AML: Spotlight on Corruption is wrong about lawyers

A new report from Spotlight on Corruption and Global Integrity Anti-Corruption Evidence Programme says more must be done to combat lawyer involvement in money laundering. But is ours such a privileged profession, and are the changes that are needed already in train?

No one can deny that tough regulation is needed around compliance with anti-money laundering (AML) laws. As a lawyer working on fraud and money laundering investigations, I recognise the complexity of the laws and their exceptions, and the risks that arise when they are misinterpreted.

The report is to be applauded for keeping a fire lit under the feet of those who may be complacent about lawyer compliance with AML laws. But it arguably mischaracterises fundamental aspects of AML as ‘special treatment’ for lawyers, while paying too little attention to changes already under way to the Solicitors Regulation Authority’s role to toughen solicitor regulation.

It seeks to consider the regulation of lawyers as compared with that of banks (by the Financial Conduct Authority (FCA)) and gambling firms (Gambling Commission).

The report highlights exceptions in the Proceeds of Crime Act 2002 (POCA) to money laundering offences (where lawyers receive proceeds of crime in return for their fees); obligations to submit suspicious activity reports (SARs) (where the basis for suspicion is received in ‘privileged’ circumstances, and for certain kinds of legal services); and the role and performance of the SRA and other regulators of legal professionals, in detecting and punishing breaches of AML laws, in particular the money laundering regulations (MLRs).

It is true that legal regulators differ from bodies such as the FCA and the Gambling Commission, notably in their independence from government. This is not some historical accident or anomaly. It reflects a long-standing recognition of the importance of private citizens and firms being able to receive legal advice and representation without undue interference from the state.

Concerning the exceptions to offences in POCA cited by the report, these are not, in fact, designed as protections for lawyers, nor are they absolute in nature. The ‘adequate consideration’ exception applies to anyone providing goods or services in exchange for proceeds of crime. It does not apply where the provider knows or suspects that they may thereby help someone to commit a crime. The ‘privileged circumstances’ exception applies where information is provided on a confidential basis for legal advice or litigation. It does not apply where the client intends some fraud or other ‘iniquity’.

With respect to the role and performance of the SRA, it is doubtless true that many firms of solicitors breach their obligations under the MLRs (and, less commonly, under POCA). Whether and to what extent this involves misapplying the POCA exceptions, and whether the SRA is less effective than the FCA or the Gambling Commission at detecting and punishing such breaches, is harder to tell.

Taking a step back, this is of course not the first time anyone has queried whether the manifold legal regulators are best placed, or doing enough, to prevent breaches of AML laws by lawyers, or suggested that we may be failing to police deliberate and dishonest breaches by some of them, including by abuse of legal professional privilege (LPP).

Such queries and suggestions should never be ignored by the legal establishment, but, indeed, they have already prompted significant changes to the system. The SRA, which is separate from the lobbying and representative functions of the Law Society, is now subject to scrutiny in this area by the Office for Professional Body AML Supervisors (OPBAS). The other regulators are similarly supervised, in part to smooth out any unnecessary inconsistencies caused by splits between the professions.

Other than proposing the consolidation of legal regulators, the report is unclear on what more should be done to improve the system. Changing the exceptions to POCA would need primary legislation, and would not be done lightly, especially insofar as it eroded the fundamental protections of LPP; the case for such significant changes is far from made out.

Instead, few would argue with a drive to ensure legal regulators are seen to be doing the best job that could be done to detect and punish AML breaches. That is partly about ensuring consistency, which is the purpose of OPBAS, but also about ensuring they have adequate expertise and resources.

In the end, however, given that OPBAS was created squarely to regulate the regulators, and is still relatively new to the task, it would seem churlish or unduly impatient to contemplate throwing it out and replacing it with something else, at least just yet. Nor, importantly, should we rush to judge any new steps or reforms in this area by the sole yardstick of whether they increase fines or SARs. Continued protection of LPP, fairness to lawyers and firms that are accused of breaches, the independence of the professions, rigorous guidance, policing and a general understanding of these complex laws are all important.

None of that should be taken, of course, to minimise the importance of ensuring that lawyers, like anyone else, comply with AML laws and are properly dealt with when they do not. Properly understood, with all the context and caveats discussed, most lawyers would (and all should) accept the need for this to be done – and be seen to be done. On that, pressure groups, charities and the professions should surely share a common cause.

John Binns is a partner at BCL Solicitors, London