Law firms have been ordered by the regulator to review their anti-money laundering processes and take immediate action if necessary.
The fifth Anti-Money Laundering Directive (5AMLD) came into force today (10 January) and tightens the obligations on businesses to deter money laundering.
This means as of today, firms have greater responsibilities to keep the proceeds of crime out of legal services under the amended regulations.
The Solicitors Regulation Authority (SRA) warned firms to “re-assess their processes” and make immediate changes where necessary.
However, updated guidance for the legal profession on 5AMLD will not be available for many months pending government approval.
The SRA said given the short lead time – the regulations were only laid before parliament on 20 December – it will take into account the limited time firms have had to prepare in any enforcement work.
The SRA is part of the Legal Sector Affinity Group (LSAG) which has published a (non-exhaustive) summary of changes under the amended regulations.
Changes include an expansion of the definition of a tax adviser; a duty to collect proof of registration for entities; a duty to inform the registry of any discrepancies in their information; and changes to client due diligence and enhanced due diligence.
When new technology is adopted, firms are now required to take appropriate measures in order “to assess and mitigate any money laundering or terrorist financing risks this adoption may cause”.
A further notable amendment under 5AMLD relates to its new treatment of virtual currencies – which a handful of UK and overseas firms have been accepting in payment for services.
In November 2019, US firm Quinn Emanuel Urquhart & Sullivan, which has clients in the financial technology sector, became one of the largest firms to announce it is accepting fee payments in bitcoin and other crypto currencies.
The LSAG is drafting updated guidance but this will not be available until HM Treasury has approved it – this could take months.
Helen Simm, partner at Brown Jacobson, commented: “Despite the short lead in time since the regulations were laid, the coming into force of the fifth Money Laundering Directive today places a more onerous compliance burden on law firms with immediate effect.”
She said solicitors need to take steps to ensure that they understand the changes and the greater requirements, particularly in relation to policies and procedures and client due diligence.
“The SRA has”, she noted, “indicated that the limited time firms have had to prepare will be taken into account in their enforcement work, but this approach is unlikely to last long.”
The SRA’s chief executive Paul Philip said that the aim of 5AMLD is to further reduce the risk of law firms being used to launder money.
He added: "Money laundering supports criminal activity such as people trafficking, drug smuggling and terrorism.
"The damage money laundering does to society means that every solicitor must be fully committed to preventing it.
"The vast majority would never intend to get involved in criminal activities, but the reality is that poor processes can open the door to money launderers.”
The SRA is making changes to some of its own processes in view of 5AMLD.
It said it wrote to firms in December notifying them that, for instance, new applications for beneficial owners, officer and managers now need to include a basic disclosure and barring service (DBS) check showing applicants do not have any of the criminal convictions that would prevent approval.