A belt and braces approach to AML

Money laundering is the process by which the proceeds of crime are converted into assets which appear to have a legitimate source and the threat of falling fowl of fraudster activity is a very serious consideration for lenders and their lawyers.

It’s estimated that more than £100bn is laundered through the UK each year and, around the world, the total amount laundered annually is estimated to be around £1.8tn, or 3% of the global GDP.

Property transactions are attractive for fraudsters to use as a forefront to lauder the cash derived from their criminal activity because, if they can convince their lawyers that the source of funds are genuine, then they can choose from a variety of property transactions as a way of getting those funds into the financial system. If successful it will provide the fraudster with the perceived legitimacy they strive for.

The bridging sector which offers customers high speed, less fuss, financing is known to be a sector that appeals to such fraudsters.

The MLR 2017 are designed to prevent the use of the financial system for the purposes of money laundering, terrorist financing and proliferation financing. Whilst some, but not all, of the legal services offered by the firm fall within the scope of the MLR 2017, the firm apply the requirements set out in the legislation across all of its practice areas.

While conveyancing falls within the scope, traditionally litigation falls outside the scope of the MLR. However by way of example in our sector, where a borrower wishes to redeem their loan, without instructing a solicitor to assist, the firm adopts the same source of funds checks with the same rigour as those areas that do fall within the scope of the regulations.

A little-known regulation is Regulation 21 of the MLR 2017 which requires a relevant person, where appropriate to the size and nature of the business, to establish an independent audit function. So, with this in mind, the firm engaged external auditors in March this year whose job it was to examine and evaluate the adequacy and effectiveness of our policies, controls and procedures, to make recommendations in relation to those policies, controls and procedures; and to monitor the relevant person’s compliance with those recommendations.

The audit carried out a review our policies and procedures against the requirements of the legislation, and then tested knowledge, understanding and application of those processes through interviews and file reviews.

Following the audit, the firm received a report setting out their findings. The outcome was extremely positive, stating: “The firm has policies and procedures in place, and they understand their business, their clients and the risks they face. The firm has taken appropriate action to identify and mitigate those risks.”

The fact that our AML policy has stood up to thorough independent scrutiny is pleasing for us. For our clients, for whom we often provide an external AML function, it’s an extra layer of protection against MLR breaches.

Extending the scope of policy to include litigation beyond regulatory requirements is another example of what our firm is known for – leading by example and going above and beyond.

Money laundering poses a clear and present danger to lenders – not only at day one and throughout term, but also at the point of redemption and beyond.

At Brightstone, we cover every element of the lending piece. Each has its own significance. Robust AML protection underpinned by statutory force should be regarded as prominent as others.

Michelle Rosen is partner and compliance officer for legal practice, chief operating officer at Brightstone Law