Risk Update

AML Spotlight — AML Penalty for Law Firm’s “Regulation Breaches,” SRA Anti-money Laundering Updates, Analysis & Advice

Posted Dan Bressler

“Dentons to Face UK Disciplinary Tribunal Over AML Regulation ‘Breaches’” —

  • “International law firm Dentons has been referred to the U.K.’s Solicitors Disciplinary Tribunal (SDT) and accused of breaching money laundering regulations.”
  • “The Solicitors Regulation Authority published a decision to prosecute the firm before the SDT, after it accused Dentons of failing ‘to take adequate measures to establish [a] client’s source of wealth and/or funds’ while acting for a ‘politically exposed person or his associated entities between approximately May 2013 and June 2017.'”
  • “The client in question has not been named, but Dentons will face a SDT hearing on the matter later this week.”
  • “The regulations in question state that a relevant person who proposes to have a business relationship, or carry out an occasional transaction with a politically exposed person, must ‘take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or occasional transaction.'”
  • “They also state that ‘where the business relationship is entered into, [the person must] conduct enhanced ongoing monitoring of the relationship.'”
  • “The SRA goes on to accuse Dentons of having ‘failed to comply with its legal and regulatory obligations,’ and ‘run the business effectively in accordance with proper governance and sound financial and risk management principles.'”

Just published by SRA, an excellent and extensive update on the subject: “Sectoral Risk Assessment – Anti-money laundering and terrorist financing” —

  • “We are responsible for the supervision of authorised firms for their anti-money laundering (AML) compliance, and we take our responsibilities very seriously. We owe a duty to society at large, and to protect the integrity of the legal sector through tackling intentional and inadvertent enablers of money laundering.”
  • “What is the purpose of this document? A risk-based approach is embedded in UK legislation and AML best practice. It means that firms should assess their risks and target their resources to the areas or products that are most likely to be used to launder money. Similarly, we take a risk-based approach to directing our resources, focusing effort most on supervising the firms that are most likely to be used to launder money.”
  • “We ask to see firms’ written risk assessments and policies, procedures and controls as part of our proactive supervision programme, or in response to specific information we have received. Your firm’s risk assessment should not be disclosed to customers, or third parties, because it may be useful to those who are seeking to launder money. This document sets out information on money laundering and terrorist financing risk that we consider most relevant for firms we supervise.”
  • “All firms that are within scope of the regulations must comply with the all the requirements of regulations. This includes taking appropriate steps to identify, assess and maintain a written record of their risk of being used for money laundering or terrorist financing.”
  • “The sanctions regime has expanded recently, mainly due to the Russian invasion of Ukraine in 2022. The long-standing involvement of Russian interests and beneficial owners in British business, and vice versa, has meant that many firms have been exposed to the sanctions regime for the first time.”
  • “It is important to remember, however, that there are a large number of thematic and geographic sanctions regimes beyond Russia and Belarus. Firms cannot assume that sanctions are not relevant to them. There are a significant number of British nationals subject to sanctions.”
  • “Amendments to the regulations in 2022 mean that all firms must now carry out an assessment of their exposure to the risk of proliferation financing.”
  • “Simply put, this means the risk of the firm being involved with the global proliferation of nuclear, chemical, biological or radiological weapons by groups and countries which are not permitted to have them under international treaty. This includes both materials for weapons, and also ‘dual-use goods’. These are goods which are not manufactured as weapons but could be used in weapons or to produce them, for example fertiliser.”
  • “There are, however, some sectors which have heightened exposure to proliferation financing, and where we would expect a firm to undertake a more thorough risk assessment, either as part of the AML firm-wide risk assessment or as a standalone document.”
  • “There are similar risks in the use of new types of financial technology, eg fund transfer systems and crowdfunding platforms. Any use of new technologies should be preceded by an assessment of the risks they may introduce and effective mitigation of these risks where possible.”
  • “This greater use of technology in all respects also heightens the importance of cyber security. Cyber security breaches could allow criminals to gain total access to both client’s sensitive data and the firm’s systems, allowing them to be used for laundering money.”
  • “We have also observed that while larger firms may have greater resources to protect them from money laundering risks, risk-based information is often kept by a separate team or systems and is unavailable to others within that firm. This can mean that those working on a file may:
    • lack ready access to the underlying risk assessment and due diligence documentation and information and
    • be prevented from conducting effective ongoing monitoring of risk.”
  • “Firms should remain vigilant and make sure their policies, controls and procedures adequately protect the firm against the risk of money laundering and terrorist financing.”
  • “The risk posed by your client also extends to the risk posed by the beneficial owner, if applicable. You need to be confident you know who your client is and why they are asking for your services, and any risk that you do not should be duly considered.”
  • “You should also not assume that existing clients are necessarily lower risk. Clients might seek to onboarded with you for low-risk work, and then transition to higher risk work in order to bypass more stringent checks at the point of onboarding.”