Anti-Money Laundering Guide — 10 reasons strong leadership is essential from a former managing partner

When it comes to anti-money laundering (AML), a strong compliance culture within a law firm is unquestionably a good thing, writes Burness Paull LLP former managing partner Ian Wattie.

The consequences of a failure to comply can be catastrophic to the firm and the individual lawyers responsible – legally, financially and reputationally.

But a law firm’s culture – in all its various guises, including compliance – does not happen organically. The direction and tone must be set from the top. Strong leadership is essential.

What does that mean in practice? Below, I share my own thoughts as a former managing partner and now a consultant on AML matters.

From The Top

The firm’s leadership team, particularly its managing partner/CEO, should be visible in their commitment to ensure that the firm complies with its AML obligations. This can be achieved through regular and prominent messaging on AML issues – whether by way of internal newsletters, ad hoc updates as well as at partner and staff meetings. It is imperative not to give the impression – false or otherwise – that AML compliance has somehow been relegated to a middle-low ranking priority.

Governance

Those familiar with the AML compliance principles will know that there is a requirement to document the firm’s AML governance structures. There should therefore be a clear reporting line from the MLRO (and the MLCO if your firm has appointed one) to senior management. AML compliance should be a key component of the firm’s overall risk management strategy. It should not be seen as – or left to – the sole responsibility of a compliance/risk partner. Senior management level engagement is essential to give AML compliance the firm-wide buy-in that it merits.

Senior Engagement

One of the compliance principles is that your firm’s board (or equivalent) must monitor and manage compliance with the firm’s AML policies, controls and procedures. This means that, as part of your firm’s AML governance, there should be a route for the MLRO/MLCO to have transparent engagement with the board in relation to AML compliance. In turn, the board should understand that it is their responsibility to understand how AML compliance is expected work. The board is there to check and challenge, as well as to support, the MLRO/MLCO and others involved directly in compliance. The board should also appreciate that AML compliance has its own dynamic: it is a constantly moving feast, with the criminal world forever looking out for new ways to wash proceeds of crime through law firms. For that reason, AML compliance should be a standing agenda item for the board to consider. The relationship between the board and the firm’s AML compliance obligations should be one of dynamic engagement on issues as and when they arise, including emerging risks and challenges.

MLRO/MLCO

The MLRO/MLCO form the first line of defence in the firm’s battle against money-laundering. They deserve clear support from the senior leadership team.  The MLRO/MLCO should have the final decision on AML related issues. So, for example, if the MLRO concludes that the risk of onboarding a new client is outwith the AML risk appetite of the firm, the decision of the MLRO should be final; it should not be a matter for negotiation with other partners. Likewise, the decision of the MLRO to submit a SAR should be their decision, and theirs alone. This requires that the senior leadership team is there to back up the decisions of the MLRO/MLCO.

Resource

If the MLRO/MLCO is not given the necessary resources - people, technology, training etc - to fulfil their AML compliance obligations, this has two very serious implications. The more obvious is that true compliance is made more difficult or impossible. Less obvious, but no less serious, is the consequence that this cultural stance will undoubtedly send a message to the wider firm that AML compliance is not taken that seriously. It is important therefore for the firm’s senior management to take on board requests from the MLRO/MLCO for additional resource; and if, for whatever reason, the firm is not in a position to provide that resource, there should be a thorough evaluation by the leadership team as to how the issue can be addressed in some other way. 

Centralised Compliance

Those firms that have the financial wherewithal to have a centralised compliance team also have the added challenge of ensuring that the lawyers do not then see AML compliance as someone else’s responsibility. Of course, it may be that the compliance team does much of the leg work in terms of collating information and analysing risk BUT that risk assessment must be signed off by – and owned by – the lawyer. After all, it is the lawyer who will likely face the harshest penalties if there is a failure. There should be a clear process for the lawyer to sign off a risk assessment or source of funds/wealth verification as well as clear ongoing monitoring duties for the lawyer. The firm’s systems, as approved and monitored by senior management, should not allow the lawyers to be complacent as to their AML responsibilities.

Accountability

Within the firm, everyone with an AML compliance responsibility needs to have a clear understanding of what is required of them; and to be held accountable where they do not meet those responsibilities. If, for example, excuses are made for a particular partner (maybe a big fee earner), that will quickly become known within the firm and it therefore sends a message that AML compliance is somewhat “optional” (which it is not). Once again, the law firm’s culture, supported by senior management, is crucial to its success in AML compliance.

Clients

Senior management should not try to “overprotect” clients from what has to be done to comply with the AML Regulations. It may be thought that clients should not be asked to do something because “they won’t like it”. These days, it is almost certain that your clients are well versed with the requirements of KYC and verifying their ID any time they deal with their bank or other professionals. If anything, given the multitude of cyber and other risks, your clients will be reassured where they see strong leadership on compliance issues. 

Wider Benefits

Finally, it goes without saying that strong leadership helps mitigate financial, legal and reputational risk associated with non-compliance.  But in addition to that, a strong AML compliance culture is not just about AML - it helps develop within the firm a better understanding of risk and for the firm to develop a more nuanced risk-based approach to other issues. Collective responsibility, led from the top, is key to a healthy law firm culture.

Ian Wattie was formerly managing partner at Burness Paull LLP and now works as an independent consultant advising law firms on AML and other compliance issues.