Austin's angle: start as you mean to continue
3 Sep 12
Money laundering compliance is tedious but worth the effort
A few months ago we had our Law Society of Scotland inspection. It is never a pleasant experience, though you can make it better or worse for yourself by your own attitude to the inspector and the way in which you actually engage with the process. I don’t believe there is such a thing as a perfect practice unit, and it may even be that if the Society staff found such a thing they would be deeply suspicious.
Anyway, we did pretty well, mainly because even before I was on the Council of the Society I understood that being a brilliant lawyer (not of course that I am remotely similar to one) is not enough, indeed may not be even relevant in running a law practice. Organisation, working by rote, solid systems and an almost anal dedication to form-filling are all essential. Beyond that, it is important not just to tick boxes, but to understand and appreciate why the boxes are there, and the context within which they are to be ticked – or not ticked.
The definition of money laundering has changed over the decades and years. When I was recently in Chicago, I took the architectural tour, and the building where Al Capone had one of his speakeasies was pointed out to us. Our image of a gangster or professional villain is the fedora, sharp suit and machine gun. But as any criminal practitioner will tell you, accused and convicted persons are not a race apart: they buy their clothes in the same places law-abiding folk do (unless they shoplift them of course); they eat the same food and love their kids.
The categories of unlawful financial activity have expanded – tax evasion by someone falsely purchasing a property for a sum pretended to be under a SDLT threshold, a retailer not declaring income from sales of bootleg tobacco, a businessperson paying staff in cash – lots of activities that are difficult to spot but are costing all of us ultimately in lost tax revenues.
Our duty as solicitors dealing with clients is not to be omniscient or telepathic. Some genuinely nice and apparently respectable people may pitch up to instruct us in conveyancing or commercial work, and we take them at their word and appearance. Which is fine – as long as we’ve asked the right questions and done the right checking. And that’s where the working by rote comes in.
New client – get ID, fill in a form saying where the client has come from and why they are consulting us. Almost certainly a legit reason, but if we don’t ask we won't know. New case or transaction – anything that rings alarm bells – do you know what alarm bells to look out for? Record the details, record your thoughts. You won't be penalised for getting it wrong if you’ve applied common sense and reason, but you run a risk if you have not noted down your thought processes and the data given.
I wanted to be a lawyer, not a bank. But like all traditional general practice firms, we have millions sloshing around our clients' account on any given day. When I was an apprentice in the late 70s, I had on several occasions to carry cases of money from a client’s premises to the bank. Nowadays you would just never do that, unless you had already made a suspicious activity report. But ALL money coming in must be considered, and not only posted to ledgers and banked, but “money laundered”. The Law Society of Scotland has an excellent scoring template for clients, and the source of funds is part of this. Get it and use it, or something equally adequate.
It may be a pain, but I always remember my old dad’s saying: “When it becomes obvious during a case or transaction that someone is going to jail, make sure it’s your client.”
Client ID, source of business, source of funds – it's all dull stuff if your clients are legal, decent, truthful and honest. It is likely that all or almost all of them are. But until you hire Derren Brown as the cashier, it just is not worth the risk in short-circuiting the regulations. The proceeds of crime legislation calls the likes of solicitors gatekeepers. Best to man the gate and not just leave it swinging on its hinges.