In this article, Laura Spooner, LexisPSL Practice Management and Compliance Associate discusses the steps Money Laundering Reporting Officers (MLRO) can take to manage internal relationships in 2015.
You have a professional obligation to comply with applicable anti-money laundering legislation which is contained in the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Money Laundering Regulations 2007, SI 2007/2157, the last of which require you to appoint a MLRO (unless you’re a true sole practitioner (just you and your trusty pooch) or your services aren’t covered by the ML regs). Chances are then, the vast majority of firms will have an MLRO.
What if you’re the MLRO and you somehow find yourself less popular than your COLP? Perhaps it’s time to think about your relationship with your colleagues and firm?
The MLRO role
The role of Nominated Officer or MLRO can be a lonely one.
You’re responsible, after all, for making sure any knowledge or suspicion (or reasonable grounds for either) of money laundering is properly recorded and, when appropriate, disclosed to the National Crime Agency (NCA).
The decision whether to report to the NCA is yours and yours alone and occasionally this can lead to friction, especially where your decision:
- impacts on business relations with your clients, or
- may not be what your colleagues want to hear.
You’ve also got to make sure your systems and controls, which some colleagues may feel are restrictive and/or an administrative burden, are in place and working.
So you’ve got to be senior and you’ve got to have authority (and courage and a thick skin) to take up the role in the first place. But you’re going to need some friends along the way–you can’t do it all yourself.
1. Fee earners
Your fee earners are your first line of defence.
They’re the ones on the ground, with the best knowledge of the matter and client, usually carrying out your CDD procedures and keeping an eye out for anything fishy.
You need to:
- tell them what to do
- give them the tools to do it, and
- be available and approachable.
Be clear on responsibilities
It’s your job to develop systems and controls so your firm meets obligations under the AML and counter-terrorist financing (CTF) regime.
Some of these systems and controls are for you (eg risk assessment and monitoring) but very many (eg CDD, reporting concerns, etc) rely day-to-day on your fee earners. Providing an AML and CTF policy is helpful. It’ll enable your staff to apply your systems and controls consistently.
Make sure your policy is clear and easily accessible.
As well as providing a policy, you’ll also need to think about training.
Regulation 20 of the Regulations says you must train relevant staff on:
- the law relating to money laundering and terrorist financing, and
- how to recognise and deal with suspicious matters (ie the red flags)
in the context of the way your firm operates (ie if you’re a largely conveyancing firm, don’t spend your time talking about red flags in litigation matters).
You should also include training on your internal policy and procedures.
Don’t forget that receiving insufficient training is a defence for individual staff members who fail to report a suspicion of money laundering leaving you and your firm vulnerable to sanctions.
Be available and approachable
You need to be available and approachable. This means not hiding away in a basement dungeon, but equally you’ll probably want to avoid the 12th floor ivory tower.
If staff don’t find you approachable, they won’t want to bring their concerns to you and that could leave you, the firm and the individual exposed to criminal sanctions.
Have an open door. A real one, not just a theoretical one.
An occasional ‘bring out your dead’ session can’t hurt either. A good time to run these is right after a training or update session. Sometimes just talking about money laundering, and especially red flags, can trigger a suspicion that just hadn’t occurred before.
2. Accounts staff
Your accounts team is your second line of defence.
Accounts staff are handling and managing client money every day. They’re well placed to spot patterns and unusual transactions which fee earners might not have the information to spot.
It’s equally important to nurture your relationship here.
Be clear on responsibilities
You need to be able to rely on your accounts team to:
- check whether funds received from clients come from credible sources
- watch out for money coming from third parties or over the counter at the bank
- be alert to red flags, and
- raise concerns with you.
Make sure your accounts staff know what you expect of them.
Your accounts staff need different tools to your fee earners so you’ll need to equip them differently.
The flags are not the same for the accounts team. Their focus is on the financial flows in a matter and they won’t necessarily see the broader retainer.
In developing training for the accounts team you should think about which flags are likely to be relevant to their role. These might include:
- unusually large amounts of cash paid into client account
- funds placed into client account, instructions are cancelled and the ‘client’ wants the funds re-turned
- large amounts of private funding or third party funding
- transfers from or to high risk jurisdictions or individuals or regimes subject to sanctions
- overpayments of fees, and
- money received into client account that can’t be attributed to a particular client or matter.
Be available and approachable
Make sure your accounts staff know who you are and where to find you.
Your role here might include putting accounts staff in touch with relevant fee earners, eg where a payment triggers some concern so they can discuss the payment in the context of the client retainer.
3. Senior staff
Be realistic: do you need to persuade your senior staff that the AML and CTF regime is serious and matters to them–not least because getting it wrong carries criminal sanctions?
It can’t hurt to remind them that they are responsible for ensuring the firm is managed effectively and in ac-cordance with proper governance and sound risk management principles, which includes tackling the risk that the firm, or anyone acting on its behalf, becomes involved in or engages in financial crime.
You’ll want to be sure that your senior staff:
- are aware of AML/CTF obligations
- are involved in approving your policies and procedures
- make informed decisions when allocating AML/CTF resources
- constructively engage with you, and
- lead by example in complying with your policies and procedures.
The key to managing this relationship is knowledge and confidence.
Do a risk assessment to identify which parts of the firm present the greatest risk and should therefore demand more of your attention and the firm’s resources. Speak with senior staff in those at-risk areas and work together to mitigate the real risks faced.
You might want to make sure there’s a statement on your relationship with senior staff in your job description–our template MLRO job description (available within LexisPSL Practice Compliance) contains the following wording:
Relationship between the nominated officer and senior management
The nominated officer has the authority to act independently of senior management in carrying out their responsibilities. They are free to have direct access to the SRA and appropriate law enforcement agencies, including NCA, in order that any suspicious activity may be reported to the correct body as soon as is practicable. They are free to liaise with NCA and any other law enforcement agency on any question of whether to proceed with a matter in the circumstances.
Senior management will ensure the nominated officer has:
- active support of senior management
- adequate resources (including appropriate staff, technology and arrangements to apply in their absence)
- independence of action
- access to relevant business information.
The last word
It’s clear you need everyone to play their part in this. The better your colleagues know what they need to do, and feel able to do it, the easier your role will be, so it definitely pays to spend some time and energy defining and nurturing your relationships.
You’re probably not about to win any popularity contest–you’re the internal police department after all. But, believe it or not, your colleagues are very likely to find a money-laundering situation incredibly stressful. A calm, informative and supportive response from you, within a defined structure, can really help to reduce the pressure and worry all round.
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