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Sanctions screening is a core element of due diligence for law firms - especially those advising regulated clients - because sanctions touch every area of practice and can make otherwise routine work unlawful.

The legal sector is classed as a “high-risk” industry, and therefore, law firms sit squarely in the crosshairs of cyber criminals, known as “Threat Actors” by the National Cyber Security Centre (NCSC); a 2024 study by Chartered Accountants Lubbock Fine shows that successful cyber attacks against UK law Firms rose by 77% from 538 to 954 in just 12 months.

In 2023, the Solicitors Regulation Authority (SRA) identified four emerging threats in the Sectoral Risk Assessment, one of which is Proliferation Financing. This relatively new concern, which covers the movement of funds or financial services to support the development, acquisition or distribution of weapons of mass destruction, poses particularly complex challenges for law firms, whose trusted client relationships and cross‑border transactions can be exploited to mask illicit finance or support.

Understanding the mechanics of money laundering is essential for any law firm. Criminals employ a variety of tactics to disguise the illicit origins of their funds, from layering via complex financial transactions to integrating funds through seemingly legitimate businesses. Among these, smurfing remains one of the most widely used methods within the placement stage; sums of cash are broken down into smaller transactions to make monitoring harder. 

Many of the UK’s industries have long-since made the shift towards more digitalised processes, investing in areas such as AI-powered solutions and cloud-based infrastructure. However, the legal sector is one where traditional paper-based systems are still common-place. That now is changing at pace with more and more firms embarking on a digital transformation; in fact, this 2023 study by Thomson Reuters states that 83% of legal professionals believe it is now highly important or central to their strategy. As a result, firms that haven’t “kept up with the times” could be at risk of being left behind.

To stay vigilant against financial crime such as money laundering and terrorist financing, law firms must take a risk-based approach towards the clients and matters that they deal with. “Know Your Customer” (KYC) encompasses a series of important checks and monitoring that legal professionals must undertake at the start of (and during) business relationships. 

As criminal activities become more sophisticated and harder to track, the risk of money laundering has become particularly rife in the UK. These ever present threats require proactive  vigilance from those within legal firms. 

Money laundering remains a significant concern for law firms in the UK, as criminals around the world seek to exploit legal services to legitimise illicit funds. In 2023/2024 alone, the SRA submitted 23 suspicious activity reports through the course of its own work, performed 237 proactive inspections, and brought enforcement action against 78 firms and individuals - representing the persistence of this issue.

According to the National Crime Agency (NCA), it is a realistic proposition that upwards of £100 billion is laundered through and within UK-registered corporate structures each year; a staggering statistic which puts the level of threat that money laundering creates into perspective. The layering stage of money laundering is perhaps one of the most elusive - where illicit funds are disguised through complex and seemingly legitimate financial transactions. 

For legal professionals, conducting “Know Your Customer” (KYC) checks are an essential component of Anti-Money Laundering (AML) compliance. These rigorous measures check a client’s identity by examining key information and documents about them, to assess the potential for their connection with financial crimes such as money laundering or terrorist financing.