‘Lack of due diligence’ the main cause of Anti-Money Laundering breaches

Does your firm do everything it can to protect itself from breaches of Anti-Money Laundering (AML). Whilst the latest report from the Solicitors Regulation Authority (SRA) has identified that only a minority of firms do not protect themselves against financial crime, there are still improvements required across the legal sector.

As you will doubtless be aware, AML is a wide-ranging set of policies, procedures and technologies which set out how firms are required to protect themselves against money laundering through the three steps of placement, layering and integration.

What did the SRA investigations find?

The SRA carried out 273 inspections and reviews of solicitors and law firms.

They found that 70 per cent of firms were compliant with their AML requirements.

However, they also found 252 reports of suspected breaches. This included breaches of failure to carry out customer due diligence, money laundering risk assessments and source of funds checks.

Other results from the investigation showed:

  • 49 failures to carry out initial customer due diligence (CDD)
  • 40 failures to carry out money laundering risk assessments
  • 39 failures to carry out a source of funds check
  • 28 failures to identify a client

What common compliance issues were discovered?

The report highlighted a number of firms had failed to respond to the SRA and provide declarations relating to AML compliance.

It also revealed a failure to declare whether a compliant firm-wide risk assessment had been put in place.

Poor CDD including inadequate identification and verification of clients and source of funds checks was cited as another common area for failure.

Other areas included failure to apply enhanced customer due diligence and a lack of proper policies, controls and procedures.