SRA tells firms not to charge for money laundering checks

20 June, 2016

In a worrying trend some law firms have begun passing on the costs for money laundering due diligence checks to their clients, a practise that the Solicitors Regulation Authority (SRA) has said breaks the rules.

Under current money laundering regulations, law firms are legally require to conduct client due diligence (CDD). However, a new report on anti-money laundering from the SRA, has said: It is our view that the cost of undertaking CDD cannot therefore be treated as a disbursement, since it is not a cost incurred on behalf of the client.

“Firms will be at risk under outcome 8.1 if CDD payments are described in their bills to clients as disbursements. As a general rule, we would expect such charges to form part of a firm’s overheads.”

In addition, the SRA said there “may on occasion be circumstances” where the cost of the due diligence was “particularly high”. They said that in cases such as these the costs should be agreed ahead of the provision of services.

In order to comply with Outcomes (1.12) and (1.13), you should explain the likely cost with your client and obtain your client’s informed consent at the outset of the retainer. If your client agrees to bear the cost, it should be listed in your bill as part of your profit costs.

The report, based on visits to over 250 law firms across the UK, checked the processes firms had in place to guard against money laundering, which found that the majority of firms already had strong anti-money laundering strategies in place.

“We identified that in most cases fee-earners were making enquiries of clients in respect of their source of funds and source of wealth. However, the client’s response was often taken at face value, with no request for any supporting documentation or corroborating information,” the report added.

The report also found weaknesses in reviewing anti-money laundering policies and a lack of training for finance staff within the practice.

Paul Philip, chief executive of the SRA, said: “Our analysis shows that the vast majority of the firms we visited take their responsibilities seriously and compliance is good. But of course, this report is just a snapshot and the challenges are evolving, so there is no room for complacency.

“Firms need to remain vigilant and keep up to date. We will continue to work with all the relevant authorities to play our part in tackling money laundering and we will take firm action where we find issues.”

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