Welcome to the latest edition of COLP Insider
In this edition, we dive into the latest on SRA fines, practice renewal reminders, and a hot topic—whether sham litigation is truly a money laundering risk or just a hypothetical concern. There’s also a Compliance Corner question about sanctions-checking another firm’s client…..
You are also invited to our next live CPD session on source of funds – we are going to give advice on any real world scenarios that you have to battle with. See below for registration details.
We’re also thrilled to announce the newest addition to our team, Sophie Cisler, a seasoned risk and compliance specialist with a wealth of experience. Sophie brings practical insight, having worked across various sectors, and is known for her hands-on approach to solving complex compliance challenges. Her expertise will further strengthen our ability to provide actionable, commercially focused advice that enables firms to navigate regulatory pressures with confidence.
What would you like us to cover in the next newsletter?
Have a great weekend!
Jon and the team
Reminder: PC renewals now open
This year’s practising renewals exercise is live for both individuals and firms. The application forms are hidden within mySRA – click the links for guidance. Don’t forget that individuals have to opt in to be included in their firm’s bulk renewal.
You will have seen that the huge levy to plug the gap in the Compensation Fund has finally been given the green light by the LSB. Individual contributions rise from £30 to £90; firm contributions increase from £660 to £2,220.
The application window closes on 31 October 2024.
Prepare To Fight: A Takeaway From Jonathan Fisher KC And Jayne Willetts Discussing SRA Fines And SDT Decisions
It’s been over two years since the SRA has been empowered to impose increased fines upon both individuals and entities, and there seems to be more on the way, writes Sophie Cisler. Their powers to levy fines increased earlier this year and the consultation they opened over the summer, about how they will implement these, closed last month.
The SRA haven’t been shy about utilising their fining powers either. Several times a week the legal press reports on stories of solicitors or firms who have been fined, rebuked, suspended or struck off, for myriad reasons.
There has been a lot of focus on AML non-compliance but, of course, there are other reasons for the SRA to take action, whether that is breaches of the Accounts Rules, a failure to comply with an undertaking, or dishonest conduct. However, fines arising from AML compliance issues are very visible and firms who have experienced an SRA audit recently, whether desk-top or in-person, will no doubt be aware of what can follow if the SRA finds areas for criticism.
Sham Litigation: A Real Money Laundering Risk Or A Hypothetical Concern?
Sham litigation is often cited as a potential avenue for money laundering, where the legal process of dispute resolution is abused to disguise the origins of illicit funds. For years, skepticism has been poured on the volume of Russian-linked cases heard in the English courts.
But is this a real problem, or is it just a theoretical risk that regulators feel compelled to address? Despite being flagged in money laundering risk assessments, the actual empirical evidence of harm caused by sham litigation remains sparse. With the SRA hinting at forthcoming guidance on the issue, it’s worth considering whether we’re in danger of over-regulating an area where the risk to society might not justify intervention.
ICYMI: Critiquing the SRA’s Financial Penalties Proposal: Voices of Opposition and Underlying Concerns
The Solicitors Regulation Authority (SRA) recently issued a consultation (now closed) proposing significant changes to its financial penalties framework. The response from key stakeholders in the profession has been vociferous, with widespread criticism from the Law Society, the City of London Law Society, the Birmingham Law Society, and the Solicitors Disciplinary Tribunal (SDT). Each of these organisations has raised serious concerns about the proposed changes, which could have far-reaching consequences for law firms.
The proposed minimum and maximum fines in Bands E and F, for example, suggest a level of severity of misconduct that traditionally would warrant referral to the independent SDT. The consultation raises pressing questions: Is the SRA overstepping its remit? Are these changes a threat to the established role of the SDT? Does it undermine principles of “fairness”, and exacerbate the inequality of arms between regulator and regulated?
ICYMI: Quick-Fire AML Q&A
Compliance with Anti-Money Laundering (AML) regulations is increasingly a source of stress and concern for lawyers. The Solicitors Regulation Authority (SRA) has been ramping up its enforcement efforts, issuing increasingly punitive fines and scrutinising firms to ensure they meet the necessary standards.
During a recent webinar (“SRA AML Fines: Lessons to be learned”), the 500+ lawyers in attendance raised some pressing questions about the SRA’s approach to AML fines and compliance requirements. We thought it would be helpful to prepare a rapid-fire Q&A that addresses the most common concerns raised before and during the session.
News and Guidance
- Law Society | Practice Note – Social media [Updated] – This practice note outlines the benefits and risks of using social media for legal professionals. It covers:
- What social media is: Explains various types of social media platforms and their potential uses in the legal profession.
- Ethical obligations: Emphasises that the same ethical obligations apply online as offline, including maintaining client confidentiality, avoiding conflicts of interest, and acting with integrity.
- Online social networking: Discusses personal vs. professional use of platforms like LinkedIn, X (Twitter), Threads, Facebook, YouTube, and Flickr, and the importance of privacy settings.
