Following the introduction of The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, the Solicitors Regulation Authority (SRA) has started to crack down heavily on law firms that do not adhere to the strict procedures now in place.
Money laundering has been described as “the process by which criminal proceeds are sanitised to disguise their illicit origins” and the SRA considers this to be a significant risk for a number of reasons.
Solicitors and law firms are at increased risk of money laundering as they regularly hold large sums of money, have access to financial markets and have the ability to facilitate the purchase of large assets.
Property transactions, in particular, may seem attractive to those wishing to launder their money due to large amounts of money being transferred at any one time.
To control this risk, the SRA has issued detailed guidance outlining what solicitors and law firms must do to prevent money laundering. Among other steps, solicitors must carry out proper due diligence on their clients and this involves verifying a client’s identity, ensuring that the client has sufficient funds to complete the transaction and checking the source of these funds before any money is accepted.
Establishing the source of funds is arguably the most important step in preventing money laundering.
Solicitors are obliged to see evidence of the full amount required to complete the transaction and details of where these funds have come from. This may be from a previous sale of property or earnings, for example, and is typically shown on a bank statement.