The SRA identified a lack of customer due diligence as the primary cause of AML violations.

According to the latest AML report from the Solicitors Regulation Authority, most solicitors and law firms take their anti-money laundering (AML) obligations seriously. However, a "small minority" is still not participating in the fight against economic crime.

The Solicitors Regulation Authority (SRA) conducted 273 inspections and desk-based reviews of solicitors and law firms this year. The majority (70%) were found to be either partially (51%) or fully (18%) compliant with their AML obligations, which is good news for the profession.

However, the SRA investigated 252 reports of suspected regulatory violations and money laundering cases. It discovered:

• 49 instances of failure to perform or complete initial customer due diligence (CDD),

• 40 failures to conduct a risk assessment for money laundering,

• 39 failures to conduct a source of funds investigation,

• 28 client identification failures,

• 26 instances of inadequate AML policies, controls, and procedures (PCPs).

The SRA also examined the quality of 36 firms' suspicious activity reports (SARs). It discovered:

• the National Crime Agency (NCA) did not include glossary codes as recommended in 66% of SARs,

• a quarter of money laundering defence (DAML) SARs did not describe the criminal act against which firms sought to defend themselves,

• and one-quarter of firms did not include a phone number or email address,

The SRA imposed 29 fines (totaling £286,976), nine letters of advice, four reprimands or rebukes, and one finding and warning. They brought eight cases before the Solicitors Disciplinary Tribunal, which issued five fines (totaling £92,500) and three suspensions.

Common issues with compliance

The SRA identified several common themes that linked the breaches, including:

• failure to respond to the SRA and provide AML compliance declarations,

• failure to declare the existence of a compliant, firm-wide risk assessment,

• poor CDD, including insufficient client identification and verification (both individual and corporate) and source-of-funds checks,

• failure to exercise increased customer due diligence (EDD),

• poor PCPs because of a lack of or insufficient firm-wide risk assessment,

• failure to notify the SRA of money laundering appointments, failure to notify the SRA of money laundering reporting and compliance officers (MLROs and MLCOs) appointments; or failure to seek approval of a beneficial owner officer or manager (BOOM),

• failure to pay attention to issue warning notices and red flag indicators.

The SRA reported another 20 suspicious activity reports to the NCA, totaling £149 million in potentially criminal funds.

The following were common themes:

• misappropriation of a client account (with no underlying legal transaction or rationale)

• Tax evasion fraud client/funding links with high-risk jurisdictions complex offshore company structures or trusts to conceal the source of funds or beneficial owners third party involvement property assets sold for more than or less than their true market value

• third-party involvement in conveyancing property assets sold above or below true market value

The SRA report should serve as a guide for firms on how to approach areas of uncertainty and improve their understanding of AML compliance.

Helpful resources - The Law Society

We have several resources that can assist companies in detecting and preventing money laundering. For example, the law society has a range of resources to help and explore. They have an anti-money laundering hub to gain access to expert, practical, and timesaving resources, such as information on:

• carrying out practice-wide customer due diligence, client and matter risk assessments, and determining your source of funds obligations

The anti-money laundering guidance for the legal sector, was updated in July 2022, which also includes expanded guidance on understanding and demonstrating source of funds and wealth risk assessments firm-wide, client and matter governance, and internal controls.