- Recent trends: Highlights the rise of short-form video content and the increasing integration of AI in social media, posing both opportunities and challenges for legal professionals.
- Benefits of using social media: Includes raising profile, engaging with clients, wider reach, marketing, and potentially lower costs.
- Risks of using social media: Covers defamation, breach of confidentiality, security concerns, control over information, and content deletion issues.
- Setting a social media policy: Recommends creating a policy to define goals, strategies, guidelines, management, roles & responsibilities, compliance, and response plans for incidents.
- Setting up a social media channel: Encourages considering purpose, target audience, format, management, and content administration.
- Law Society | Practice Note – Professional undertakings [Updated] – This important note highlights the importance of understanding the risks and obligations associated with giving and accepting undertakings, particularly when dealing with corporate entities like LLPs and companies. It also emphasises the need for clear documentation and internal procedures for managing undertakings, especially in conveyancing, litigation, and other areas of practice.
The note addresses recent case law concerning the enforceability of undertakings given by corporate entities and provides guidance on how to proceed in these situations. It also discusses the SRA’s regulatory requirements and principles, as well as the role of compliance officers in ensuring compliance with undertakings.
Firms should have appropriate systems in place for monitoring and complying with undertakings. They should also be aware of the risks involved in giving personal undertakings and the importance of ensuring that undertakings are drafted in a clear and unambiguous manner.
- Law Society | Q&A – I received files in error meant for the other side’s client. What should I do? – The key steps the Law Society recommends include:
- Do Not Read the Material: Immediately refrain from reading any part of the document.
- Notify the Sender: Inform the sender of the error promptly and return or destroy the information as instructed.
- Consider Ethical Obligations: Be aware of your ethical responsibilities and potential implications if you inadvertently read the information.
- Consult Your Firm’s Policies: Check your internal guidelines on handling such situations as these can vary.
- Seek Further Advice: If in doubt, it’s advisable to seek professional conduct advice from relevant regulatory bodies.
- Law Society | Tools – Money laundering risks and threats – We often talk about ‘red flags’ in AML compliance, by which we usually mean warning signs that a particular client or matter is high risk. But what about the established methods of laundering the proceeds of crime? It is just as important to understand how criminals might attempt to abuse legal services.
This overview helps solicitors and law firms understand current and emerging money laundering risks and threats, essential for updating client, matter, and practice-wide risk assessments:
- Generative AI poses a significant threat in the fraud landscape, with the National Crime Agency (NCA) highlighting its use in creating deepfakes, which can facilitate sophisticated fraud schemes. This technology increases the risk of impersonation and fraud in various forms, such as investment and romance fraud.
- Cash-based money laundering is evolving, with organised crime groups shifting tactics. Reports indicate an increase in demand for services from Chinese underground banking networks, exacerbated by economic uncertainties.
- Conveyancing fraud targets property transactions, often involving impersonation of conveyancers. Payment diversion schemes, particularly affecting small businesses, necessitate heightened vigilance during peak transactional periods.
- Cryptocurrency use in money laundering remains a concern despite recent value declines; firms must perform due diligence irrespective of fund sources.
- Other significant threats include international bribery and corruption, money mules, and sham litigation. Each area of practice faces unique risks, necessitating a comprehensive understanding of potential red flags to safeguard against financial crime.
Compliance corner – real life Q&As
Q: “Am I supposed to make enquiries about whether the other side’s client is subject to sanctions?”
A: This is one of those less comfortable compliance areas where it’s important to balance the strict requirements of the sanctions regime with a pragmatic approach.
Under the UK sanctions legislation, there is no provision for a risk-based approach; it operates on strict liability, meaning you’re either compliant or not. Technically, a solicitor could be in breach of sanctions if they act in a transaction where a counterparty turns out to be a designated person. This is particularly troubling because a solicitor will usually have limited information about the other side’s client.
However, OFSI guidance suggests that firms will only be prosecuted for breach of sanctions where it is ‘proportionate’ and ‘fair’ to do so, taking into account aggravating and mitigating factors.
The SRA guidance aligns with this (“We expect firms we regulate to take a proportionate effort to prevent unintentional or accidental breaches of the sanctions”). The regulator identifies several sanctions risk factors, including:
- Clients or transactions linked to high-risk jurisdictions subject to sanctions.
- Complex ownership structures that may conceal designated persons.
- Clients or counterparties who are politically exposed persons (PEPs).
- Unusual or high-value transactions without clear economic rationale.
- Clients operating in sectors prone to sanctions, such as defence or energy.
Firms are expected to take account of these risk factors in their broader financial crime risk assessments and policies, and firms must be prepared to show evidence of these during any visits from the SRA. This includes policies around when and how checks on counterparties or the other side’s clients are made.
So to summarise, you are not necessarily required to sanction-check every individual or entity in a transaction; the SRA has indicated that a proportionate approach is reasonable. This means you should reserve sanctions checks on another firm’s clients in cases where the risk is elevated, such as in transactions involving high-risk jurisdictions or PEPs.
