ml risk assessment
Summary
The possibility of being used to facilitate money laundering and terrorist financing poses many risks to the practice:
- criminal and regulatory sanctions against the practice or against individuals;
- civil action against the practice as a whole and individuals;
- reputational damage leading to loss of business.
In order to avert the above, we are required to carry out a specific risk assessment in line with the following regulations and guidance:
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 requires the practice to establish and maintain ‘risk-sensitive’ anti-money laundering policy and procedures.
- The SRA Standards and Regulations provide that we must make arrangements for complying with the money laundering legislation applicable to the practice. The firm’s regulatory body and supervisory authority for money laundering purposes is the Solicitors Regulation Authority (SRA). The SRA publishes a Risk Outlook on a quarterly basis here: http://www.sra.org.uk/risk/outlook/priority-risks/money-laundering.page. The risk outlook is considered by the firm whenever it is updated.
The SRA has also published two warning notices about money laundering risks that are available here:http://www.sra.org.uk/solicitors/code-of-conduct/guidance/warning-notices/Money-laundering-and-terrorist-financing–Warning-notice.pageand here:http://www.sra.org.uk/solicitors/code-of-conduct/guidance/warning-notices/Money-laundering-and-terrorist-financing—suspicious-activity-reports–Warning-notice.page
- The Legal Services Affinity Group AML guidance , lists several issues which may be considered in a risk assessment:
- The practice’s current risk profile based on location, financial position and client demographic;
- Internal controls to be implemented to mitigate risk;
- Which of the practice’s personnel have authority to make risk-based decisions on compliance on individual files;
- How compliance will be monitored and how the effectiveness of intended controls will be reviewed.
Risk Profile
We are a regulated practise, predominantly operating in a local legal services market. The practice has clearly defined practice areas and is very unlikely to ‘branch out’ into alternative, and new, practice areas that may increase the existing money laundering risk. The practice acts for a number of regular, repeat, and recommended clients from areas local to its offices in Sheffield, with all marketing based locally to the South Yorkshire region. We will normally have a very close working relationship with clients, usually meeting them face to face.
It is therefore easy to identify genuine reasons for the clients to instruct the practice. The practice’s fee earners are able to identify concerns with regard to unusual instructions, or potential new clients, as a result. Whilst not specifically highlighted as a target for money laundering purposes, this region has become an increasing target for criminals looking to focus on new or regional practices who may be less vigilant in maintaining anti-money laundering procedures.
The practice is located in one set of office premises with modest staff numbers and remains small enough for the Money Laundering Reporting Officer (MLRO) to closely monitor client files and the client account, and for personnel to feel comfortable coming to her with their concerns or suspicions. Due to the risk factors discussed above, the MLRO has determined that the overall risk of being targeted for Money Laundering or terrorist funding, is low.
The purpose of the Risk Assessment is to enable the practice to develop a policy and a set of procedures which enable the practice to identify, assess and mitigate all risks associated with money laundering and terrorist financing.
Personnel should assess the individual risk presented with each new instruction by:
- Placing extra controls upon clients who are in a high risk category (Politically Exposed Persons for example) or where the instructions involve an area of law at higher risk of money laundering;
- Conducting customer due diligence or enhanced due diligence checks where appropriate;
- Declining to act for clients who refuse to co-operate with identity checks, or where it is not possible to understand the client organisation’s control and ownership structure;
- Declining to act for clients who refuse to cooperate with our source of funds / wealth procedures;
- Declining to act where a client asks the practice to handle funds without an underlying transaction, contrary to the SRA Account Rules and the SRA’s Warning Notice: “Improper use of a client account as a banking facility”.
In preparing this risk assessment the firm has taken in to account potential customer risk factors, including whether the relationships we have with clients are conducted in unusual circumstances. We have also considered the demographic profile of our client base to establish whether our clients are based in a geographical area known to be of high risk of money laundering or terrorist financing. We have also considered whether potential clients may be a legal person, or legal arrangement, that is a vehicle for holding personal assets, whether the client is involved with a business that is cash intensive, or involves a corporate structure that is unusual or complex, given the nature of the business.
Product, service, transaction, or delivery channel risk factors have also been assessed including whether the product involves private banking; whether the client’s product or transaction is one which might favour anonymity; the situation involves non-face-to-face business relationships or transactions, without certain safeguards, such as electronic signatures; payments will be received from unknown or unassociated third parties; the service involves the provision of nominee directors, nominee shareholders, or shadow directors, or the formation of companies in a third country.
