Insight

Focus on professional enablers puts lawyers in spotlight

Written by Dr Katie Benson on Tuesday September 20, 2022


Concern about the role that ‘professional enablers’ can play in facilitating money laundering has been growing for a number of years, as increasing AML controls on banks and the rise of non-cash criminal proceeds meant that those involved in organised crime, fraud, corruption, tax evasion and other profit-generating offences sought alternative, and sometimes more complex, money laundering routes.  

The legal profession is one of the sectors considered to pose a risk for money laundering. [1] The nature of lawyers’ work – for example, their role in real estate transactions; involvement in the incorporation and management of companies and trusts; providing advice on business and financial matters; and facilitating various forms of transaction for individuals and businesses – both provides opportunities for lawyers to assist offenders with money laundering for their own financial or commercial benefit and creates vulnerabilities for lawyers to be exploited by criminal actors and facilitate money laundering unknowingly.  

Between these two extremes are lawyers who don’t ask the right questions; don’t carry out their due diligence effectively; don’t understand their regulatory obligations; turn a blind eye to suspicions about the client or the source of their funds; or feel pressurised or constrained to make certain decisions by external factors (such as the relationship [business or otherwise] they have with the client or the pressures of keeping a business afloat or meeting fee income targets). [2]  

Professional enablers 

While the extent of lawyers’ and law firms’ involvement in money laundering remains difficult to quantify, their potential role as professional enablers has become increasingly salient, with recent high-profile examples and current geopolitical events shining a light on this particular sector.  

The Panama Papers and Pandora Papers exposés, for example, showed how offshore law firms can provide services that facilitate the movement or control of illicit finance. [3] Large global law firms based in London and New York have been linked to high-profile corruption cases such as the 1MDB fraud case. [4] And, most recently, the Russian invasion of Ukraine and subsequent financial sanctions have drawn attention to Russian oligarchs, their assets and the law firms that act for them. [5]  

The AML regulation and supervision of the legal sector, therefore, has never been more prominent. The UK has a well-established AML regulatory regime for legal professionals, primarily because it was an EU member state during the introduction of key EU Money Laundering Directives. However, it continues to evolve and is currently under review, along with the regulatory framework for other professional services sectors considered to pose a money laundering risk. [6]  

Global perspectives 

Countries such as Australia, Canada and the US resisted FATF requirements to introduce AML reporting requirements to the legal profession, for various constitutional, political and cultural reasons, though this is starting to change.  

Following the release of the Pandora Papers in 2021, the US announced the introduction of the Enablers Act, a cross-party attempt to introduce AML obligations to various sectors, including the legal profession. In March 2022, the Australian Senate’s Legal and Constitutional Affairs Committee recommended that Australia’s AML/CFT regime finally be extended to non-financial businesses and professions, 16 years after Tranche 1 of its AML/CFT legislation was introduced. 

Across the world, legal professionals’ AML obligations are becoming increasingly embedded in professional, regulatory and criminal law frameworks. These impose considerable requirements on lawyers and law firms to undertake risk assessments, carry out effective due diligence, and report suspicious activity to the authorities.  

The consequences of not fulfilling these requirements can be significant. However, the harm caused by the underlying criminality associated with money laundering and other forms of illicit finance is also profound, and measures to try and prevent this – as long as they are effective and proportionate – should be supported.   


About the author

Dr Katie Benson is lecturer in criminology at the University of Manchester. She has been researching the role that lawyers can play in the facilitation of money laundering, and how this is regulated, for a number of years. Her book on this subject was published in 2020. Katie is also Associate Fellow at the RUSI Centre for Financial Crime and Security Studies, and has previously worked in research and intelligence roles in UK law enforcement.  


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References:

1. See FATF, Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, 2013: https://www.fatf-gafi.org/media/fatf/documents/reports/ML%20and%20TF%20vulnerabilities%20legal%20professionals.pdf – accessed September 2022 

2. Benson, K. (2020) Lawyers and the Proceeds of Crime: The Facilitation of Money Laundering and Its Control. Abingdon: Routledge.   

3. International Consortium of Investigative Journalists, ‘The Panama Papers: Exposing the Rogue Offshore Finance Industry’, 2016: https://www.icij.org/investigations/panama-papers/; International Consortium of Investigative Journalists, ‘Paradise Papers: Secrets of the Global Elite’, 2017: https://www.icij.org/investigations/paradise-papers/; International Consortium of Investigative Journalists, ‘Pandora Papers’, 2021: https://www.icij.org/investigations/pandora-papers/  accessed September 2022  

4. For example, Global Witness, What role did US lawyers play in Malaysia’s 1MDB scandal?’, 13 April 2018: https://www.globalwitness.org/en/blog/what-role-did-us-lawyers-play-malaysias-1mdb-scandal/; Compliance Week, Law firm involvement in the 1MDB scandal’, 2016: https://www.complianceweek.com/law-firm-involvement-in-the-1mdb-scandal/10521.article – accessed September 2022  

5. Law Society Gazette, Pressure mounts for action against ‘enablers’ of Russian regime’, 2022: https://www.lawgazette.co.uk/news/pressure-mounts-for-action-against-enablers-of-russian-regime/5111668.article – accessed September 2022  

6. HM Treasury, Review of the UK’s AML/CFT regulatory and supervisory regime’, 24 June 2022: https://www.gov.uk/government/publications/review-of-the-uks-amlcft-regulatory-and-supervisory-regime  accessed September 2022  


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