The 2017 Money Laundering Regulations took effect from 26^th June 2017.  The 5^th EU Directive on AML has been adopted in to UK law by the 2019 Regulations and as such this assessment has been updated by CIR who is the firm’s MLRO / Money Laundering Reporting Officer (MLRO).  We have carried out an independent firm-wide AML audit and developed a new risk assessment this year updating the reviews of 2019 and 2018 which did not require significant action.  Again on this occasion there are major changes so please read carefully and note the new policy.  The 2023 amendments are noted and actioned.  Our Due Diligence is thought to be adequate despite the changes.

Updated 010722 – please read.

Updated 090123 – circulated 20^th Jan 23.

Updated 010524 – circulated.

1 Introduction: Money Laundering and Trust or Company Service Providers

HRS is regulated by the SRA and as such we are subject to their regime.  This rightly highlights money laundering and terrorism funding as a priority risk.  It is taken very seriously and therefore our procedures must reflect that.  The Law Society provides Guidance which we follow and note.  All lawyers should and are expected to read it.

HRS operates only in the UK.

2 Responsibilities of senior managers

CIR is the MLO and MLRO and as such is responsible for company policy and implementation.  He is assisted by our Head of Legal.  We currently use the 2021 money laundering policy in conjunction with the operations manual to combat ML threats.  This risk assessment carried out in June 2017 was designed to effect a complete revision of our system and the threats that face us in order to ensure that our procedures are both robust and fit for purpose.  This 2023 review is again a full revision.  There have been minor changes.

3 Risk assessment, policies, controls and procedures

This risk assessment has been undertaken following a review of all the Money laundering forms for the last three years and interviews with key staff such as the COFA, the Practice Manager/Directors and Supervisors.  The reader is referred to the money laundering policy’s of 2012, 2017 and 2020 and 2021.

4 Customer due diligence

Staff are required to obtain two forms of ID from every new private client and if possible from Legal aid clients. Although there is clearly a significantly reduced threat with LAA clients there can still be Proceeds of Crime issues and so some ID is advised. They should obtain photo and address ID where possible and seek assistance if it is not.  If someone else is making a payment such as a family member then this person’s ID must also be obtained and EDD considered – where does that person get/make their money?

Staff are required and do complete money laundering forms for each new client and if there is an issue or concern that develops, during the course of the case.  Supervisors should consider the AML issue throughout the life of a file – even when the file is being closed and the ML form is due to be filed centrally.

All first attendance notes must contain a risk assessment specifically geared to the client.  The assessment has followed a random review of such notes.

A further risk assessment must be undertaken by the FE when there is any change to the financial circumstances on the case, to the client profile or to the nature of the case financially such as further information.

PEP’s are a concern and training has been given on this point and on the method for searches etc in this regard.

Records show that fee earners are still following the requisite procedure.  The ML forms are not kept in the file but instead provided each month to the Supervisor and thereafter to the MLRO for consideration and storage.  Any concerns should be noted on the ML form and emailed to the MLO.  The form then allows for consideration and dialogue before a decision is reached to either quarantine the file or to make a Suspicious Activity Report.

The system appears to be robust to date.  We have reviewed the training level too and consider it appropriate; one session for every staff member each year and an external seminar update for the lawyers.  We have undertaken audits in 2023 and 2024 which showed in 2023 that things had slipped to a minor extent and then improved this year with an excellent performance level.

We therefore believe that our system is both appropriate and sufficiently robust to protect the firm and to discharge our regulatory responsibilities.  It is nevertheless our view that referrals to us for consideration of a referral to the NCA are surprisingly low.  This may be because we have good policy adherence or because the firm does predominantly LAA work.

It is therefore still notable, however, that there are very few SAR’s required and a low level of concerns reported to the MLO – is there a need to highlight the issue more than once a year with extra training?  This will be monitored but has been discussed with the Associates.

The Mel C, Head of Legal, will continue to monitor the issue in her audits.

5 Reporting suspicious activity

There have been two recent SAR’s.  Why so few?  Our rationale is that the reasons for this are that the ML procedure is firmly imbedded in the culture of the firm with training for all staff every year.  Furthermore, the company does not undertake conveyancing, does not act for commercial entities and has very few high net worth clients.  Nevertheless we would expect more referrals to the MLO and this needs to be considered as to why the rates are low.  This has continued in 2024 and the matter is being considered.

6 Record Keeping

The company keeps all ML forms for five years in accordance with the guidance and to mirror the SAR rules.  We undertook a number of SAR’s in 2014 and they would have been retained under the new 5 year period until 2019.  We did no SAR’s in 2021 or 22.

7 Staff awareness

Is good although there is an obvious turnover point.  Every new staff member may due to the firm’s cycle wait some months before being trained.  This is not ideal and therefore AML should henceforth form part of the induction process.  This was the extract from the last edition.  AML is now firmly part of the induction.  Annual AML training is being undertaken.

8 Risk indicators

The firm is no longer “new” and therefore less likely to be targeted.  We do a lot of Legal Aid where POCA 2002 and ML are less relevant.  The firm acts in the vast majority of cases for clients with relatively limited means.  Half of our work is Legal Aid.  There is little HNW client work.  We do not accept any payment in kind or deal with crypto currency issues.  All of our fee earners do AML training annually.  We do not act for bodies corporate where the identity of the payee may be hidden.  We do not undertake residential conveyancing.  We have only once had a PEP instruct and we do no Government or overseas business.

For all of these reasons we assess the ML risk as low.  That said we need to work on the lack of SAR’s.  It may well be that there are good reasons for this, namely that the staff do not have any concerns or they are able to get the additional information and evidence needed to satisfy themselves that there are in fact no problems.  In order to address the possibility of a problem the new addendum money laundering policy will include assistance with SAR’s and highlight the risk factors to be considered.

The cash limit has been raised again to £5000.  It was £2500. This is rarely used but does provide flexibility for urgent final hearing or counsel instruction.  It is judged to be appropriate and changed due to a period of high inflation.

We are seeing more clients with backgrounds from other parts of the world and this therefore needs to be addressed.  Training has been given on sanctions, PEP’s and accessing the relevant Government sites.

9 Where to find information

The known criminal’s checklist published by the UK Government

High risk third country published by the EU

The SRA website

The LSAG particularly chapter 18

The NCA website

HRS operations manual and the HRS money laundering policy

10 Recommendations from 2022

1. All new private clients will be run by qualified Solicitors. This is being adhered to.
2. No foreign nationals to be signed up without approval from the MLRO. We have added the Head of Legal as an alternative.
3. All none 2 ID cases including photo ID to be referred to the MLRO for permission to proceed. Or the H of L as above.  Noting of course that some people do not have the “ideal” ID and this is factored in as relevant to our client base and the reality of the nature of HRS clients.

11 Conclusion

Our current system works well, is adhered to and is understood by staff.  We need to continue to consider why there are so few concerns identified and monitor it.  Updated training must continue each year.  We have decided to “beef up” our EDD for foreign nationals and consider the risk for such persons centrally, although they are very few and far between, none in 2021, a few since, who were private clients.

CIR 010621  and the 010722 and 2023, 01.05.24.