SPONSORED: The money laundering threat is closer to home than you think

Anti-money laundering (AML) expert Graham MacKenzie explains why law firms must remain vigilant when applying a risk-based approach to avoid involvement with illicit businesses.

The current situation

In early November, the National Crime Agency (NCA) led a co-ordinated multi-agency crackdown on organised crime on the high street. This action is a vital step in the right direction.

The press release stated some impressive stats around the outcomes: 2,734 premises visited and raided, 924 individuals arrested, more than £10.7 million of suspected criminal proceeds seized and over £2.7 million worth of illicit commodities destroyed.

That said, some may consider this to be the tip of the iceberg, particularly considering the same article suggests that at least £12 billion of criminal cash is generated in the UK each year. However, any action to take drugs, guns, fake goods and the proceeds of crime off our streets is to be applauded.

Sal Melki, the senior lead at the NCA responsible for the operation, said they “do not underestimate the aggregated effect that thousands of shops engaged in so-called lower level criminality is having on our communities and the criminal supply chains that profit from them”.

Is the AML spotlight turning?

For the past decade or so, the spotlight has been very much been on so-called ‘high-end’ money laundering, kleptocracy and the Eastern European oligarchy – particularly in light of successive laundromat scandals, the Panama Papers and Russia’s invasion of Ukraine.

It appears that this focus may be slowly turning – government and law enforcement are starting to recognise the extent, threat and socio-economic impact of cash-based money laundering across the UK. Indeed, the NCA is starting to tie it all together. There is growing evidence that the proceeds of drug dealing and other forms of criminality on our local streets are tied into international networks funding Russia’s war in Ukraine and other geopolitical events causing suffering around the world.

We are seeing more and more mainstream media coverage of this also, which will in turn raise public awareness. The BBC has recently published articles about raids on barber shops, vape shops and car washes, along with headline stories about the connection between drug dealing, cash intensive businesses and Russian criminal networks in recent months. 

Why is all this important for law firms?

Cash-based money laundering is a key threat which I believe the vast majority of high-street firms should be concentrating on. It’s why I rated high risk business sectors and cash-intensive businesses as a high risk in the 2022 Scottish Legal Sector AML Risk Assessment, published by the Law Society of Scotland. 

The NCA states that the majority of high-street businesses are legitimate, although if you walk through many town centres you could perhaps be forgiven for thinking otherwise.

The legal sector will inevitably be involved in the buying and leasing of commercial premises related to such shops or businesses, along with a range of other legal work. In the vast majority of cases, this involvement will of course be wholly inadvertent, but even so, could bring untold reputational and regulatory damage, and in some situations, criminal consequences.

How do you separate the legitimate from the potentially illegitimate? 

Firstly, reference and take on board available literature and information. Read the BBC articles, go through the list of higher risk sectors and businesses in the aforementioned LSS risk assessment (pages 9 and 10). 

Where a client or matter exhibits any or several of the risk factors as outlined in the sectoral assessment or Legal Sector Affinity Group (LSAG) guidance, do that extra bit of due diligence. Look further into their expected business plans and cash flows, the source of their funds, and marry this to the wider context and background of the client and your community. 

Yes, there are rigorous legal obligations on solicitors in terms of AML – and unfortunately sometimes these obligations can be onerous and feel ‘over the top’.

The vast majority of your business will be run of the mill, straightforward. In that case, my guidance would be to fulfil your legal obligations quickly – ideally with the help of dedicated software such as the Amiqus platform – and go on to do the business.

Then spend more of your time doing a bit more digging on the edge cases, the ones which present higher risk factors or red flags as described in the literature – the ones you’re just not sure about or can’t quite get comfortable with. In each case, record what you’ve done to get comfortable, or not, as the case may be. The very essence of a risk-based approach.

It’s been said many times before, it’s important that everyone know the ‘whys’ behind the AML rules. Perhaps share press articles around the practice and discuss the themes which might affect the business. This in itself is a form of effective training, and also shows awareness that you take AML seriously. 

The ‘whys’ are a core constituent whenever I conduct training or support firms with AML through my consultancy work – they make it real to people. When people understand why these rules exist – to prevent real-world harm, often on their doorstep, in their local community and on their high street – they stop being just rules to follow. They become something to get behind. Good AML control starts to make sense and embed into the everyday, and your people become your most effective line of defence.

Also, don’t forget your duty to report suspicious activity should you have enough information for concern to crystallise into suspicion. This is really important. I know from experience that Suspicious Activity Reports (SARs) don’t just go into a black hole. 

Going back to those recent NCA operations, they simply wouldn’t have achieved what they did without the intelligence sent in and held on the NCA’s SAR database. 

Graham MacKenzie is director of AML and economic crime risk at Amiqus, former head of AML at the Law Society of Scotland and contributing author to the LSAG AML Guidance. He offers trusted, practical, tailored support, consultancy and advice to firms of all shapes and sizes across Scotland and beyond. Find out more at Amiqus.