include:
— Time constraints are the greatest
challenge in implementing the risk based approach.
— The lack of publicly available data
is the greatest challenge in identifying and verifying beneficial
owners.
— The reliance provisions, which were
meant to reduce the compliance burden, are not widely used.
— 57% of respondents have relied on other
solicitors.
— 41% have relied on a financial institution.
— 27% have relied on an external accountant.
— Respondents are less willing to rely
on other regulated professionals.
— Outside of the UK, the level of reliance
drops even further.
— 64% of respondents said that the
criminal sanctions attaching to them, if the other person made
an error, were the greatest deterrent in not using the reliance
provisions.
— 64% of respondents had been asked
by others if they could be relied upon, but only 48% agreed to
the request. The risk of civil action against them if they made
an error was a key reason for not agreeing to be relied upon.
— 33% of respondents had turned down
a retainer from a politically exposed person, due to the perceived
risks of that client.
— While there was a general perception
that costs have increased since the 2007 regulations, 77% of respondents
do not record specifically the costs of complying with anti-money
laundering obligations.
— From the very small sample who provided
costs information:
— Costs of compliance range from thousands
of pounds to millions of pounds.
— Most of this is spent on undertaking
due diligence and training.
— 50% of firms which responded on the
issue of costs indicated an increase in gross expenditure since
the new regulations of 10% or more.
— 90% of firms which responded on costs
do not pass on the full cost of compliance to their clients.
— 67% of respondents felt that the
Society had been supportive or very supportive of them in meeting
their AML obligations.
January 2009
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