Money-laundering loopholes missed by legal firms

What are the most common money-laundering loopholes missed by legal firms?

Nearly half (47 per cent) of legal firms surveyed for an anti-money laundering campaign have not changed their approach to onboarding new customers since sanctions were imposed on Russia after its invasion of Ukraine.

The disturbing statistic is revealed in a comprehensive, cross-sector survey commissioned by SmartSearch, the UK’s leading provider of anti-money laundering (AML) software.

The survey is the second in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make legal firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification, and shows “the worrying size of the challenge when it comes to closing AML loopholes being exploited by criminals in the UK.”

Decision-makers in 500 regulated UK businesses across the legal, property and finance sectors were questioned on a range of AML compliance issues. Their answers revealed continuing shortfalls in the way some regulated firms check on new and continuing customers and continue to rely on hard-copy documents rather than digital checks to identify them.

Up to 70 per cent of property firms and more than a third (34 per cent) of those in the finance and banking sector had also not changed their approach to new customers since the sanctions were imposed.

The Know Your Customer (KYC) process has come under closer scrutiny since the sanctions - which placed restrictions on individuals, entities, and their subsidiaries, and introduced legislation to limit deposits held by Russian nationals in UK bank accounts – were introduced.

SmartSearch’s campaign argues that regulated businesses should use digital onboarding to ensure they properly identify and screen clients.

The gaps in new customer checks were compounded by some legal firms’ continued reliance on hard-copy documentation to verify new clients’ identities. Almost a quarter (23.5 per cent) of those surveyed said they were using documents like passports or utility bills to identify new clients – even though one in ten of them admitted they were “not confident” in their ability to spot a fake.

Up to 45 per cent of property firms and a fifth of finance and banking companies also relied on manual checks - with 14 per cent of property firms admitting they were similarly “not confident” about spotting a fake. That figure was 16 per cent in finance and banking companies.

Martin Cheek, SmartSearch’s managing director, said: “Our latest survey shows the worrying size of the challenge when it comes to closing the AML loopholes being exploited by criminals.

“As the Government increases its censures on companies for breaching compliance rules, some are continuing to risk fines and reputational damage by either failing to increase their surveillance in the light of sanctions or relying on outdated manual checks. Or both.

“Such firms are unwittingly exposing themselves, and the UK, to the proceeds of some of the world’s worst crimes – people trafficking, drug running, tax dodging and scammers who prey on the most vulnerable.

“Regulated businesses need to ensure they are doing everything they can to prevent these crimes and the only way to do so is to embrace electronic verification (EV). EV uses credit reference data, combined with other reliable sources, to create a unique ‘composite digital identity’ which is virtually impossible to fake.

“Not only that, a system like SmartSearch’s can complete a check in just two seconds.”

For more information please visit: www.smartsearch.com