Dependency on outdated screening practices leaving firms exposed to risk

UK law firms remain oblivious to sanctions screening requirements of new and existing clients, and demonstrate a worrying lack of understanding around Her Majesty's Treasury (HMT) screening obligations, according to Compliance Screening and Data Management specialists Datanomic Ltd, and Legal RM, experts in risk management and compliance.

A recent survey of 115 firms in England and Wales conducted by The Law Society revealed that 74% of law firms surveyed have not checked their entire client list against HMT Sanctions lists, and 48% of firms do not screen new clients against HMT Consolidated Sanctions lists. Worryingly, it appears that many firms are still relying on outdated e-verification systems or monitoring systems that are incapable of cross checking aliases, abbreviated names, names that are transposed, or names that are transliterated from foreign characters into Latin characters. This means there is a high likelihood that law firms are unknowingly acting on behalf of terrorists, criminals, fraudsters, drug traffickers, gang leaders and money launderers.

Lack of understanding of mandatory financial crime requirements, and failure to comprehensively screen clients are placing law firms at risk of sanctions breach

The legal sector is falling behind in sanctions screening, placing many law firms at risk of a serious sanctions breach, according to Compliance Screening and Data Management specialists Datanomic Ltd, and Legal RM, experts in risk management and compliance. Lack of understanding of mandatory financial crime requirements, failure to comprehensively screen ongoing clients, and complacency amongst law firms are placing individual solicitors, compliance managers, and law firms at risk of heavy financial penalties, both personally and corporately.

Although law firms understand the law itself, they are failing to apply it operationally in their own business practice. The UK Proceeds of Crime Act, The Prevision of Terrorism Act 2008, the Weapons of Mass Destruction Act, and the US Treasury Department's Office of Foreign Assets Control (OFAC) Sanctions List make it illegal to do business with sanctioned individuals or entities linked with the proceeds of crime or the funding of terrorism. For law firms, this means that unless they are in a position of privilege with a client, they are liable and accountable to the letter of the law, especially in their client screening obligations. Likewise, law firms must also comply with the regulatory obligations around anti-money laundering, including the EU 3rd Money Laundering Directive, the Money Laundering Regulations 2007, as well as the Solicitors Regulation Authority and the Law Society.  They must also carefully consider the business risk of new clients in the context of these legal and regulatory obligations.