How can you handle red flags in real life?

It gives us all an opportunity to grow and learn from others. We have a moment to absorb and reflect on our policies, procedures and processes, ensuring we do our utmost to mitigate the risks and prevent fraud and money laundering. Consider this 2022 case where a solicitor allowed deposit monies to be transferred to a fraudster, resulting in a fine of £3,000 by the SRA.

The SRA stated expressly that there was no evidence of any enquiries from the solicitor into the supposed seller or at least any record of it. From my experience of conducting audits and filing reviews on behalf of law firms, one common feedback point is the importance of ensuring we have a process to document and record the considerations we make at the time we made them, to ensure you always have the evidence to fall back on. It may be a pain at the time but, imagine you are giving yourself the best hand in a game of cards!  

Here is some food for thought, broadly speaking, lawyers often go through a detailed and thorough thought process, trying to figure out who the client is and how they can help them. Not necessarily solely for an AML purpose, but also so that they can begin the work and think through the advice they will be giving the client in regard to a transaction.The problem with the ‘AML world’, however, is that this process is often not always captured. Fee earners retain it within, their minds. We all need to make a conscious effort to ensure our files are documented and show our consideration so that a bystander can look in and understand our logic, considerations and working out, essentially, how you became - and how you stayed - comfortable. 

Now I did say broadly speaking. There are, unfortunately, instances where we miss red flags and the opportunity to stop fraudsters. 

So how can we mitigate the risk attached to third-party payments and/or requests? 

Ensure appropriate checks are made based on the unique client and transactions at hand. Before any money is moved or accepted, you must understand the rationale behind payments into and out of the firm’s client account.  You should always be alerted to warning signs, such as the introduction of a third party, and you must ensure you understand the rationale. 

If needed, we can build on our foundations; for example, do we hold any identification & verification for the third party? Do we have an understanding of the purpose and nature of the entity? Do we understand the ownership and control of this entity? 

You must remain alert to red flags and warning signs of a crime potentially taking place. While you do not have to be a police officer, you must make the sort of enquiries that a reasonable person (with the same qualifications, knowledge and experience as you) would make.

The Legal Sector Infinity Group guidance document - section 18.2, provides a detailed list of examples of red flags to watch out for, and we should ensure that our teams are aware and empowered with the knowledge of specific red flags that are relevant to our departments.

By being proactive and vigilant, you can mitigate the risks of fraud and money laundering and provide the best possible service to your clients.