AML supervision: a new tipping point?

In case you missed it, the last five years have seen a steady increase in the attention paid by Government and supervisors to so-called “professional enablers” – generally, those services which are not banks but which can play a significant role in money laundering. A recent all-party parliamentary group has published a manifesto with its view and recommendations regarding “professional enablers”. 

It’s possible that that publication marks another tipping point for AML compliance in the legal sector, and we should cross our fingers that any response put in place at national and supervisory level is clever and proportionate, rather than led by a desire to be seen to be doing something.

In its manifesto, the group asserts that not many breaches of the regulations result in fines, and that a credible deterrent means “professional body supervisors… must issue bigger, more
public civil fines for wrongdoers”. 

No issue with this in principle; I don’t doubt that there will be firms around the UK which would be apt for a fine. Rather, it is the fertile ground for kneejerk or showy responses that is the problem.

The Law Society of Scotland, quite commendably, notes in its AML risk appetite statement that its work and powers will be used to encourage “positive outcomes and remediation” in less serious cases, focusing on high level principles rather than prescriptive rules. But we live in a world where annual reports from professional body supervisors, HMRC, Treasury etc are no doubt seen as a chance to showcase how much is being done. It’s not unthinkable that this downward pressure from Government runs the risk of ending in negative and unhelpful outcomes across the UK. Considering that the money laundering regulations are not always particularly easy to opine on and follow, care would need to be taken about the extremity of (and even necessity for!) any penalties.

By the time I left my role as an AML manager in a professional body supervisor, I had begun to consider whether there were probably two particularly serious ends to the spectrum of AML non-compliance at law firms. At one end, there are firms unaware of or uninterested in their duties to a degree which is clearly beyond the pale; at the other end, firms who are perfectly aware of when they might be hitting a crystallised high-risk factor but systemically go ahead anyway (Googling terms together like “lawyer” and “oligarch” will give you an idea). 

These are the firms which it is really in the supervisory and public interest to pursue.
I suspect, though, that there is a sizeable squeezed middle ground in this spectrum, made up of many firms doing what they think is right and expending energy, knowledge and resource on complying, only to risk still finding themselves on the end of a fine or censure aimed at building an arbitrary but aesthetically pleasing statistic.

Let’s also not forget that there is an argument that the fundamental approach to stopping money laundering (or at least measuring our success at doing so) is flawed from the outset. The interested reader can see Dr Ron Pol’s article, “Anti-money laundering: The world’s least effective policy experiment?” (DOI: 10.1080/25741292.2020.1725366), though the title alone perhaps gives an idea of the content. In that article, he wonders: “If authorities recover around $3 billion per annum from criminals, whilst imposing compliance costs of $300 billion and penalizing businesses another $8 billion a year, it is reasonable to ask if the real target of anti-money laundering laws is legitimate enterprises rather than criminal enterprises.”

The point is that the entire framework which we are all (firms and supervisors alike) trying to work within is actually built rather oddly, and we should therefore take a huge amount of care around how the buck is passed down from global structural ineffectiveness, filtered through the prism of Government pressure, and risks landing on those professionals making good efforts to run a business which is prohibitive to bad actors.

None of this is to argue against the general sentiments of the all-party manifesto, nor the good work and intentions of supervisors.

If regulators and professional body supervisors are about to start doing something more or different, this new tipping point represents a chance to set their stall out with a boldness around truly problematic firms, while undertaking to be sensible and pragmatic with everyone else, rather than being dragged along with (or perpetuating) the current.