SRA’s crippling money laundering crackdown feels harsh

Let’s just start by addressing a few myths about the Solicitors Regulation Authority’s sudden burst of activity over anti-money laundering sanctions.

First, the regulator is not lining its own pockets or saving up for an Axiom contingency fund. Every penny levied by the SRA goes straight into Treasury coffers (yet another reason to be irked by justice spending cuts, you could say).

Neither does the SRA simply ignore the big boys in favour of picking off smaller firms. It made a no-doubt expensive and ultimately unsuccessful prosecution of Dentons, the largest of all firms by headcount, through the Solicitors Disciplinary Tribunal this month, and fined top-50 firm Ashfords more than £100,000 last year. Small firms tend to be targeted because they understandably have fewer resources to devote to ensuring compliance.

And let’s not pretend this is all part of an SRA vendetta against the profession. This is coming from central government which sees solicitors as front-line enablers of money laundering and expects the regulator to do its bidding. The SRA has enough on its plate without having to pore over every firm’s AML risk assessment in minute detail.

We should be clear, especially to the general public, that the legal profession is not a safe harbour for money launderers and is determined to root out those who might provide one. This is a big issue with serious repercussions if non-compliance is allowed to continue. Any regulator tasked with the job has to be tough and seen to be tough, both as a deterrent and a signal to the public.

What has fuelled much of the acrimony from the profession has been the SRA’s almost overnight change from handing out £2,000 fines for failing to have AML measures in place to issuing massive penalties eating into firms’ revenues.

New guidance to base fines on annual turnover appears draconian and places enormous financial pressures on firms at a time when so many are struggling. There is a sense that the SRA is blind to these other pressures and seems not to care if they are put out of business. Small firms with a handful of partners are not generally blessed with £10,000-plus to pay off historic compliance errors.

True, these fines will perhaps be following guidance and warnings which were not heeded. The SRA would argue it has given firms ample opportunity to get compliance in order.

But many of these firms are not equipped to seamlessly handle every regulatory matter and tick every box the SRA (and by extension the government) requires. They are small operations who are effectively being used as fodder for the crackdown on money laundering imposed from above. Most if not all have got their houses in order before the sanction has been issued, and it seems especially harsh to whack those who have done the right thing (albeit late).

There is little evidence in many of these cases that an incorrect risk assessment or failure to carry out specific checks has caused any harm. True enough the SRA would probably be blamed for not being pro-active enough if it waited until harm was done to penalise firms.

But there is a sense among many solicitors that the wrong targets are being pursued and the punishments have been disproportionately and dramatically increased in severity. Where is the idea of working with firms to help them achieve what we all want?

If these fines were having a demonstrable effect on tackling money laundering, then perhaps the financial kneecapping of a few non-compliant firms might be justified. Trouble is, where is the evidence this is doing anyone any good?