On the money

Last year, the government consulted on changes to the anti-money laundering regime, citing an unnecessary burden on business and a desire to reduce red tape. Press reports at the time suggested that more than 200 criminal offences could be abolished as a result of reform of the AML regime. While it may yet be some time until any changes are agreed and introduced, the High Court decision in Fitzpatrick & Ors v Commissioner of Police for the Metropolis [2012] EWHC 12 (Admin) is both a timely reminder and a warning of how important it is that your procedures are beyond question.

In Fitzpatrick, the court considered whether the police had reasonable grounds to arrest two solicitors on suspicion of money laundering offences. The solicitors in question had been through a very traumatic experience having been arrested, interviewed and then put on police bail for almost two years before the CPS decided not to proceed. The solicitors and their firm sought relief through the courts alleging that the arrests had not been necessary. The court found against the solicitors and in doing so criticised their departure from usual procedure and failures in their reports to SOCA.

Your problem

It is fairly easy, as solicitors, to fall into a false sense of security regarding AML procedures. Having the procedures in place and relying on your money laundering notification officer to make decisions about what should be reported to SOCA can give the illusion that it's all someone else's problem. It's not.

The consequences of being suspected of a money laundering offence '“ irrespective of having committed one '“ can be severe. Despite having brought proceedings, the solicitors in the Fitzpatrick case had no recourse against the police for their arrest '“ subject to any appeal they might bring. Being a solicitor is also a notifiable profession, which means that there is a flow of information between the police and the SRA, some of the information being provided at the discretion of the relevant police force. It is likely that the police would report the fact that a solicitor has been arrested on suspicion of committing a money laundering offence. Even if the police do not, it is possible, in the new reporting regime, that a firm may be obliged to report the matter to the SRA, depending on circumstances.

No need for proof

The fact that a solicitor is arrested on suspicion of money laundering offences may cause the SRA to investigate. In the post-ABS world, the SRA has the power to refuse or revoke authorisation for individuals to be a partner, owner or manager of a firm or a COLP or COFA (once those roles become effective). Because the SRA's remit is regulatory, intended to protect the public, there is no need for proof that an offence has been committed, let alone a conviction. All that needs to be demonstrated is that there is risk to the public that needs to controlled or managed.

Furthermore, in addition to making regulatory decisions such as imposing conditions on practising certificates or refusing or revoking authorisation to be a manager, the SRA could prosecute a regulatory offence even where the CPS decides that no criminal offence has occurred. The Solicitors Disciplinary Tribunal has the power to impose unlimited fines on solicitors, suspend them or strike them off the roll. And remember there is no limitation period on regulatory offences.

Increasing burden

Getting it wrong, it seems, is likely to be a miserable experience for all concerned. The lesson we can take from the judge's comments in Fitzpatrick is that proper procedure is there for a reason. We can expect that hard questions will be asked if we do not adhere to it.

Do not be tempted to think that a one-off report to SOCA will protect you. Check that the information provided to SOCA is accurate and complete. Ensure that you provide additional reports to SOCA if subsequent events provide more information or corrected information.

It is possible that the burden of complying with anti-money laundering regulations will reduce in future. I remain sceptical; reviews of regulation seem to bring nothing more than increased regulation. I am convinced, however, that we need to remind ourselves periodically of the reasons for regulation, and, even more, the possible consequences of getting it wrong.