Consequences of not preventing economic crime: firm case studies

Read case studies on:

• AML training and systems
• due diligence and ongoing monitoring
• risk assessments
• compliance with the Money Laundering Regulations 2017
• AML checks
• source of funds checks

These case studies should be read alongside our guidance on professional enablers and solicitor case studies.

Lack of AML systems and training

A firm was fined £20,000 by the Solicitors Regulation Authority (SRA) for failing to have anti-money laundering (AML) systems and training in place.

The firm failed to put in place a compliant practice-wide risk assessment, despite declaring it had done so and the SRA issuing warning notices.

The firm’s risk assessment did not include the risks associated with conveyancing and controlling client money – an area of work amounting to 75% of fee income.

The policy was also undated, did not state the author, referred to outdated legislation and had not been regularly updated.

The firm had no independent audit function and had not provided AML training to a partner.

A file review found the firm did not always check the source of funds from third parties, had weak ongoing monitoring of transactions and failed to ensure a form to verify the source of funds was completed and returned.

A compliant risk assessment was put in place after the SRA’s investigation.

The SRA’s agreed outcome found the firm’s conduct:

• showed a disregard for statutory and regulatory obligations
• had the potential to cause harm, by facilitating dubious transactions that could have led to money laundering

The £20,000 fine was intended to create a credible deterrent and signify the risk to the public and legal sector that arises when solicitors do not comply with their legal and regulatory duties.

The SRA accepted there was no evidence of harm to consumers or third parties.

The firm assisted with the investigation and did not financially benefit from its misconduct.

Another firm was fined £15,200 after failing to make staff aware of AML requirements or to provide them with relevant training.

An SRA inspection found several failures to comply with AML obligations, including failing to have:

• a compliant firm-wide risk assessment
• compliant policies, controls and procedures

The SRA found the firm's conduct was a breach of its regulatory and legislative obligations that "persisted for longer than was reasonable".

The firm cooperated with the investigation, remedied the breaches and there was no evidence of actual harm.

The firm was fined £15,200 (2.4% of domestic annual turnover) and ordered to pay £1,350 in costs.

Due diligence and ongoing monitoring

A large firm was fined £500,000 by the Solicitors Disciplinary Tribunal (SDT) for failing to:

• carry out adequate due diligence on a company
• conduct adequate ongoing monitoring
• carry out adequate due diligence on the principals involved in the transactions

The firm admitted it either should have obtained more due diligence material or stopped the 14 transactions.

The firm was ordered to pay £128,197, one of the largest costs awards.

The SRA reiterated that money laundering is not a victimless crime and firms have a key part to play in preventing legal services from being used by criminals.

It said firms must make sure they pay proper attention to identifying clients and mitigating money laundering risks.

Lacking a compliant risk assessment

A firm was fined £7,900 after an SRA desk-based review found the firm lacked a compliant risk assessment for more than five years.

The firm’s risk assessment was found not to cover each of the five areas required.

The SRA also found the firm failed to have compliant policies, controls and procedures in place to mitigate and manage money laundering and terrorist financing risk.

This was particularly important as 90% of the firm’s turnover was from conveyancing transactions – an area of practice identified as ‘high risk’ by the National Crime Agency.

The firm since provided a compliant risk assessment. There was no evidence of harm to consumers or third parties, and the firm did not financially benefit from misconduct.

The firm assisted the SRA throughout the investigation, admitted the breaches and showed remorse. The SRA reported low risk of repeated misconduct.

No serious issues were identified with the sampled files, except for some additional source of funds guidance required on three files. 

Another firm was fined £3,120 by the SRA after admitting in a questionnaire that it had been using a general risk assessment as a practice-wide risk assessment.

This did not meet the requirements of the Money Laundering Regulations 2017, as it was not tailored to the firm and did not address key risk factors.

The firm’s policies, controls and procedures were also not compliant and found in some parts to lack sufficient detail.

The SRA reported there was no evidence of any harm to consumers or third parties, no financial benefit and a low risk of repetition.

The firm took urgent steps to rectify non-compliant documents and cooperated with the SRA investigation.

A third firm was fined £16,000 for failing to carry out a compliant firm-wide risk assessment or policies, controls and procedures for nearly six years.

The desk-based review also found four in-scope files had no client or matter risk assessment.

The SRA found this “demonstrated a pattern of non-compliance and was reckless”, after the firm’s compliance officer completed an online declaration in the “mistaken belief” the firm was compliance.

