The following information has been prepared for self-employed practising barristers and BSB entities that we supervise under the Money Laundering Regulations. Employed and unregistered barristers who work in organisations that are regulated by another supervisor under the Regulations should refer to the guidance published by the relevant supervisor. If you are unsure, please contact us at: firstname.lastname@example.org
Under Regulation 18 of the Money Laundering and Terrorist Financing Regulations self-employed barristers and BSB entities that carry out work that falls within the scope of the Regulations must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which their practice or business is subject.
In carrying out the risk assessment, you must take into account factors that are set out in Regulation 18, which include the type of services that you are engaged in, the geographic areas in which you operate, the type of services you deliver and how you deliver them.
You must also take into account any information we make available to you. Under Regulation 17, we are required to identify and assess the money laundering and terrorist financing risks associated with the Bar. We have published the following information for this purpose.
You must document the risk assessment and keep an up-to-date record in writing of the steps you have taken to identify the risks so that you can make it available to us upon request.
In addition to your practice risk assessment, Regulation 28 requires you to conduct Customer Due Diligence on a case-by-case basis, applying a risk-based approach. This must reflect your practice risk assessment and your assessment of the level of risk arising in the particular case. You must take into account factors including the purpose of an account, transaction or business relationship, the level of assets to be deposited by a client or the size of the transactions undertaken by the client, and the regularity and duration of the business relationship. Where relevant, the risk should be monitored on an ongoing basis.
Our assessment of risk to the Bar
Whilst the Government, in its National Risk Assessment, assesses the risk of Money Laundering in the legal sector as high, we assess the risk for barristers and BSB entities to be low for the following reasons:
- Practising barristers do not typically engage in conveyancing and only a very small minority act as Trust or Company Service Providers, which are the two services identified as at highest risk for money laundering in the National Risk Assessment.
- Barristers and BSB entities are prevented by the rules in the BSB Handbook from holding client money or managing their clients’ affairs.
- The majority of instructions are referred by solicitors or other relevant persons under the Money Laundering Regulations, who are obliged to conduct their own Customer Due Diligence and therefore provide a first line of defence in assessing risk.
The most relevant area of risk is commonly referred to by the Government as “professional enablers” - where independent legal professionals are complicit, knowingly or unknowingly, in facilitating the laundering of money, by:
- helping to create complexity such as setting up networks of corporate structures to acquire illicit funds and provide anonymity for the criminal;
- through their involvement, giving an appearance of respectability; and/or
- through conducting sham litigation.
The National Risk Assessment assesses the risk of Terrorist Financing in the legal sector as low risk.
In making this assessment, we have drawn on the sources of information shown below and our supervisory work. However, you should always consider whether the risk in an individual instruction that you receive is consistent with this assessment and your individual practice risk assessment.
Legal services are assessed as high risk for money laundering and low risk for terrorist financing.
Professional services are attractive to criminals as a means to create and operate corporate structures, invest and transfer funds to disguise their origin and lend layers of legitimacy to their operations.
The legal sector services most at risk of exploitation by criminals continue are conveyancing, trust and company services and client accounts. There is a risk that some legal professionals are complicit and willingly enable money laundering.
Whilst contentious litigation is not in scope of the Money Laundering Regulations, sham litigation has been raised as a risk with the UK court system being vulnerable to exploitation. Money could be laundered when criminals, often those from overseas jurisdictions, agree to sue each other in the English courts with the payment of damages being used to launder their funds. They can also arrange to bring cases against themselves using sham companies.
There is an acknowledged intelligence gap on the risks associated with the services provided by barristers but no evidence to suggest that the level of risk has changed since the last National Risk Assessment in 2017, which recognised that barristers were at a lower risk of exploitation.
The assessment highlighted Money Laundering as a key threat. The UK remains an attractive place for criminals from around the world who want to set up companies to launder their profits. This is due to the ease with which UK companies can be established, the broad range of professional services on offer and access UK systems provide to higher-risk jurisdictions.
Criminals continue to purchase property in the UK to launder large sums of money.
Complex company structures make the true owners behind corporate purchasers difficult to identify.
Cash-based money laundering continues to be a major method of laundering funds in the UK. Cash is moved out of the country both physically, with seizures at the UK border remaining high in 2019, and through money service businesses and informal value transfer systems. The latter are prevalent in the UK and their use by Chinese Organised Crime Groups remain a significant threat.
Organised immigration crime (OIC) involves the movement of a person across borders, without legal permission or documentation. It can also involve individuals illegally remaining in a country. A range of methods are used in OIC which include use of false or fraudulently obtained documents and abuse of legitimate entry and leave to remain. A wide range of enablers make this possible, including solicitors, immigration advisers and other professionals. In one case, an Organised Crime Group enabled more than 900 migrants to fraudulently apply for a visa.
The assessment highlighted the following in relation to the non-financial sector which includes the legal sector:
- Failures in the identification of the beneficial owner of a client. Sometimes the concept of beneficial owner itself is either not properly understood or not correctly checked by parties when entering into a business relationship.
- The lack of Suspicious Activity Reports to Financial Intelligence Units indicate that suspicious transactions are not correctly detected and reported.
- Compliance with rules does not interfere with the principle of legal privilege. The practical basis on which legal privilege can be overridden however should be clarified.
- The real estate sector is increasingly exposed to significant money laundering risks.
The non-financial sector’s exposure to risks is therefore considered significant to be very significant overall.
The assessment also highlighted vulnerabilities that are common to all sectors:
- Use of corporate structures – criminals create shell companies, trusts or complex corporate structures to hide their identities. This is not limited to certain jurisdictions or types of legal entity or legal arrangements. Most Member States have national registers that collect beneficial ownership information however criminals may use corporate structures registered in non-Member States to avoid detection as well as use false information or documentation to hide their identity. National registers may have weak spots with regard to their technical implementation or management and therefore criminals might shift their business to Member States with a less effective framework.
- Infiltration by criminals – criminals becoming owners of relevant entities or finding relevant entities willing to assist them with money laundering.
- Forgery – modern technology is making it easier to forge documents and all sectors are struggling to put in place robust detection mechanisms.
- Insufficient information-sharing between the public and the private sectors – the need for improved mechanisms for feedback from Financial Intelligence Units remain.
- Insufficient resources, risk-awareness and know-how to implement the rules – some obliged entities invest in sophisticated compliance tools but the majority have more limited awareness, tools and capacities in this field.
- Electronic identification – the use of online services is expected to increase further in the digital economy, boosting demand for online identification. The use and reliability of electronic identification is crucial.
When preparing your risk assessment you should have regard to the Joint Legal Sector Guidance.
The following information will also assist:
- SARs report
- FATF Risk-Based Approach Guidance for Legal Professionals
- FATF Risk-Based Approach Guidance for TCSPs
- Indicators of Modern Slavery and Human Trafficking in the Legal Sector
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