Drive for clean sheet in war on money
Training is being upscaled to improve anti-moneylaundering related activities, says Michael Sheridan
Solicitors and other professionals have now received their call-up papers in the war against terrorism in the form of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Solicitors already have to appoint, at their own expense, a Money Laundering Reporting Officer (MLRO) for each practice, provide relevant training for solicitors and staff and keep detailed records of all anti-money-laundering related activities. Moresensitively, solicitors have to know their clients, their background and where their money comes from. This can involve asking to see bank statements and looking for explanations for entries in these statements. Understandably, clients can sometimes feel this process is somewhat intrusive.
One difficult aspect of the present regulations is the duty of solicitors to report to the National Crime Agency any suspicious activity they observe. This requirement had a particularly unfortunate consequence in a case in England where a solicitor reported suspicious activity in relation to one of his clients and this report led to the prosecution of that client. Then, in consequence of disclosure requirements, the solicitor’s report against his own client was handed to that client.
This might have been the proper application of the regulations but it certainly puts solicitors and their staff in the frontline in the war against crime. One other twist in the present regulations is that, having reported matters to the National Crime Agency (NCA), the solicitor is prohibited from telling the client that this has been done and from acting for that client for a period of at least seven days, or longer if so requisitioned by NCA.
Under the new regulations, each firm must draw up a risk assessment which takes into account the clientele and location of the firm, the business it undertakes and the way it delivers its services. This assessment has to be maintained and produced to the relevant authority whenever required. This has to add significantly to the cost of operating a legal practice.
The new regulations also identify circumstances in which additional information and documents have to be obtained before acting for particular categories of clients.
I was recently instructed to pursue the recovery of an unpaid fee of less than £2000 due to a small dental company. The costs recoverable for such business are quite minimal and would certainly be completely unrealistic once the time necessary to implement these regulations had been expended..
We have to hope that information about the penalties for noncompliance with the new regulations is incorrect. Our information at present is that these penalties include possible restrictions on a solicitor performing a management function, which could be fatal to a small firm. However, the potential financial penalty as stated is more than eye-watering. This is a fine of “at least twice the amount of the benefit derived from the breach where that benefit can be deter- mined, or at least €1 million.” Some clarification might be required here. Given the reference in these regulations to terrorism and the current climate, it may appear to be less than patriotic to question the prospective intrusion into private practice. Hopefully, the statement within these new regulations that requirements will arise where appropriate with regard to the size
and nature of businesses affected will provide a safeguard against disproportionate demands upon the many small firms delivering legal services in Scotland.
There is some precedent for access to justice in the face of bureaucratic excess. When anti-money laundering regulations were imposed previously, the courts decided these regulations were inappropriate in respect of work carried out in connection with the conduct of litigation at court where the protection of the confidential relationship between solicitor and client was seen to have greater weight even than the objectives of the anti-money laundering regulations. Michael Sheridan is Secretary of the Scottish Law Agents Society