Law firms continue to display 'significant levels of non-compliance' with anti-money laundering rules and should lose their 'privileged' position, a campaign group says in an outspoken report today. 

In a report 'A privileged profession?', campaign group Spotlight on Corruption paints a picture of a sector enjoying ‘unique protections’ to launder money. Methods include sham litigation as well as the abuse of conveyancing, trust and company services, the report alleges. It proposes that the Solicitors Regulation Authority be given a new mandate to operate as AML enforcer across the legal sector and across the UK.  

'The legal sector is largely left to itself to decide for itself whether activity undertaken falls within scope of the AML regulations or not,' the group states. It claims that 'significant areas of work' conducted by the sector fall outside AML rules. These include in-house work, participation in litigation and ADR and the payment of costs to lawyers, the report states. 

Meanwhile, defences under the Proceeds of Crime Act 2002 give the sector ‘a free pass to accept payment from the proceeds of a crime’. It adds: 'This opens the possibility of legal services being used to launder dirty money and skews incentives for legal professionals'.  

A central theme of the report is what the group claims is the misuse of legal professional privilege. While such privilege 'lies at the heart of the justice system', it is open to abuse. 'In particular, there is a real risk that privilege can be asserted to avoid reporting suspicion or knowledge of money laundering based on information that is not, properly speaking, protected by privilege.' The report calls for clearer guidance on the proper application of privilege and how supervisory bodies as well as law enforcement agencies can challenge it. 

The report appears as MPs consider proposals in the Economic Crime and Transparency Bill to alllow the SRA to impose unlimited fines for involvement in economic crime. Spotlight on Corruption backs the proposals, which are opposed by the Law Society. The report notes that the SRA's average fine imposed for AML breaches in 2019/20 was £11,906 'which... compares poorly with the average for HMRC in that year of £61,700 and for the Gambling Commission of £3.35 million.'

The report singles out the fine of £232,500 imposed on London firm Mishcon de Reya in 2021. 'While this was a record for the sector, it represented just 0.25% of Mishcon's £155m turnover.' If the fine had been based on Financial Conduct Authority principles, it would have been up to £5.4m, the report asserts. 

Meanwhile the highest find that the Solicitors Disciplinary Tribunal has ever imposed for money laundering is £30,000. It accuses the tribunal of 'an overly generous interpretation of "mitigating circumstances".'

Noting that 95.1% of AML cases taken by the SDT relate to sole practitioners and small firms, it says that the SRA and SDT may be focusing on 'low-hanging fruit' rather than going after big firms. In the past three years, none of the top 25 firms by revenue has been fined in relation to money laundering. The SRA is also criticised for removing details of disciplinary decisions from its website after three years. The report recommends that these should remain in the public domain for at least five years. 

The report recommends that responsibility for AML supervision be concentrated in a single, UK-wide body to ensure consistency across the sector and jurisdictions. The SRA is 'the most credible contender' because of its size, independence and the fact that it is the only legal supervisor to have built up a track record of enforcement action. The report concedes that giving the SRA a UK-wide remit poses 'thorny' issues. 

Case studies in the report identify several law firms, including Child & Child, Herbert Smith, Macfarlanes, Mishcon de Reya and White & Case. It stresses that it does not allege that any of the firms had knowledge of alleged wrongdoing at the time it took place.  

A Law Society spokesperson said: 'The Law Society and legal sector share the UK government’s determination to combat economic crime. Solicitors play a key role in the UK’s anti-money laundering (AML) and economic crime regime. They act as gatekeepers to the financial system.

'Solicitors in the UK are subject to some of the strictest AML obligations of lawyers anywhere in the world and spend significant amounts of time and money on compliance.'

 

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