Red Flags For Law Firms and Solicitors.
Law firms are at risk of being targeted by money launderers due to their position of trust in society. Solicitors handle large amounts of money confidentially for clients, which makes their client accounts a convenient way to add a layer of legitimacy to transactions.
In this post, we will discuss the most common red flags that law firms should be aware of when identifying suspicious activity indicative of money laundering.
Client-Related Red Flags.
Law firms must scrutinise their clients and prospective clients, particularly if they are PEPs or HNW individuals, or if they have cash-intensive businesses that could act as fronts for money laundering. If a client is acting secretively, or if their online presence is limited, it may warrant closer scrutiny. These factors do not necessarily mean that the law firm cannot act for the individual, but they should inform the firm’s risk assessment and policies.
Trusts, Trustees, and Beneficiaries Red Flags.
When examining trusts, trustees, and beneficiaries, it is useful to look for unusual ages or illogical connections between parties. If there are unexplained beneficiaries, or the reason, structure, or jurisdiction of the trust is unclear, it may warrant closer scrutiny.
Transactional Red Flags.
Red flags relating to the nature of the transaction include unusually large or complex transactions, transactions involving jurisdictions with minimal AML laws, or the use of shell companies for unclear reasons. Understanding the source of funds is critical when considering AML obligations, particularly if the funds are coming from a third party or foreign country with no connection to the transaction, or if large amounts of cash are involved with vague explanations as to their origins.
Property Red Flags.
For property transactions, other red flags include no mortgage being required, unusual ownership structures, sudden changes in ownership, multiple owners just below reporting thresholds, and sale prices below market value. Another example of a suspicious case we encountered recently was where the client had deposited funds into their account and subsequently requested a refund, without providing any clear justification for withdrawing from the purchase.
What To Do When You Identify any of these red flags.
If a law firm identifies any of these red flags, it should ask more questions and collect further evidence until it reaches a level of comfort about proceeding with the work. If the evidence cannot be provided, the firm may decide not to work with the client or consider filing a SAR. By asking the question, “does this make sense given what I know about the client?” law firms can play a critical role in preventing their services from being used for money laundering purposes.
How to Make a Suspicious Activity Report.
To make a Suspicious Activity Report please use the free, secure and 24/7 SAR Online reporting service at the National Crime Agency.