National Risk Assessment of Money Laundering and Terrorist Financing updated

Scottish solicitors must remain vigilant to the threat of money laundering, as a new report confirms the legal sector continues to be a key target for criminals.

HM Treasury and the Home Office have jointly published an updated National Risk Assessment of Money Laundering and Terrorist Financing, providing an overview of the current and emerging threats faced by the UK.

Last updated in December 2020, the latest risk assessment draws upon the most up-to-date information from the Government, supervisors, law enforcement agencies and the private sector on how criminals try to move illicit funds through the UK and the risks this poses.

The legal sector continues to face a high risk of money laundering, with vulnerabilities remaining largely unchanged since 2020. Criminals continue to be drawn to legal services, because the reputation of legal professionals can help make illicit funds appear legitimate. Despite relatively low rates of non-compliance, the sector remains exposed to significant risks due to the nature of its services and the large sums of money involved.

As a result of the update, firms should review and refresh, where necessary, their firm level risk assessments under r.18 of the Money Laundering Regulations.

Key risks

• The UK continues to be exposed to a high level of money laundering risk. Since 2020, the wider context has shifted due to increasing global insecurity, which has altered the risk landscape and the methodologies used by criminals.
• Within the legal sector, the 2020 National Risk Assessment judged that the services most at risk of abuse for money laundering purposes were conveyancing, trust or company services, and misuse and exploitation client accounts. These continue to be assessed as the highest risk services and and more information can be found from page 118 of the risk assessment.
• There is growing convergence between money laundering, kleptocracy, and sanctions evasion. Sanctioned entities and individuals have sought to obscure links to their funds by exploiting established money laundering networks.
• The increasing role of new technologies has contributed to the development of new methods of money laundering and terrorist financing, increasing the risk in these sectors with criminals and terrorists seeking to take advantage of these evolving tools and platforms to move and conceal illicit funds.
• The 2020 National Risk Assessment identified sham litigations as an emerging area of risk. Since then, there has been one prosecution related to this issue, indicating that while the risk persists and firms should remain aware, it is not currently assessed to be a widespread or common issue.
• The majority of firms invest in ensuring their services are not used for criminal purposes. In 2023/24, only 16% of firms reviewed were deemed non-compliant. However, where legal professionals are complacent, take a ‘tick box’ approach to compliance, or lack sector specific knowledge and/or training on the money laundering threat, the risk of the services provided being exploited increases.

Terrorist financing

• The terrorist financing threat in the UK continues to be characterised by low levels of funds, often raised for basic living costs, low sophistication attacks, or for sending overseas for terrorist causes.
• Terrorist financing continues to exploit a wide range of mechanisms, both illicit and legitimate, increasing the potential for regulated sectors to be used to generate, store, move, and access funds for terrorist purposes.

Gemma Turnbull, Head of Anti-Money Laundering at the Law Society of Scotland, said: “The latest National Risk Assessment has confirmed that the threat of money laundering within the legal sector remains high, showing little movement since 2020. Criminals continue to be drawn to legal services, as our profession’s reputation can unfortunately provide a veneer of legitimacy for illicit activity.

"While instances of non-compliance amongst firms remain relatively low, we cannot afford to overlook the significant risks inherent in the services we provide and the substantial sums that are handled in our sector.

"It is crucial that firms do not become complacent - ongoing vigilance and a proactive approach to risk management are essential to safeguarding the integrity of both firms and the profession as a whole.”