Ashfords LLP, a prominent regional law firm, was recently fined over £100,000 by the Solicitors Regulation Authority (SRA) due to failures in complying with anti-money laundering (AML) regulations.
The regulatory sanction – one of the biggest fines ever handed out by the SRA – was for lapses in dealing with potential money laundering risks in three property transactions. Two of these transactions may have involved a sanctioned entity, although there were no suggestions that the firm had helped to facilitate any financial crime.
Enforcement action for AML-related breaches are increasingly common, which reflects the SRA’s strategy for prioritising its duties as a ‘supervisory authority’ under the Money Laundering Regulations. Most of the fines issued by the regulator are relatively minor, although they are trending upwards. Other notable fines include:
- Mishcon De Reya LLP – £232,500 fine for several breaches relating to AML rules. The firm admitted to failing to conduct adequate due diligence on a number of clients.
- Ferguson Bricknell – £20,000 fine for failing to have AML training and systems in place.
The key reasons for the Ashfords fine included:
- Inadequate Client Due Diligence and Monitoring: The SRA investigation found that the firm failed to appropriately address or document red flags in the client onboarding and ongoing monitoring processes. This involved significant sums being received into the firm’s client account without proper evidence of source of funds.
- High-Value Transactions: The transactions in question were high-value property purchases, one involving a UK-registered charity and the others involving a limited company with a complex corporate structure. The implication is that these purchases should have been treated as high risk. There were concerns regarding the ultimate beneficial owner and the source of funds in these transactions, which were not fully resolved before the transactions were completed.
- Failure to Follow Established AML Procedures: While the firm had AML procedures and controls in place, these were not followed in the transactions in question. In a separate case reported earlier this year, the SRA fined an individual fee earner £3,500 for not following internal AML procedures.
The Ashfords case underscores the critical importance of rigorous adherence to AML regulations in the legal sector. The SRA’s decision to impose a significant fine reflects the view that such compliance lapses can potentially cause great harm, even though in this case there was no evidence of any financial crime or detriment to clients or third parties. It was purely a compliance breach.
As for lessons that solicitors can learn from this and similar regulatory fines, the case highlights several key points:
- Importance of Diligent Compliance: The SRA is watching and is more confident with its ever-expanding fining powers. Law firms must ensure that their AML processes are not just in place but are actively followed and documented in every transaction.
- Regular Training and Monitoring: Ongoing training for relevant employees and regular monitoring of compliance processes are essential to prevent such breaches. A rehash of the same old Powerpoint every couple of years is probably not going to do it any more.
- Prompt Reporting and Cooperation: Ashfords reported the issue to the SRA and cooperated throughout the lengthy investigation. The fine may have been even larger if the firm had not. Some will rightly question whether the level of the fine is proportionate to the ‘offence’, particularly when it was self-reported. Does it reduce the likelihood of firms being willing to report themselves in the future?
- Investment in Compliance Infrastructure: Since the incidents, the firm has reportedly invested significantly in enhancing its AML processes and compliance function, illustrating the importance of continuously updating and improving compliance infrastructure.