VSiD on the importance of AML checks for legal firms
With financial transactions taking place digitally and instantly across the globe, there has been an increasing need for robust anti money laundering (AML) measures to help combat financial crime and identity fraud, with a growing legal obligation on the Legal and Property sectors to carry out a high level of due diligence on their clients.
These professional services firms play a crucial role in facilitating various financial transactions. Consequently, they must prioritise AML checks to ensure compliance with legal and ethical standards. Additionally, in the UK, Companies House has tightened the rules for identifying Directors and Beneficial Owners of businesses due to the alarming instances of fraud.
Consequences of failure to comply with AML regulations
Keeping in line with AML requirements not only safeguards your firm but protects you from costly penalties for failing to comply. These penalties include fines and in severe cases, criminal prosecution. HM Revenue & Customs (HMRC) will issue penalties for breach of AML regulations that range in severity based on the following:
- The reason for non-compliance
- The seriousness of the offence
- Compliance history of the firm
- Relative size of the firm
- Benefits received
- Amount exposed to money laundering activities
In its Anti-Money Laundering and Counter-Terrorist Financing Supervision Report 2023-24, HM Treasury published a table demonstrating the value of fines that had been imposed for AML breaches. In summary, supervisory bodies, including the Financial Conduct Authority, Gambling Commission, HMRC and Legal and Accountancy Professional Supervisory Bodies (PBSs) including ACCA, CIMA and The Law Society reported a combined total of £35,971,700 in fines.
Ensuring compliance with legal requirements
Legal firms are often subject to strict obligations related to AML and combatting the financing of terrorism (CFT).
Governments worldwide have implemented laws and regulations to counter money laundering activities effectively. By conducting AML checks, these firms demonstrate their commitment to complying with the law and avoiding potential legal repercussions.
AML checks involve verifying the identities of clients, conducting risk assessments, monitoring financial transactions, and reporting suspicious activities to relevant authorities. By fulfilling these obligations, legal firms contribute to the overall integrity and stability of the financial system.
Maintaining reputation
Maintaining a good reputation is crucial for legal firms. Clients place their trust in these firms to handle sensitive matters with the utmost professionalism and integrity. Failure to implement adequate AML checks can expose firms to reputational risk.
Protecting against financial crime
Professional services firms are susceptible to exploitation by individuals seeking to legitimise funds from illegal activities. Lawyers may unknowingly assist money launderers or terrorist financiers in concealing the origin or destination of illicit funds.
By conducting thorough AML checks, firms can mitigate the risk of inadvertently participating in financial crime. Customer due diligence procedures, coupled with enhanced transaction monitoring, help identify suspicious patterns or anomalies.
Timely detection and reporting of such activities to the appropriate authorities contribute to the fight against money laundering and terrorist financing.
Risk management
AML checks form an integral part of a firm’s risk management strategy. Legal firms face fundamental risks associated with their involvement in complex financial transactions and their exposure to a diverse range of clients. By implementing comprehensive AML checks, solicitors enhance their ability to assess and manage potential risks effectively.
Through risk assessments, firms can identify clients with higher risk profiles and subject them to enhanced due diligence measures.
This targeted approach allows firms to allocate resources efficiently and focus on areas that pose the greatest risk. Ultimately, AML checks enable legal firms to better protect their interests and make informed decisions about the clients they engage with.
VSiD is a government accredited Digital Verification Service (DVS) and can provide full and comprehensive digital identity, AML, and Know Your Customer (KYC) and Know Your Business (KYB) checks, including international PEPs and Sanctions checks and offers an ongoing monitoring solution to make it easier to periodically reverify existing clients. It also provides a single integrated platform that gives access to all its Smart onboarding tools from one place, helping clients complete transactions faster. In addition, we can provide a re-verifiable eSignature and ID verification certificate that can be supplied to relying parties to demonstrate that an adequate level of diligence has been carried out.
Get in Touch
If you would like to find out more about how VSiD can help with your digital onboarding or discuss a particular solution that will fit your organisation’s requirements, then give our team a call on 0207 965 7479 or complete the contact us form and we’ll be pleased to demonstrate how the platform works.
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