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The Panama papers…and the ICA conference


By Leah Darbyshire, head of the Legal Compliance Association

‘Panama’, as a revelation, has got all the political types talking but, clearly, there are links to money laundering and implications for law firm compliance officers. Not least because the SRA has launched a probe into four law firms who had links to tarnished firm Mossack Fonseca and these are firms we have all heard of, not the back street high street practices that the SRA is normally investigating.

Comments made by legal professionals on this story suggest that the issue here is a moral one and that the exercise is only a PR one, in which the SRA will demonstrate its seriousness about such matters. But what we, the LCA, need to understand is how it will impact your day job, as law firm compliance officers.

Third party risk management

Our suggestion is - and we have been pushing this agenda for some time - that law firms will need to get a bit wiser about third party risk management. Our research shows that this has not been implemented by many law firms yet, despite the fact that corporate organisations, many of your clients, have been very active in auditing their suppliers (which include you!) and that the chances are that they will pass this monitoring down the chain.

Some law firms are beginning to look at this area, driven by implementation of the Modern Slavery Act and/or their adoption of the ISO270001 standard but these firms are still in the minority overall.

It has been said that some of the ‘dodgy’ clients in the London property market are being put forward by unscrupulous estate agents. So, we wouldn’t be surprised if the SRA introduced requirements for you to really get to know and audit all of your referrers, partners and suppliers, in fact any organisations you are working with. For now, the regulator would probably say that sensible third party risk management is obviously required in order to achieve the regulatory outcomes it has set for you.

Until the SRA announces any more specific regulation in this area, we would recommend that you look into introducing best practice supplier or third party risk management processes into your firm, if you haven’t done so already.

On the other side of the coin, the Panama revelations would seem to stress the importance of knowing your client and your clients’ client and the large-scale impact (negative press coverage, reputational damage) that any associations with a client who is seen as ‘corrupt’ can have. In South Africa, the Gupta family have had their accounts closed by their bank and while such matters are normally kept confidential by banking institutions, it is the Guptas that have decided to go public, thus implicating the bank.

Is ‘Panama’ a help or a headache?

You probably already have the tools in your armoury to investigate your clients in-depth but what the SRA probe should do is help you to get across the importance of assessing risk at the client inception stage to those fee-earners, even board members, who haven’t previously been entirely bought in.

Panama is no doubt being mentioned in compliance training courses around the country as we speak.

There are those that feel the SRA has not done enough to enforce regulation. This has left the compliance officers for legal practice (COLPs), who report to the regulator, devoid of a stick. Potentially, this latest probe is the stick you have been waiting for…

National Crime Agency (NCA) reviewing ‘consent’

We were expecting references to hot topic ‘Panama’ at the International Compliance Association conference last week and we weren’t disappointed. Deputy Director of the National Crime Agency, Nigel Kirby, joked that he could have been in Panama that morning instead of speaking to us in London. That caused one audience member to suggest that there might be an issue with hotel availability in the country, with law enforcement agencies all over the world flocking there, in the absence of any streamlined international co-operation.

Kirby’s position on Panama was clear; if the activity isn’t illegal then the National Crime Agency will not get involved. Whether it is ethical or not is another matter, often strongly linked to a person’s political viewpoint, and if Kirby had opinions about that he certainly wasn’t able to share them.

Kirby’s main agenda for the morning was the new UK Anti-Money Laundering Plan which he said would likely be revealed by the Prime Minister next month, at a scheduled anti-corruption summit (whether or not you think that is ironic or not may also depend on your political persuasion…).

While Kirby could not reveal the detail of the Plan itself, he was able to hint that the NCA has been seriously reviewing the concept of ‘consent’ after collaborating ‘with industry’ on the design of the Plan itself. The LCA had earlier reported potential changes to consent following ARK’s 12th Anti-money laundering compliance for law firms’ conference, held in February.

Hearing it from the horse’s mouth we were able to understand better that the reason for removing consent is to overcome the NCA’s resourcing issue. While the Prime Minister talks regularly about ‘cleaning up’ London, ARK’s February conference revealed that there are only 80 people handling 380,000 SARs reports annually at the NCA. That’s an average of 4,500 reports for each officer to read each year. The NCA’s team is, as we reported earlier, regularly headhunted by banks and law firms, too, creating a retention issue.

As Kirby pointed out, the quantity of reports is driven by industry and if these increase exponentially the NCA team will have to resource up exponentially to match them so it is not a sensible way to run things, from its perspective.

Another reason for removing ‘consent’ is that the NCA is rarely able to make an arrest purely because a SAR has been made. However, if a police force sees that a SAR has been logged against an individual previously what that does provide is a ‘clue’ or ‘lead’.

Kirby also highlighted recent co-operation between the NCA; the FCA and 10 major banks based in the City of London which has led to 11 arrests to date. We discovered in February that the NCA is working with the Law Society in our sector. But could there be an opportunity for the City of London Law Society to join this pre-existing financial services committee, too?

Tools to help you

The LCA’s sister association is the International Compliance Association (ICA).  The ICA is active in 136 countries and has produced 100,000 certifications since its inception at the beginning of the millennium, with its goal being to professionalise compliance. Simply put, the ICA’s agenda is to put compliance officers on an equal professional footing with accountants and lawyers. If you are a compliance professional in a law firm, and you are a lawyer, you probably already feel like you belong to a profession but if you are not then this is probably welcome news to you!

The ICA conference on 13th April also explored current drivers for compliance in financial services; the implementation of the new Senior Managers Regime (SMR) in that sector; sanctions; conduct risk and terrorist financing, among other related subjects.

Don’t forget that legal compliance certification, delivered by experts including our own LCA board member Tracey Calvert, is now available through the ICA. See here for more details.

Thanks are due to our colleagues at the International Compliance Association.

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