On red alert for fraud

With the treasury intensifying the battle against money laundering, Janet Paraskeva looks at what else can be done to beat fraud

In February and September of last year, I wrote to all solicitors' firms about forthcoming changes to the provisions on money laundering regulation.

With that letter, I attached a new money laundering warning card, which could act as a handy reminder for solicitors and their staff about potentially suspicious circumstances.

Some of the changes are now in force after the implementation of part 7 of the Proceeds of Crime Act 2002 on 24 February 2003.

However, the Treasury has announced additional money laundering regulations.

The substance of the main requirements in these new regulations will in fact be fairly similar to those in place since 1993.

They will require firms to have systems to identify clients, to keep records and to train staff accordingly.

They will also require the appointment of a money laundering reporting officer and the implementation of internal reporting procedures.

The key change for solicitors will be the greatly increased number of areas of legal work to which the new regulations will apply.

For example, they will apply to property transactions and much company and trust work.

The Law Society, through its money laundering task force, has responded to the Treasury on the details of the draft regulations.

In particular, we tried to persuade the Treasury that law firms will need some time to adapt to the new regulations.

Our response can be seen on the Society's Web site (www.lawsociety.org.uk).

The regulations were originally expected to be implemented in June.

The Treasury has announced that while the final regulations should be laid before Parliament by June, they will not come into force until three months later.

This should give firms the time they need to adapt to these regulations and to minimise the chances of falling foul of them.

The measures to combat money laundering give rise to a number of issues for the solicitors' profession.

The Society is working with the relevant government departments, and the National Criminal Intelligence Service (NCIS) to seek solutions to several practical problems.

Our task force - chaired by Louise Delahunty and comprised of practitioners with detailed knowledge of these issues - is also preparing new comprehensive guidance on the legislation, which we hope to publish in the summer, before the implementation of the regulations.

The changes introduced by the Proceeds of Crime Act in February have raised several dilemmas for solicitors.

Where solicitors make a report to NCIS, for example, they then need permission to continue with their client's transaction.

Any delay in the receipt of such permission can lead to solicitors facing enquiries from their client or from a third party which are difficult to answer, especially as solicitors are legally obliged not to 'tip off' their clients that they have made a report to NCIS.

The difficulties this would cause were identified when the Bill was still in Parliament, and through its lobbying efforts, the Society managed to secure an amendment to the Proceeds of Crime Act, which included some reassurance by virtue of an 'appropriate consent timetable'.

We have been able to alert NCIS and staff there can be contacted for help in cases of emergency.

The Society needs to do more than simply lobby on legislation and help the profession to comply with its requirements.

We need to ensure also that our own rules protect the profession against being used by money launderers.

That is why we are now consulting solicitors on the possible introduction of a new rule, which would more strictly govern the use of client accounts, in particular where there is no underlying transaction.

Well-designed rules addressing the underlying behaviour facilitating money laundering are much more likely to be effective than relying primarily on trying, after the event, to prove that a solicitor was dishonestly assisting in a criminal enterprise.

Solicitors need to understand the importance of their roles as gatekeepers to the legitimate financial and business system.

Given the evidence before us not only about the number of solicitors involved in high yield investment fraud, but the sums of money we know of from recent cases where solicitors received funds and transferred them on, something clearly needs to be done.

There are significant risks to the profession arising from money laundering through client accounts - risk to reputation, financial default, and claims on the compensation fund.

Guidance is essential to ensure that honest solicitors are not used by money launderers.

Rigorous investigation of the minority of solicitors who deliberately collude with money launderers, to ensure that they are rooted out of the profession is also needed.

The reputation of the profession would be severely undermined if solicitors failed to treat these responsibilities seriously.

Both the new legal obligations and our duty to society require us to increase awareness and to maximise vigilance.

Janet Paraskeva is the chief executive of the Law Society