Risk Update

Law Firm AML News Updates — US Anti-money Laundering Landscape Update, UK Firm Faces Significant Fine, Canada Launches Free Law Firm AML Training Program

Amy G. McClurg & Jennifer S. Roach at Thompson Hine remind us: “Corporate Transparency Act: Ethical Considerations for 2024” —

  • “If you have not heard of the Corporate Transparency Act (CTA), now is the time to become familiar.”
  • “The CTA, which Congress passed as a component of the Anti-Money Laundering Act of 2020, was created to enable the government to prevent, detect, and combat money laundering, the funding of terrorism, and other prohibited activity by requiring certain companies to report their beneficial ownership information to the Financial Crimes Enforcement Network division of the U.S. Department of the Treasury (‘FinCEN’). There are still some moving parts with the CTA. For example, the reporting form is not yet available. However, the ethical implications inherent in CTA compliance must be considered now.”
  • “Companies that are deemed to be ‘Reporting Companies’ are required to report beneficial ownership to FinCEN. There are two types of ‘Reporting Companies’: Domestic Reporting Companies and Foreign Reporting Companies. There are currently twenty-three (23) exceptions that exempt entities that would otherwise be considered a Reporting Company. Lawyers and law firms alike will want to consider whether they intend to assist clients in ascertaining whether the client is a ‘Reporting Company.'”
  • “Of specific interest to attorneys – the CTA also requires up to two ‘company applicants’ to be identified for entities formed after January 1, 2024. This may implicate law firms if they are involved in the preparation or filing or formation documents for clients. The lawyers or paralegals providing those services would have the corresponding obligation under the CTA to register with FinCEN as a company applicant for the client.”
  • “The effect of the CTA is far-reaching. Many practitioners will feel the impact it has on their practice, but all practitioners should know about it. Lawyers have a duty to stay abreast of changes to the law and the reporting requirements found in the CTA certainly qualify as a change. For example, the CTA likely implicates the provisions you want to include in employment agreements, shareholder agreements, or LLC operating agreements to require beneficial owners to provide the information needed by the entity to comply with the CTA’s reporting requirements. In addition, due diligence for loans, mergers and acquisitions will likely need to include CTA compliance.”
  • “Lawyers also have a duty to keep their current clients reasonably informed about the representation. While there is no duty to notify former clients, lawyers will want to be diligent in notifying current clients about the CTA. Now is the time to determine if the client is former or current.”
  • “Don’t wait until January to determine your firm’s capacity or desire to handle CTA related engagements and how it impacts various practice areas. Limitations on the scope of your representation will need to be clearly communicated with your clients. You will want to evaluate any third-party referrals for CTA filings and corporate formation filings. If your firm will play a role in corporate formations and filings, you will want to consider who will be responsible for such filings and how to track and update FinCEN registration for those individuals. Finally, you will want to start thinking of changes in firm policy and procedure that align with your level of involvement in CTA related representations, and ensure all staff are properly trained and supervised to comply accordingly.”

National firm fined over £100,000 by Solicitors Regulation Authority” —

  • “National firm Ashfords LLP has been fined more than £100,000 by the Solicitors Regulation Authority for money laundering compliance failures reported by the firm itself. The fine, the fourth largest imposed by the SRA, was agreed despite the regulator stating that there was no suggestion that any money laundering or other financial crime took place.”
  • ‘”In published details of an agreed outcome, the SRA said Ashfords has agreed to pay a penalty of £101,357 plus investigation costs of £1,350. The regulator said it had identified areas of concern in relation to compliance with the 2017 AML regulations and the SRA principles and code of conduct.”
  • “Three conveyancing transactions carried out between October 2017 and March 2018 were highlighted as matters of concern. Two of the transactions related to the purchases of properties worth £3.2m and £550,000 on behalf of a limited company. The third transaction related to the purchase of a property worth more than £3m on behalf of a UK registered charity.”
  • “In relation to the first transaction, the SRA said customer due diligence revealed conflicting information as to the ultimate beneficial owner and the source of funds was ‘not fully understood or evidenced and had changed during the transaction’. The firm’s compliance raised the issues but there was no written record as to if they were fully resolved before the transaction was completed.”
  • “A retrospective search by Ashfords during its own investigation ‘identified a potential link between one of the purported beneficial owners and an entity subject to UK sanctions’, the SRA said.”
  • “The firm admitted it failed to behave in a way that maintains public trust and failed to carry out the business effectively and in accordance with proper governance and sound financial and risk management principles.”
  • “In considering mitigation, the SRA said the firm ‘had procedures and controls in place; however they were not followed in these matters’. It added: ‘There is no suggestion that the transactions actually involved money laundering or any financial crime.’ There was no evidence that any harm had been suffered, the SRA said. It also noted that the firm had brought the matter to its attention initially, assisted throughout the investigation, admitted breaches, made changes to systems, policies and procedures and ensured that regular training to all relevant employees is provided.”
  • “An Ashfords spokesperson said: ‘We self-reported in 2019 to the Solicitors Regulation Authority potential breaches of the money laundering regulations on three transactions that were carried out in 2017 and 2018.”

Federation of Law Societies launches online program to combat money laundering risks” —

  • “The Federation’s of Law Societys has launched an online learning program entitled ‘Anti-Money Laundering and Terrorist Financing in the Canadian Legal Profession.’ The program is free and the Law Society of Ontario has accredited the program for 3 hours and 45 minutes of Professionalism content. From the website:
    • The practice of law exposes legal professionals to unique risks in relation to money laundering and terrorist financing. Although some practice areas present higher risks, any legal professional engaged in financial transactions may be targeted by criminals seeking to launder money or finance terrorist activities.
    • To combat these threats, legal professionals must understand the risks that may arise in their legal practice and be aware of their legal and regulatory obligations. Without such risk-based awareness and knowledge of the rules, they may find themselves unwittingly facilitating or participating in criminal activity.
    • Using interactive tools like scenarios, videos, and quizzes, the Federation has developed this online learning program to provide guidance to legal professionals on how to mitigate money laundering and terrorist financing risks and comply with their legal and regulatory obligations. The program supplements the Federation’s written anti-money laundering and terrorist financing resources for the profession…”
  • Access the online learning program directly here.