In practice, there is nothing stopping you from asking the opposing solicitor for confirmation that their client has undergone sanctions checks and that no designated persons are involved. This may provide some reassurance, even though the ultimate responsibility for compliance rests with your firm.
This is not legal advice. If you have a question you would like us to answer in this section, feel free to send it to info@jonathonbray.com
Free CPD
Next session: Practical guidance on source of funds
Date: 30 September 2024
Time: 12:00 PM
Format: Live via Zoom
Duration: 1 hour
We invite you to join us for an interactive webinar on one of the most crucial aspects of Anti-Money Laundering (AML) compliance—Source of Funds.
In this session, we will offer practical, no-nonsense advice to help you navigate the complexities of source of funds checks. Rather than vague recommendations, we’ll focus on clear, actionable guidance tailored to the situations your firm is facing.
Have specific questions? We encourage you to bring your queries to the session. Whether you’re struggling with a particular case or have broader concerns, now is your chance to get direct, tailored advice. You can also submit your questions in advance by emailing us at info@jonathonbray.com
Overview: This webinar will focus on practical applications of source of funds checks within the AML framework, offering solutions to common and complex scenarios. Instead of vague “risk-based approach” advice, we will deliver actionable steps to enhance your compliance efforts, making sure you leave the session with the confidence to handle your source of funds queries more effectively.
We will be guided by audience questions, but topics may include:
- Key indicators for identifying red flags in source of funds
- What level of documentation is required in different situations?
- Practical steps when source of funds is unclear
- Best practices for documenting and reporting
Learning Objectives:
- Understand the Core Requirements: Gain a solid grasp of the key AML requirements around source of funds checks; reduce uncertainty
- Identify Red Flags: Learn how to recognise suspicious patterns and determine when to dig deeper
- Implement Practical Solutions: Receive actionable steps to resolve common and challenging source of funds issues
- Customise Your Approach: Learn how to apply firm-specific solutions based on the scenarios you encounter most frequently
- Ask the Experts: Engage in real-time Q&A to get direct advice on your most pressing source of funds concerns.
Register Today!
Don’t miss this opportunity to get practical AML guidance from experienced compliance professionals. To secure your place, please, register here.
We look forward to helping you demystify source of funds compliance and provide you with the confidence to apply best practices effectively.
Recording | SRA AML fines: Lessons to be learned
In this session, attended by over 500 people, Harriet Holmes (Thirdfort) and Jonathan Bray discussed the SRA’s recent fines related to anti-money laundering compliance. The focus was on the lessons that solicitors and law firms can learn to avoid similar issues and improve their compliance procedures.
Key topics include:
- Overview of SRA AML Fines: The speakers outline the significant fines issued by the SRA this year and provide a context for why these fines are increasing.
- Common Compliance Failures: Real examples of where firms have fallen short, offering insight into recurring mistakes such as inadequate due diligence, improper risk assessments, and failure to properly identify clients.
- Best Practices: Practical advice is shared on how firms can strengthen their AML compliance systems, including staff training, maintaining up-to-date policies, and using technology effectively to monitor risks.
- Industry Impact: The discussion touches on the broader implications of these fines for law firms, with an emphasis on how firms can protect themselves and avoid costly penalties.
Training your team: Anti-money laundering update
The SRA expects that all ‘relevant employees’ practicing within the scope of the Money Laundering Regulations (MLRs) must receive robust anti-money laundering (AML) training. Now is the time to ensure your firm is compliant. Failure to meet these obligations can result in significant fines and regulatory action. Our comprehensive AML training is designed to equip your team with the knowledge and practical skills needed to identify, prevent, and report suspicious activities, safeguarding your firm from risk. Ensure your firm stays ahead of regulatory requirements and avoids potential pitfalls by enrolling your team today.
Online, in person or on-demand.
Don’t miss out—request a free quote today!
SRA and SDT disciplinary decisions
- Levales Solicitors LLP – ICO reprimands law firm whose sensitive client data was leaked to the ‘dark web’ by a hacker. The firm did not have sufficient data security in place.
- Rajpal Panesar – Solicitor suspended for 9 months for dishonestly instructing a junior colleague to send a misleading email to a client.
- Allsop Durn – Firm rebuked for failing to comply with an undertaking to discharge a mortgage “within good time” (it took 14 months).
- Anthony Foley – Sole practitioner rebuked for holding client money for 14 years without good reason, following the winding up of a deceased client’s estate.
- Simon Gurr – Solicitor struck off for misleading his partners, falsely telling them that he had notified insurers of a problem on a file.
- Asiya Kaleem – Solicitor fined £15,000 for making a false declaration to secure government-backed funding for a client.
What we do – contact us for further information about our services
- Outsourced COLP and COFA support
- New firm and ABS applications
- Independent AML audits (Regulation 21)
- Training
- AML workshops
- PII services
- File reviews