This blog is the second in a series of blogs set out to help firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance.
A major part of a firm’s AML process is undertaking risk assessments. There are three levels at which a firm should assess the potential risk of exposure to money laundering and terrorist financing. As mentioned in our previous LSAG blog, these are practice-wide risks, client-related risks, and matter-level risks. The LSAG Guidance says that one should consider five “risk factors [which] should be addressed at any level of your practice’s risk assessments”. These are:
In our last AML blog, we provided an overview of the main UK money laundering offences. We also addressed some of the obligations imposed on individuals and organisations governed by The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the ‘Regulations’), as amended.
As mentioned in our previous blog, the Regulations apply to certain individuals and organisations, known as ‘relevant persons’. Law firms can be categorised as relevant persons if they are:
‘Independent legal professionals’: this is anyone, ‘who by way of business provides legal or notarial services to other persons, when participating in [certain] financial or real property transactions’. A full list of those transactions is set out in the Regulations, and includes buying and selling property and managing client money.
‘Anti-Money Laundering’ or ‘AML’ could refer to any law, regulation or procedure designed to respond to the threat of money laundering.
A typical money laundering scheme involves placing ‘dirty’ money into the financial system (placement), moving it around the system to hide its source (layering), and returning the ‘cleaned’ money to the criminal’s pockets (integration).
Criminals launder money in order to mask the proceeds of crime, so that they appear to have originated from a legitimate source.
The AML laws and processes which are relevant to you will depend on the jurisdiction in which you are based, the organisation you work for, and the industries in which you or your clients operate.
Understanding the new anti-money laundering regulations
The Sixth Money Laundering Directive was required to be implemented into national law across the EU by 3 December 2020. In some countries, such as Germany who implemented the Sixth Directive last month, this required a paradigm shift in how money laundering offences are prosecuted in Germany. The German law abandoned the concept of a catalogue of predicate offenses in favour of an ability to capture profits derived from any criminal activity.
FCA investigators have clearly not been furloughed
In 2019, the FCA registered nearly £400 million in fines for compliance breaches, and despite the pandemic, investigators are striking out high and fast against non-compliance. In the first half of 2020, only four cases have resulted in a fine, but collectively those fines have already reached £100 million.
The Sixth Directive is due to be implemented into national law by 3 December 2020. While the UK anti-money laundering regime already complies with a great deal of it, the Sixth Directive calls for the introduction of a new corporate offence for failing to prevent money laundering, which is not included in the UK regime.
The UK already has a few corporate ‘failure to prevent’ laws on the books in the form of failure to prevent bribery and tax evasion. Whether the UK is required to implement this new failure to prevent money laundering rule will depend on the status of the transition period at the time. The Sixth Directive focuses on harmonising money laundering offences across the EU, such as extending criminal liability to legal persons and aiding and attempting to commit money laundering should be an offence.
While much of the world has been in lockdown and most staff have been working from home, financial crime has not disappeared. In fact, fraud has become more sophisticated than ever with many criminals using the pandemic as an opportunity to exploit vulnerabilities. It is crucial to adapt financial crime controls such as anti-money laundering (AML) procedures to the specific needs of the crisis. Financial crime procedures should be kept under frequent review as the pandemic progresses.
Here are some tips on how to protect your firm from financial crime during the pandemic and beyond.
When it comes to compliance training, the antidote to boredom is relevance.
Training that isn’t relevant is boring, unengaging and of limited effect. Training that resonates with the user, that feels like it was written with his or her particular industry, practice area or job role in mind, works.
Content that isn’t engaging isn’t going to stick and will ultimately waste the learner’s time. Boring content, along with a lack of interaction, severely harms the effectiveness of training. With regulators increasingly taking a deeper look at the content of training, not just completion records, training that merely ‘ticks the box’ with a one-size-fits-all approach will ultimately fail.
Much of the world is still under lockdown, but many businesses are working hard to keep economically active during the crisis. Unfortunately, where there is financial activity, there’s also the risk of financial crime. Google has seen more than 18 million corona or COVID-19 related malware and phishing attacks per day.
In our 15-minute on-demand webinar, our Director of Learning and Content Nick Henderson takes us through the schemes scammers are deploying to exploit the pandemic. He also shares guidance on how we can protect ourselves and our businesses against these risks.
All gambling operators have a statutory duty to keep financial crime out of gambling. The Proceeds of Crime Act 2002 (POCA) obligates gambling operators to be alert to customers who try to gamble unlawfully acquired money. Money laundering includes both using illegal cash to clean the money as well as simply using it to fund gambling.
Money laundering risks are not only found in the operator-to-customer relationship, however. They can also occur in business-to-business relationships, as well as with any third parties operators contract with.