At the Law Society’s Risk and Compliance Annual Conference on March 12, a panel was convened to address what is likely one of the most pressing issues for the legal sector: Economic crime.
Source of funds/source of wealth checks are a source of frustration
In a telling moment that opened the session, the participants voted on the issues that are giving them the biggest headaches. Nearly 40% said that source of funds/source of wealth checks frustrated them the most. Unsurprisingly, next in line at 29% was SRA enforcement.
Colette Best, director of anti-money laundering (AML) for Kingsley Napley LLP discussed the fact that the legislation for source of funds/source of wealth checks has not changed much since 2007. But the list of high-risk countries changes almost every few months, making the whole process more challenging. “It’a judgment about the risk in every case,” she said. “It makes it very complicated.”
The higher the risk, the greater the need for reliable information. But exactly how far back do checks need to go? The guidance indicates that for low risk, a three month look back is sufficient. For high risk clients, the look back could extend to three years, demonstrating the range in this process. And what does a solicitor do if they can’t establish that the source of funds or source of wealth was not obtained illegally? Best put it simply: They need to cease to act.
Uyghur case: Supply chains matter
Anita Clifford, barrister at Red Lion Chambers, discussed the significant implications of the Uyghur case on money laundering. In that case, R (World Uyghur Congress) v NCA, the court found it unlawful that the National Crime Agency decided not to open a money laundering investigation into the trade of cotton to the UK from the Uyghur region of China. The cotton trade in Xinjiang has been subject to serious allegations of forced labour, slavery and human rights abuses perpetrated against the Uyghur ethnic group by Chinese authorities. The World Uyghur Congress (WUC) alleged that the product of such abuses – the cotton transported to the UK – is therefore criminal property. But the NCA refused to investigate businesses trading in this cotton, so the WUC brought a judicial review.
The current law as set out in POCA lays out the money laundering offences, and explains what is criminal property and when it becomes such. POCA also sets out civil recovery schemes where criminal property can be seized, even without a criminal conviction. This includes conduct that occurred abroad and constitutes or is connected with the commission of gross human rights abuses, which is what the WUC alleged. In this case, the court agreed that 85% of cotton grown in China comes from the Xinjiang region and that it is accepted that there is “a diverse, substantial, and growing body of evidence that serious human rights abuses are occurring” in the Uyghur cotton industry on a large scale.
It is a money laundering offence to “acquire, use or possess criminal property”, but there is an exemption if this property is acquired, used or possessed for “adequate consideration.” As Clifford noted, what does “adequate consideration” mean?
Prior to this decision, the “adequate consideration” exemption under POCA allowed the purchaser or criminal property to freely deal in that property if they paid market value.
But the court of appeal decision in the Uyghur case has given the NCA more power to investigate potential cases of criminality in the supply chain.
Importantly, the “adequate consideration” exemption from liability is personal to an individual and only applies while they have the property in their possession. But this exemption does not clean the chain of transactions related to the property, regardless of having paid market value. This expands the scope to the supply chain, where specific goods and raw materials are being bought and sold.
The Court of Appeal held that if a company has actual or constructive notice that goods might be the proceeds of criminality, then the “adequate consideration” exemption does not apply and the goods are recoverable. The bottom line is this case recognised that tainted supply chains can generate criminal property and may require consideration of money laundering reporting. Companies need to just do more than take their suppliers’ word for it. They must conduct effective due diligence.
AML training should get specific and practical
Andy Donovan, managing director of Compliance Office of Vinciworks, noted that the SRA’s thematic review indicated that AML training should be more specialised. It’s key findings:
- A direct link between the quality of training and compliance
- Current training is too focused on the regulations
- Standard ‘off the shelf’ training will not be sufficient
- Need to see the ‘why’ in the training
- Want to see training tailored to a firm’s and individual’s role
- Training should involve case studies and real-life scenarios
- Training should be at minimum, annually
- Additional in-depth training should be done for Money Laundering Reporting Officers (MLROs) and Money Laundering Compliance Officers (MLCOs)
Donovan noted that the review is advocating for a more personalised, specific and practical approach to AML training to improve the effectiveness of AML training. Generic training, he emphasised, can be too abstract or disconnected from real-world scenarios. Specific training ties the rules directly to the organisation’s practices, making the learning more relevant. And practical training provides hands-on experience, helping trainees engage with the content and better retain the information. Firms need to go beyond reading the rules and instead focus on how those rules apply in practice, using examples that staff can relate to and understand more deeply. This approach increases engagement and ensures better compliance and understanding in real-world situations.
Who should you be training?
SRA leans towards a policy of ‘if it has a heartbeat, train it’:
- All fee earners, whether in scope or not
- Consultants and temporary staff as well as permanent
- Support staff if dealing with clients, handling client money or assisting with compliance
- Long term absences
New starters should ideally be trained “before undertaking any regulated work”.
Donovan concluded by discussing some best practices that organizations can adopt to improve their AML training. These practices are focused on making AML training more engaging, practical, and tailored to the specific needs of the firm.
- Hybrid of both eLearning and live training which can provide flexibility and can be updated regularly with new content. Also live training adds the benefit of interaction where participants can ask questions, share experiences and engage in discussion.
- Legal area-specific, scenario-based ‘workshops’ that focus on real-life scenarios related to the legal areas the firm works in. In this way, instead of theoretical knowledge, employees are exposed to practical situations they might face in their roles. This can also improve staff’s ability to act when faced with similar situations.
- Training specifically on the firm’s onboarding processes and forms which covers the specific procedures and forms used by the firm. This would help employees get familiar with company-specific documents and workflows so they can apply AML regulations within the context of their actual job tasks.
- Going beyond PowerPoint to incorporate different communication channels and formats, such as email updates, team meetings, circulating lessons learned, pop quizzes and even podcasts so staff can be trained while on the go or during downtime. These methods can make training more dynamic and ongoing and keep it engaging and interactive, making it easier for employees to absorb and retain the information over time.
Traditional methods of training can be passive and less effective. By incorporating interactive, real-world scenarios, and tailored approaches employees are more likely to be engaged and retain the necessary knowledge to follow AML practices correctly. It can also help employees apply what they learn in a real-world context, which not only improves compliance but also prepares them to act confidently when faced with challenges related to money laundering.
Check out Vinciworks’ comprehensive suite of AML courses. They are packed with realistic scenarios, real-life case studies and customisation options that will help you stay protected.
