UK lawyers failing to report suspected money laundering, says watchdog

Guardian Web |

Lawyers are failing in their duty to combat suspected money laundering and have ignored repeated warnings to increase their reporting of suspicious activity by clients, Britain’s top law enforcement body has said.

Donald Toon, the director of economic and cybercrime at the National Crime Agency (NCA), said the number of reports it had received from lawyers had fallen by 10% this year – despite of a host of recent scandals that have led to London being described as the money-laundering capital of the world.

Toon questioned whether lawyers were taking their obligations seriously enough, given that failure to report suspected money laundering and terrorist financing is a criminal offence punishable by up to five years in prison.

“We believe that we do not get the level of reporting from legal firms of suspicious activity that we would expect,” Toon said. “We have said it a number of times and there has been no significant change.”

He said the NCA was working closely with the Solicitors Regulation Authority to identify legal professionals who were not following the rules. Toon is the latest public figure to raise concerns about UK solicitors and their proximity to controversial clients.

MPs censured the City firm Linklaters this year for their decision to advise on the stock market listing of an energy company belonging to the oligarch and Kremlin insider Oleg Deripaska, months before he was placed on the sanctions list by the US government.

Linklaters said its 70-member team in Moscow, which includes 12 partners, followed the highest standards and abided with all regulations against bribery and corruption, anti-money laundering and sanctions.

The scale of the problem NCA investigators are required to tackle is vast. The government estimates £90bn of cash is laundered in Britain every year.

This year, the agency launched its first prosecutions under the new unexplained wealth order legislation, which targets non-EU nationals. The legislation should make it easier for the government to seize UK property and other assets suspected of being acquired using the proceeds of crime and corruption.

“What you are trying to do is create a change in the climate,” Toon said. “Successive governments, for reasons that seemed right at the time, have wanted the UK to be an open inviting market. That carries real opportunity and that carries some risk. The important thing is to get the balance right.”

The government’s historically light-touch approach to the flow of money into London has been a boon for its banks, but also for lawyers. However, at least one senior solicitor, a senior partner at the firm Child & Child, has been referred to the solicitors disciplinary tribunal for allegedly failing to carry out proper checks on a client. The hearing has yet to take place and the allegations are as yet unproven.

Solicitors, and other professionals working in particular sectors, have a legal duty to file what is known as a suspicious activity report (SAR) when they have grounds to suspect they are being asked to handle the proceeds of crime, or transactions connected to terrorist finance. Those obliged to file include banks, auction houses, money transfer outlets, estate agents, bookmakers, accountants and tax advisers.

The fall in alerts from lawyers comes as the overall number of reports is rising. The total increased 9.6% to 464,000 in the year to , according to the NCA. A full breakdown by profession will be released this year, but a look at previous periods shows lawyers trail those working in finance.

The increase is being fuelled by banks, which flagged up almost 350,000 transactions in the year to , while law firms, including those specialising in property conveyancing, filed just 3,020 alerts.

Toon said: “There is a significant challenge engaging the thousands of law firms to promote the required level of understanding about the SARs regime, compared, for example, to the relatively small number of licensed banks in the UK.”

The release two years ago of the Panama Papers, a crackdown on holders of secretive Swiss accounts by the US tax office, and a series of swingeing fines imposed on HSBC and Standard Chartered, among others, have led to yearly increases in the overall number of SARs.

These scandals exposed wrongdoing by banks, but they have also highlighted the role of accountants, company formation agents and law firms, like the now defunct Panama practice Mossack Fonseca, in enabling the injection of the proceeds of crime into the legitimate banking system. Despite this increased scrutiny, reports from lawyers have fallen by about 10% each year since 2015.

“It’s certainly not in the forefront of legal firms’ minds in the way it is if you hold a banking licence,” Toon said. He spoke of cases where banks had reported dubious property deals for which there had been no corresponding alert from solicitors involved in the same transaction.

Concerns about the failure to control money laundering led to the creation in January of a new regulator, the Office for Professional Body Anti Money Laundering Supervision. The watchdog is charged with overseeing 22 organisations, from the Law Society to the Association of Tax Technicians.

The NCA is carrying out seven investigations into professional enablers, one of which relates to the legal profession. It has intelligence on a further 19 cases, 11 of which involve lawyers.

Toon said a number of cases had been referred to him by the SRA. “We have a number of cases we are now investigating criminally in relation to legal professionals,” he added. “We are doing this on a coordinated basis working with the police to tackle the professional enablers.”

Addressing solicitors at a recent conference in Birmingham, Toon said they often had a better understanding of high value transactions than any of the other professionals involved.

The NCA director warned lawyers that close involvement in their client’s affairs meant they faced a stark choice. “It’s about taking on the responsibility of serving the public, or, if you don’t want to take it on, benefiting the criminal,” he said. “We’re not asking people to go out and tackle gangsters, only to report something where they have a suspicion.”

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