Scottish firms’ AML-related work nears £700m

Almost £700 million of gross fees across Scottish legal firms in 2023 related to work falling under anti-money laundering (AML) regulations, research has shown.

Data analysis from the Law Society of Scotland’s latest AML Certificate revealed that supervised firms declared £699,399,729 in gross fees from AML-relevant work in 2023, up nearly 8% on the previous year.

Conveyancing remained the largest portion of the fees and in-scope work reported, and it continues to pose the highest risk of money laundering in the Scottish legal sector.

Introduced in 2018, the AML Certificate is a mandatory annual process for all practices that fall under Money Laundering Regulations and enables the Law Society to understand risks across the sector. To ensure the accuracy of the results, the AML team has increased its resources to testing the data and contacted practices where errors or conflicting data has been identified.

Dale Trahms, AML Risk Manager at the Law Society of Scotland, said: “The AML Certificate remains a crucial tool in our risk-based supervision approach and it’s vital that each individual practice ensures the accuracy of the data they submit to allow us to understand the AML risks posed to each practice.

“The AML landscape in the legal sector is constantly evolving. It’s important to remember that money laundering is not a victimless crime. It can contribute to human rights abuses, such as human trafficking, kidnapping, or extortion, and fund criminal activities and serious organised crime through tax evasion, corruption, fraud, or counterfeiting.

“We recognise that completing the AML Certificate takes a significant amount of time and we appreciate the effort and dedication of all practices in collating the data. We hope this information provides valuable insights into the AML landscape and the risks associated with different areas of practice.”

Practices reported that 681 conveyances of any type took place where the business interest of the client was or is known to be a higher risk industry, such as:

• high value goods
• mining
• metals
• arms
• tobacco
• gambling
• cryptocurrency
• real estate and property development
• oil and gas.

Practices are asked to take into consideration the elevated risks attached to these sectors, as they are identified as giving rise to an increased risk of money laundering.

It is important to note that not all work in these sectors will be higher risk in all instances, but it is essential to be aware of the higher risks inherent.

24 practices reported that they completed conveyancing transactions with a link to China, down from 84 in 2022. China is a country that imposes significant constraints on its citizens investing or moving capital abroad, which has led to the emergence of alternative shadow banking or money service dealers to move money out of the country.

In our sector, we view the inherent risks associated with Chinese Individual Direct Investment as significant. As a result, the Law Society continues to review transactions where funds are received from China to mitigate these risks.

• 15 practices reported completing work with a link to High Risk Third Countries (HRTCs) for the relevant period.
• Enhanced Due Diligence (EDD) is mandatory for clients who are residents or incorporated in a HRTC.
• For more guidance on identifying HRTCs, exploring EDD and other geographic risks, please refer to our blog written in 2022. This discusses recurring themes related to HRTCs and assists with applying a risk-based approach.