Concern about the role professional enablers play in facilitating money laundering has been growing for years as increasing anti-money laundering (AML) controls on banks and the rise of noncash criminal proceeds meant those involved in organized crime, fraud, corruption, tax evasion, and other profit-generating offenses sought alternative, and sometimes more complex, money laundering routes.
The International Compliance Association (ICA) is a professional membership and awarding body. ICA is the leading global provider of professional, certificated qualifications in anti-money laundering; governance, risk, and compliance; and financial crime prevention. ICA members are recognized globally for their commitment to best compliance practice and an enhanced professional reputation. To find out more, visit the ICA website.
The legal profession is one of the sectors considered to pose a risk for money laundering. The nature of lawyers’ work—for example, their role in real estate transactions, involvement in the incorporation and management of companies and trusts, providing advice on business and financial matters; and facilitating various forms of transaction for individuals and businesses—provides opportunities for lawyers to assist offenders with money laundering for their own financial or commercial benefit and creates vulnerabilities for lawyers to be exploited by criminal actors and facilitate money laundering unknowingly.
Between these two extremes are lawyers who don’t ask the right questions; don’t carry out their due diligence effectively; don’t understand their regulatory obligations; turn a blind eye to suspicions about clients or the source of their funds; or feel pressured or constrained to make certain decisions by external factors, such as the relationship they have with the client, keeping a business afloat, or meeting fee income targets.
While the extent of lawyers’ and law firms’ involvement in money laundering remains difficult to quantify, their potential role as professional enablers has become increasingly salient.
The Panama Papers and Pandora Papers exposés showed how offshore law firms can provide services that facilitate the movement or control of illicit finance. Large global law firms based in London and New York have been linked to high-profile corruption cases such as the 1MDB fraud case. And, most recently, the Russian invasion of Ukraine and subsequent financial sanctions have drawn attention to Russian oligarchs, their assets, and the law firms that act for them.
The AML regulation and supervision of the legal sector has never been more prominent. The United Kingdom has a well-established AML regulatory regime for legal professionals, primarily because it was a European Union member state during the introduction of key EU money laundering directives. However, it continues to evolve and is currently under review, along with the regulatory framework for other professional services sectors considered to pose a money laundering risk.
Countries, including Australia, Canada, and the United States, initially resisted Financial Action Task Force requirements to introduce AML reporting requirements to the legal profession, for various constitutional, political, and cultural reasons.
Following the release of the Pandora Papers in 2021, the United States announced the introduction of the ENABLERS Act, a cross-party attempt to introduce AML obligations to various sectors, including legal. In March, the Australian Senate’s Legal and Constitutional Affairs Committee recommended Australia’s AML/countering the finance of terrorism (CFT) regime finally be extended to nonfinancial businesses and professions, 16 years after its AML/CFT legislation was introduced.
Across the world, legal professionals’ AML obligations are becoming increasingly embedded in professional, regulatory, and criminal law frameworks. These impose considerable requirements on lawyers and law firms to undertake risk assessments, carry out effective due diligence, and report suspicious activity to the authorities.
The consequences of not fulfilling these requirements can be significant. However, the harm caused by the underlying criminality associated with money laundering and other forms of illicit finance is also profound, and measures to try and prevent this—as long as they are effective and proportionate—should be supported.
Katie Benson is a lecturer in criminology at the University of Manchester. The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.