Risk Update

AML Updates — New US Anti-Money Laundering Legislation Proposed, SRA AML Report Published

Via Ballard Spahr: “The ENABLERS Act Seeks to Impose BSA/AML Requirements on an Array of ‘Middlemen’ Professionals” —

  • “Motivated by revelations contained in the recently-released Pandora Papers, on October 6, 2021, four U.S. Representatives – Tom Malinowski (D-NJ), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), and Joe Wilson (R-SC) – introduced House Resolution 5525, named the Establishing New Authorities for Business Laundering and Enabling Risks to Security (“Enablers”) Act.”
  • “The Enablers Act targets the so-called ‘middlemen’ in the United States who allegedly assist with those bad acts. In a press release, Representative Wilson stated bluntly who he believed to be the ‘U.S. enablers of kleptocracy’: “unscrupulous lawyers, accountants, and others” that allegedly fail to conduct adequate due diligence in international transactions.”
  • “The Act, if passed, would amend the Bank Secrecy Act (“BSA”) to require the Treasury Department to promulgate due diligence requirements for the “middlemen,” which include investment advisors, art dealers, attorneys involved in financial activity, accountants, third-party payment providers, and others.”
  • “The Act is nascent proposed legislation that is still subject to refinement as it winds its way through the House Financial Services Committee. Suffice to say, however, there are some initial questions about the bill’s scope and function that give us pause. The details are catalogued below.”
  • “The Act amends the BSA’s definition of financial institutions to add seven new types of businesses and individuals: (1) investment advisors; (2) art and antiquities dealers; (3) an attorney, law firm or notary involved in financial activity or related administrative activity on behalf of another person;”
  • “The nature of two of the newly proposed professions, attorneys and CPAs, could make compliance with the BSA/AML remarkably difficult. Those professionals hold fiduciary relationships with their clients, and attorneys are also bound by the attorney-client privilege. he Act’s proposed imposition of SAR reporting requirements on attorneys places attorneys in an untenable position: they must maintain client confidences, but the Act would require them to report to the federal government suspicious transactions. Further, the proposed definition of attorneys covered by the Act – attorneys and law firms ‘involved in financial activity or related administrative activity on behalf of another person’ – is both exceedingly broad and vague. Conversely, the Act makes no distinctions regarding CPAs, who perform a broad array of different functions and services.”

SRA AML Report and Commentary: “Our anti-money laundering work” —

  • “As the gatekeepers to purchasing property, setting up companies, providing tax advice and other key activities, the solicitors and firms we regulate have an essential role in making sure the proceeds of crime are kept out of our economy. There is no doubt, in my view, that the legal sector plays a key part in this fight against crime.”
  • “I know from our discussions with local law societies this year that meeting their anti-money laundering (AML) obligations is something that matters a lot to the profession. The overwhelming majority want to do the right thing, but there is still a small but nonetheless significant proportion of firms that are just not doing enough to prevent money laundering. As well as allowing criminals to profit from their actions, they undermine the trust consumers place in the profession, damaging confidence in the rule of law and the administration of justice.”
  • “The additional resources have allowed us to step up our supervision in this area to directly engage with more firms through 85 visits and 168 desk-based reviews. This increased engagement allowed us greater insight into how firms we supervise are working to prevent money laundering and meant we could bring more firms into compliance. Of those 85 firms visited, 45 were initially only partially compliant.”
  • “Solicitors and law firms are attractive to criminals because they process large amounts of money, are trusted, and can make the transfer of money or assets appear legitimate. Most law firms work hard to prevent and to spot money laundering and take necessary action, but some get involved unknowingly. A very small number may even knowingly cooperate or work with criminals to launder money.”
  • “In this report we have set out some findings from our supervisory work by theme, such as customer due diligence, and the steps we have taken. We often identify more than one issue at a firm, so some firms are included in the figures for several themes throughout the report. This is particularly relevant for matters referred for disciplinary investigations where firms are often referred for investigation due to multiple breaches.”
  • “We have seen some deficiencies in CDD and broken this down into specific requirements that make up CDD, such as matter risk assessments and source of funds checks. We have addressed these elements of CDD separately and provided statistics on what we are seeing below.”
  • “We continue to see firms struggling with independent audit and screening requirements with 49 out of 69 firms not carrying out an independent audit, and the same number requiring steps to be taken by the AML team to bring firms into compliance. In addition, 60% of policies, controls and procedures reviewed under our new process were either not compliant or only partially compliant. More detail on these areas is provided below.”
  • “Fifty-five per cent of the policies we reviewed required steps to be taken. After the implementation of the 2019 amendment regulations, we found nearly half of the policies we reviewed (29) had not been updated to reflect the changes this required.”
  • “The number of firms failing to implement an independent audit function remains high (49 out of 69 firms visited in the period). We continue to engage with firms where an audit is required due to their size and nature, to ensure they implement an independent audit function and review the results once it has been carried out.”
  • “Overall, our analysis shows firms are better at screening new employees, but still falling short in relation to ongoing screening measures for existing employees. We are starting to see an improvement in this area and our refined approach enables us to better capture the types of checks being carried out.”