Money laundering & counter terrorist financing
The fight against financial crime and money laundering – the role of the legal profession
- A recent Financial Action Task Force (FATF) publication on the anti-money laundering (AML) vulnerabilities of legal professionals states that law enforcement authorities see money launderers seeking the advice or services of specialised professionals (including the legal profession) in order to “wash” the proceeds of criminal activity.
- In addition, the latest UK National Risk Assessment rates the legal sector as at high risk of money laundering
- Solicitors and legal firms are central to many of the methods, techniques and transactions criminals seek to use to further this activity. As such, they have a significant role to play in ensuring their services are not used to further a criminal purpose.
Key components of the legal anti-money laundering framework (as applicable to the legal profession)
The Money Laundering Regulations 2007 set administrative requirements for the anti-money laundering regime within the regulated sector. Regulation 3 states that the regulations apply to “independent legal professionals”
An independent legal professional includes a firm or a sole practitioner who by way of business provides legal or notarial services to other persons. It does not include solicitors employed by a public authority or working in-house.
The Proceeds of Crime Act (POCA) 2002 establishes a number of money laundering offences including:
- principal money laundering offences
- offences of failing to report suspected money laundering
- offences of tipping off about a money laundering disclosure, tipping off about a money laundering investigation and prejudicing money laundering investigations
- POCA applies to all persons, although certain failure to report offences and the tipping off offences only apply to persons who are engaged in activities in the regulated sector (including the legal profession)
The Terrorism Act 2000 establishes several offences about engaging in or facilitating terrorism, as well as raising or possessing funds for terrorist purposes. The Terrorism Act applies to all persons. There is also a failure to disclose offence and tipping off offences for those operating within the regulated sector.
The fight against financial crime – our role
We hold a dual-role regarding the application of money laundering legislation and regulation within its membership:
- The provision of expert guidance on anti-money laundering best practice and other financial crime-related issues, through the Financial Compliance inspection regime, Professional Practice helpdesk, materials found on this website, and through our dedicated AML Audit function.
- Supervisory authority responsibilities in our capacity as the professional body for Scottish solicitors.
AML Supervisory authority status has been ratified by Her Majesty’s Treasury and is discharged through the use of the Solicitors (Scotland) Act 1980:
No person shall be qualified to practice as a solicitor in Scotland unless:
- The person has been admitted and their name appears on the roll of Scottish solicitors
- The person has a practising certificate issued by the Society
The Act gives disciplinary powers to the Society and entitles us to issue “accounts rules” regarding how client money should be handled by a solicitors practice.
- The Accounts rules are contained in our Practise Rules 2011, including a rule specifically requiring solicitors to “comply with the provisions of the Money Laundering Regulations” and to be able to “evidence compliance with the provisions of Part 7 of the Proceeds of Crime Act 2002 and also part 3 of the Terrorism Act 2000”. (Appendix 6)
- Wider standards of conduct for solicitors are contained within the Law Society of Scotland Practice Rules 2011 which encompass such fundamental principles as “trust and personal integrity” and “competence, diligence and appropriate skills”
While we are committed to the education and support of our members in preventing the Scottish legal system being used to launder criminal or terrorist funds, we have a duty under the regulations to take appropriate action where members do not comply with the requirements of the regulations.
We discharge our supervisory duties and responsibilities by:
- Undertaking “deep dive” AML Audits of larger firms
- Combining monitoring of AML compliance with monitoring of accounts rules compliance in its rolling Financial Compliance inspection regime, largely undertaken on it’s small to medium size member firms.
- The bi-annual process of self-certification of AML compliance signed by the MLROs of all member firms
Guidance on how to comply with rule B6.23 is included in our accounts rules guidance. B6: Accounts, Accounts Certificates, Professional Practice & Guarantee Fund.
Anti-money laundering contacts
- For confidential telephone-based guidance on operational AML/financial crime-related queries occurring in the course of your day-to-day business as a solicitor, please call the Society’s Professional Practice team on Tel: 0131 226 8896
- For in-depth guidance regarding strategic AML/financial crime issues (for example FATF/HMT/NCA-related queries, AML trends, sanctions-related advice) or guidance relating to AML policies, procedures, systems or training, please call Graham MacKenzie, AML Auditor on Tel: 0131 476 8176