Updated: Jun 25, 2021
Published on January 22, 2021
Well, it is here. The new Legal Sector Affinity Group Anti Money Laundering Guidance Note. All 212 pages of it. And that is not counting all the links to other documentation we are encouraged to read.
It is a long read in itself, but it sets out the principles to be followed by the AML regulators of the legal sector for the foreseeable future. It has been submitted for Treasury approval, so some alterations may yet be made.
The key changes, as I see it are:
· the Note sets out 36 General Principles of Compliance. Worth a read.
· every policy, process, control and individual decision MUST be recorded or documented somewhere – as it says on page 124 “if in doubt, write it down”. The saying in the compliance world is “if it isn’t written down, it isn’t done”, as many firms on the receiving end of recent SRA admonishments will testify
· firms must have written and up-to-date practice-wide risk assessments (Principle 11)
· client and matter risk assessments must be recorded in writing on all cases (Principle 12)
· Source of Wealth enquiries should now be commonplace. This is in addition and complementary to the more routine source of funds enquiries which have been undertaken for some while now. SoW enquiries are questions around the client’s overall ability to afford the transaction and from where the funds have been acquired over time. It is also something that firms could track over time as funds develop and hopefully improve over the life of the client. I have developed a template that can be used for this purpose (Principle 17)
· evidence will be required of SoW AND Source of Funds enquiries – the regulators will question any lack of paper trails indicating that the enquiries have been fully made about where the monies for the transaction are in fact coming from and how they were sourced (Principle 17)
· an increased pressure to identify AND VERIFY the identity of beneficial owners of an entity client. The aim is to know who it is you are ultimately acting for, through the intermediary of the entity (Principle 16)
· increased pressure to use electronic identification tools, subject to safeguards (Principle 31)
· specific training requirements (Principle 32).
The broad message is much the same – always remain vigilant, make all the necessary enquiries, report where relevant - and that is all to the good.
However, much greater attention will need to be paid in the future to the aspects of documenting everything, evidencing everything and making (possibly embarrassing) enquiries of old clients as to the sources of their wealth.
There is a new Chapter on how technology can assist firms in these endeavours which indicates the steps firms should take in selecting a search provider, training the staff in how to use the tools accurately and understanding what resources the providers can offer as to the veracity of the ID evidence proffered. I think written by IT experts for IT experts I, for one, was a little baffled by what some of the sentences actually mean when the English words are arranged in that order.
I am also slightly disquieted by the way in which the Regulations are being ‘interpreted’ in a way which goes beyond what they actually say and feed into the regulators’ (arguably, ultimately pointless) requirement of gathering evidence of what the client has told us about the source of funds. When would we ever stop? The tone is one of ‘trust nothing, and nobody’, which goes against the commercial realities of most client interactions.
But, if that is what is necessary, we will do it.