Following a survey of over 3,000 law firms by the Solicitors Regulation Authority (SRA), the regulator has recently written to more than 1,000 firms in order to address concerns related to poor sanctions compliance in the legal sector.
The SRA survey revealed that:
- Nearly 1,700 firms did not do or were unsure if they did one or
more of the following:
- identify their clients
- verify their clients' identities
- check source of funds
- check if a client was subject to sanctions
- More than 1,000 firms have a greater risk of having a designated person as a client because of their areas of work or they (or their clients) have a connection to a sanctioned country.
- Twenty-six firms had dealt with a matter involving a designated person.
UK Financial Sanctions Regime
The UK financial sanctions regime is operated by the Office of Financial Sanctions Implementation (OFSI) and the measures are imposed by the Government to achieve specific foreign policy or national security objectives.
A breach of UK sanctions is a criminal offence, which is punishable by a fine and/or imprisonment and, as the SRA reaffirmed, the sanctions regime "applies to all firms that provide legal services, not just those that are captured by the anti-money laundering regulations."
Additional SRA Guidance
It is important for law firms (and other relevant firms) to be aware of their obligations in relation to sanctions compliance, and to keep abreast of the ever-evolving regulatory landscape.
As part of the advice to the 1,000+ firms, the SRA letters included guidance on complying with and guidance on completingfirm-wide sanctions risk assessments, including a template for firms to use.
Key Takeaways
The SRA's findings shed light on specific issues which firms are expected to remediate and pay close attention to, with particular focus on:
- Identification and Verification: Ensuring that robust processes are in place to identify and verify clients and other relevant parties, including checking for potential sanctions on both new and existing clients.
- Source of Funds: Scrutinising the source of funds thoroughly to prevent inadvertent association with designated persons.
- Risk Assessments: Developing and documenting a firm-wide risk assessment, including processes for identifying ultimate beneficial owners.
- Utilisation of Tools: Leveraging online tools, such as the free screening tool from OFSI, to enhance client screening processes.
- Staying Informed: Keeping abreast of sanctions updates and requirements and understanding the potential impact on your firm's areas of work.
Engaging External Experts
A robust sanctions compliance framework entails a multi-faceted mechanism which addresses the different layers of an adequate compliance practice.
An important part of ensuring compliance includes encouraging a firm-wide compliance culture by providing training and maintaining open channels of communication.
Alongside any internal audit processes, by engaging external experts to conduct an external review your firm will more effectively ensure that the evaluation is fully independent, and thereby significantly minimise any chances of a breach of the regulations and subsequent criminal liability.
At Gherson, we have the expertise to help you create and implement a fresh sanctions compliance framework or conduct a thorough evaluation of your already-existing policies and procedures.
Based on our findings, we can provide tailored training programmes and continue to be your compliance partner by reviewing and updating your compliance framework in a way that is most suitable to your firm's size and culture.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
