Money laundering has received significant news coverage in recent years. However, amid the exposés of criminal activity and financial misdeeds, the role of enablers is often overlooked. These bad actors facilitate the laundering of illegal activity for corrupt individuals and organised criminal networks, helping them, in some instances, evade taxes and maximise the profit and harm caused by criminality.
To combat money laundering, we need to focus on these intermediaries and enablers to strengthen the vulnerabilities currently found in the conveyancing experience, as Adrian Nkwor, PEXA, explains.
Vigilance is key
Law firms play a fundamental role in maintaining the integrity of the UK’s financial sector. But they also have the potential to become unwitting accomplices in money laundering activities as passive enablers inadvertently facilitating illicit activities through negligence or inadequate implementation of AML controls. Passive enablers often fail to perform proper due diligence, which involves verifying clients’ identities, understanding the nature of their business, or properly monitoring transactions for suspicious activities. This lack of oversight can create ripe opportunities for corrupt individuals and organised criminal networks to exploit the financial system. Passive enablers may also lack the commitment to implementing effective AML systems commensurate to their operations.
A key contributing factor to the existence of passive enablers is the lack of awareness and understanding of the true extent of money laundering risk. Many firms may underestimate their exposure to money laundering threats (for example, they may consider themselves too small to capture the attention of money launderers), which often leads to complacency and the insufficient allocation of resources needed to invest in AML compliance tools.
Recent enforcement activities carried out in the UK by regulatory authorities has driven home their priority in combatting money laundering and the need to put in place measures to counteract the plurality of passive enablers. Firms have, for all intents and purposes, been put on notice to prioritise building out robust AML systems and to embrace a culture of compliance through improved due diligence measures, thereby minimising their vulnerability that it might be used by criminals to further financial crime.
The best defence is a unified approach
A concerted industry-wide strategy is required to strengthen upstream and downstream vulnerabilities that may occur across the conveyancing and financial services sectors. This includes documenting the claims made by customers at the onboarding stage and throughout the relationship with them. For example, providing false or misleading information during the onboarding process can point towards and provide crucial evidence of criminal intent, which regulatory authorities can use to prosecute those involved.
Furthermore, firms must ensure they have comprehensive knowledge of their customers, beneficial ownership structures, and a working relationship with intermediaries.
Technology can help
Money launderers have become increasingly sophisticated in their methods, exploiting the rapid digitisation of financial services to their advantage, which means providers of technology need to stay one step ahead.
At PEXA, we’re always looking for ways we can support the industry strengthen their security posture. Our own customer onboarding process involves the collection and validation of a number of data points, giving everyone in the PEXA network the peace of mind that every lender and law firm they interact with on our platform has been through the same rigorous process as they have.
Additionally, earlier this year we were pleased to introduce account verification capability, allowing our customers to check account names, numbers and sort codes at the point of keying them into the PEXA platform.
A risk-based approach to reducing money laundering should prioritise consumer protection. Firms will need to review and evolve their controls to ensure they remain proportionate to emerging risks and suitable for their customer base. Using data-led intelligence to refine control frameworks will protect legitimate customers, impede organised criminal networks, and provide a secure conveyancing experience.
This episode of the Legal Sector Resilience podcast with PEXA is ideal for property lawyers in Wales. It’s a conversation we’ve been looking forward to hosting, to explore how PEXA aims to transform the remortgaging and home buying process in Wales and England, and specifically its support for law firms and lenders in Wales.
With James Bawa, CEO and Heather Crichton, General Manager – Industry Readiness, at PEXA, our Editor Emma Waddingham explores what the solution offers to professionals and consumers, and how PEXA addresses the many challenges conveyancers face and help them empower clients. It’s clear PEXA has a strong mission to add value to the property industry, to support law firms and enable them to offer an exceptional consumer experience, to support them in competing for work locally and nationally and to engage with technology in a cost-effective, meaningful way. Click here to stream the episode.