The SRA noted that no significant harm had been caused and that the firm had made admissions, cooperated with the investigation and remedied the breaches.

A fourth firm was fined £23,000 – almost the maximum the SRA can impose – and paid £1,350 costs after a desk-based review found five files with no client or matter risk assessments.

The firm accepted it had not completed any risk assessment on files.

The SRA said the breach had persisted “longer than was reasonable” and demonstrated “a pattern of non-compliance”.

Despite the “potential to cause serious harm to the public interest and to public confidence in the legal profession”, the SRA found the firm had not acted dishonestly or lacked integrity and there was no significant harm caused.

The firm made admissions, cooperated and remedied the breaches.

Non-compliance with the MLRs

A firm was fined £2,000 for “recklessly” failing to heed warnings about several areas of concern raised following an SRA investigation in relation to compliance with AML regulations and the SRA’s code of conduct.

The firm incorrectly declared to the SRA that its practice-wide risk assessment was compliant. Inspectors found five key risk areas that needed addressing: clients, jurisdictions, products and services, delivery channels and transactions.

There was no system for identifying and scrutinising complex and/or unusual transactions, customer due diligence was not renewed, and the firm had not established its position on client wealth checks.

The firm only screened relevant employees on appointment and not again during employment.

The firm had not undertaken an independent audit and could not provide a record of what training had been provided to staff.

A file review found one matter where the firm failed to properly monitor and scrutinise the transaction, including necessary source of funds checks.

The SRA recognised there was no evidence of harm to consumers or third parties and the firm did not benefit financially from the misconduct.

The firm assisted throughout the investigation, admitted the breaches, showed remorse and remedied the situation. The firm agreed to pay £600 costs.

Insufficient AML checks

A firm was fined over £12,000 for failing to carry out sufficient anti-money laundering (AML) checks.

The firm relied upon customer due diligence and source of funds checks provided by a lawyer working in Ukraine.

The SRA said the extended due diligence required was not carried out for the transaction between two Ukrainian citizens.

A complaint had been made about the firm not refunding money owed for miscalculating the stamp duty land tax liability on a UK property.

Concerns were also raised that the house appeared to be undervalued compared with properties in the same street, and legal costs appeared to be high.

The SRA found the firm failed to:

• adequately check the source of funds to the extent it could not accurately know if the transaction funds had been paid
• adequately identify at the outset that the third-party lawyer relied upon had been struck off by the SDT
• pay sufficient regard to two SRA warning notices about money laundering
• exit the business relationship despite several red flags

There was no suggestion the transaction involved any financial crime.

The conduct showed a disregard for statutory and regulatory obligations and had the potential to cause harm, by facilitating dubious transactions that could have led to money laundering.

The potential fine was reduced by 40% due to mitigating factors:

• the firm’s good regulatory and disciplinary history
• cooperation with all investigations
• offering a genuine and sincere apology
• no pattern of misconduct
• an enhanced training regime with AML training upon induction
• appointing a new officer to oversee AML work

Inadequate source of funds checks

A firm that failed to carry out an adequate source of funds check on a conveyancing client was fined £1,300 by the SRA. 

The SRA found the firm breached the MLRs 2017 by failing to.

• complete a documented and compliant practice-wide risk assessment
• have up-to-date AML policies, controls and procedures to mitigate and effectively manage the risks of money laundering
• nominate a money laundering reporting officer
• conduct any adequate source of funds checks for a client in a conveyancing transaction
• conduct ongoing monitoring of the transaction as it progressed, to enable the firm to assess the risk of money laundering posed

The firm was directed to pay a financial penalty of £1,300 plus costs of £1,350.

In a similar case, a firm that failed to check the source of funds for three property transactions was fined £23,216 by the SRA.

The SRA found “areas for concern” including:

• no firm-wide risk assessment
• no policies, controls and procedures to mitigate money laundering risks
• failure to undertake, evidence or scrutinise source of funds of significant amounts of money

The SRA noted the firm’s enquiries were limited to the location of the funds, rather than identifying how and form where the client got the money for the transactions.

However, there was no evidence of harm to consumers or third parties, and the firm’s compliance improvements meant there was a lower risk of repetition.

The firm was fined 2% of its annual turnover – reduced by 20% to take account of mitigating factors. It was directed to pay £1,350 costs.