Are family lawyers now subject to the anti-money laundering regime?

The anti-money laundering (“AML”) regime for law firms has now been in place for 20 years, starting with the coming into force of the Proceeds of Crime Act 2002 (“POCA”) followed by a succession of Money Laundering Regulations (MLR). Over that time the regime has become progressively more detailed and its enforcement stricter, with the SRA stating in July this year that this will remain a priority concern for them and that “repeated or sustained breaches of our rules could lead to disciplinary action”.

Against this backdrop it is important to recognise that Family Lawyers in general, and specialist Family Law practices even more so, now find themselves at much greater risk of regulatory action as the result of increased involvement in the AML regime following the recently changed definition of what it means to be a “tax adviser”.

To explain further, the AML regime consists of the main criminal offences in POCA, most of which are general offences that might be committed by all, and the MLR 2017 (as amended) which apply to those stated to be within the “regulated sector” only. Rather than stating that certain professions and sectors such as solicitors, accountants and banks are subject to the regulations, the MLR have always instead described the sorts of activities that will generate the need to comply. So far as law firms are concerned these were previously described in terms of transactional work only, such as conveyancing and corporate advice services most obviously, with litigation not included as such.

On this basis “tax advisers” were always also included, and what has changed for family law advisers is how this term is now defined. Whereas the “tax adviser” category was formerly limited to those who provided direct advice on taxation issues this has now been extended to include those who also provide:

“material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”

This revised wording – on the basis of the italicised text in particular – clearly stands to bring most family lawyers into the regulated sector in relation to the ancillary financial issues that arise in most breakdown situations. Although there has been some prevarication on this issue in advice provided by the SRA, the revised wording should be understood to mean that if advising a client that there may be tax implications from the way in which the finances will be arranged, and that the client should therefore seek specialist advice on this aspect of any proposed settlement, the family lawyer will be regarded as being a tax adviser by simply making this suggestion.

By way of an explanation of how this revised wording should be understood to apply, the SRA issued a guidance note on the 5th November 2020 in which they sought to distinguish the provision of tax advice from merely “providing information”. All will depend, they suggest, on whether the information you provide to your clients is “tailored in any way to the tax-relevant circumstances of the client”, and whenever this is the case it will be more likely to fall within the definition.

Unfortunately, the lack of a clear position on the crucial “in or out” position so far as family lawyers being subject to the MLR 2017 are concerned is unhelpful to most such advisers. Simplest of all we can fairly conclude that lawyers who are not involved in ancillary disputes or settlements, for example child care lawyers, should be able to conclude that they remain outside the scope of the regulations, but the safest course of action for divorce practitioners would be to assume that they should now regard themselves, or their part of a mixed practice, as now being within the regulated sector.

So what will this mean in practical terms? First, there is the need to conduct and record an AML risk assessment as required by r.18 of the MLR 2017, and then adopt an AML policy which must be based on its outcome. The authorities are keen to avoid the adoption of simple boilerplate policy drafts and so consideration should be given to the particular circumstances of the firm in question. The risk assessment and policy should be kept under constant review, and on an annual basis ideally. Ongoing training in the topic, and ideally the firm’s own policy as well, is also required by r.24 of the regulations. Apart from this all client identities will need to be assessed and recorded as such, though this is now common practice in any event and a requirement for all practitioners, in accordance with para 8.1 of the SRA Code of Conduct for Solicitors, and also the various quality standards such as Lexcel and the legal aid SQM.

And the good news? Although forming part of the regulated sector the practical risks of money laundering activity for family law are clearly much less than is the case with conveyancing work. On the basis of the “risk principle” which underpins the MLR 2017 it should, therefore be possible to adopt a lighter touch policy than those required by those involved in transactional work.

Matthew Moore is a Director at Infolegal, one of the leading providers of regulatory, compliance and management support services and resources to solicitors in England and Wales.

Join nearly 1,000 other family lawyers – sign up to our newsletter