Geographical risk factors have been included to identify clients from countries identified as not having effective systems to counter money laundering or terrorist financing; significant levels of corruption or other criminal activity, such as terrorism money laundering, and the production and supply of illicit drugs; or countries subject to sanctions, embargos or similar measures. None of our client base originates from jurisdictions that have been indicated in any official sources as being at higher risk. As stated earlier, we deliver our services to local clients.
department
risk assessment of the client demographic
risk assessment of service and area of law
overall risk assessment
Wills, LPA, Trusts & Probate
The majority of clients for this practice area are Sheffield or South Yorkshire based and have been introduced to us from a trusted introducer source.
Clients from outside of the practice’s typical catchment area are generally previous clients or the friends/family of clients or staff members.
The practice has procedures to screen for Domestic or Overseas Politically Exposed Person or their family or close associates (PEP) in this practice area. We screen for such individuals so that the business relationship can be scrutinised and authorised before the acceptance of instructions.
We identify and assess the risk of individual clients through our CDD and client inception procedures.
We do not deal with transactions involving:
—complex structures involving high levels of secrecy
—overly complex supply chains
—politically exposed persons
— or cash.
Risk Factor = Low
The average value of estates administered by the practice is generally in the region of £500k. The maximum value of an estate the practice has administered was around £2m but this value is not typical.
Will writing and routine probate work poses little risk of money laundering although the firm can handle complex administration of estates, trusts or tax work. The firm does, however, conduct CDD on clients prior to accepting instructions, including for Wills. Such CDD will include opening risk assessments which screen for PEP and Sanctions status for each client.
Private client work involves learning about, or dealing with, a client’s assets and can lead to the formation or knowledge or suspicion of money laundering. However, whether a money laundering report is required in any individual situation will require an examination of the relevant criminal offences and should be referred in the first instance to the MLRO.
An extreme example of when administration of an estate may constitute a money laundering offence would be where a solicitor dealing with administration knows or suspects that the deceased was accused or convicted of criminal conduct resulting in the acquisition of criminal proceeds during their lifetime. Or where knowledge or suspicion that the deceased improperly claimed welfare benefits during their lifetime, for example because the capital of the deceased took them over the financial threshold for the relevant benefit they claimed, there may be “criminal property” included in the estate.
We will not act when in the creation or management of a trust that is designed to mask the transparency of the true beneficial ownership of an asset. We do not act in the creation of company structures.
As a result it is our view that we do not provide services in areas identified in the MLR 2017 as presenting a higher money laundering/terrorist financing risk, for example:
—private banking
—services favouring anonymity
—provision of nominee directors, nominee shareholders, shadow directors or the formation of companies in third countries.
Operational Arrangements
There are currently no known deficiencies in employee training, skills and knowledge of AML/CTF controls but this risk is regularly assessed. We do not have a culture and/or remuneration system that rewards excessive risk taking that may lead to fee earners to accept higher risk work in order to benefit financially.
There appear to be no deficiencies in the firm’s ability to submit good quality suspicious activity reports if required. The firm also has a procedure for dealing with requests from law enforcement agencies in the event that there is a disclosure request in relation to one of our clients or matters.
Risk Factor = Low
LOW RISK
- Is secretive or evasive about who they are, the reason for the transaction, or the source of funds.
- Uses an intermediary, or does not appear to be directing the transaction, or appears to be disguising the real client.
- Avoids personal contact without good reason.
- Refuses to provide information or documentation or the documentation provided is suspicious.
- Has criminal associations.
- Has unusual level of knowledge about money laundering processes.
- Does not appear to have a business association with the other parties but appears to be connected to them.
- Large cash payments.
- Unexplained payments from a third party.
- Large private funding that does not fit the business or personal profile of the payer.
- Loans from non-institutional lenders.
- Use of corporate assets to fund private expenditure of individuals.
- Use of multiple accounts or foreign accounts.
- Size, nature, frequency or manner of execution.
- Unexplained urgency, requests for short cuts or changes to the transaction particularly at last minute.
- Use of a Power of Attorney in unusual circumstances.
- No obvious commercial purpose to the transaction.
- Instructions to retain documents or to hold money in your client account.
- Abandoning transaction and/or requests to make payments to third parties or back to source.
- Monies passing directly between the parties.
- If the instructions are unusual for your business such as:
- Outside your or your firm’s area of expertise or normal business, or if client is not local to you and there is no explanation as to why a firm in your locality has been chosen.
- Willingness of client to pay high fees.
- Unexplained changes to legal advisers.
- Your client appears unconcerned or lacks knowledge about the transaction.
- Where we suspect the client has a suspicious motive for creating or asking us to help manage a trust.
- Unexplained connections with and movement of monies between other jurisdictions.
- Connections with jurisdictions which are subject to sanctions or are suspect because drug production, terrorism or corruption is prevalent or there is a lack of money laundering regulation. Links to information about jurisdictions subject to sanctions or considered high risk
