Blind trust in long-term clients puts regulated firms at risk of fuelling sanction evasion

By Bridging Loan Directory 11th January 2024

Regulated firms risk becoming enablers for sanction evasion by trusting long-term client relationships over critical compliance checks, new survey data can reveal.

A staggering 41 percent of firms said they are confident that none of their clients are listed on sanction or PEP (politically-exposed person) lists because they have worked with them for a long time.

Meanwhile, more than a third of firms (35%) said it was because they trust their clients. That is almost three times as many as in the previous year’s survey (12%).

This is in spite of the UK’s growing sanction regime over the past 12 months, fuelled by the Russian invasion of Ukraine.

Amongst the thousands of ever-changing sanctions facing Russian nationals and entities, there are now almost 30 countries on the UK sanctions list.

Compliance experts warn that firms who breach sanction rules could be seen as complicit in enabling sanction evasion, running the risk of eye-watering fines, reputational damage and even criminal prosecution.

The findings are revealed in a comprehensive new survey of 500 decision-makers in regulated UK businesses across the legal, property, finance and accountancy sectors.

The research was commissioned by SmartSearch, the UK’s leading provider of anti-money laundering (AML) and digital compliance solutions.

The survey found that firms in financial services (44%) are most likely to rely on client relations over vital sanctions and PEP screening, closely followed by accountants (42%) and property firms, including estate agents (40%).

More than a third of legal firms, including solicitors and conveyancers (37%) believe that long-term client relationships negate the need for due diligence.

Almost the same number of legal firms (32%) said it was because they trust their clients – nearly three times as many as the 2022 findings (11%).

The findings follow warnings from authorities, including the Joint Money Laundering Intelligence Taskforce, urging firms to implement robust checks to avoid becoming enablers for sanction evasion.

A recent red alert from JMLIT identified legal professionals, financial advisers, estate agents and intermediaries as the most susceptible to enabling evasion.

It comes as Designated Persons utilise associates, relatives or close contacts to transfer assets and protect their personal or commercial holdings.

Guy Harrison, CEO of SmartSearch, said:

“Complacency is all too often the enemy of compliance and, while trust is important in any client relationship, it shouldn’t trump the robust checks required by law.

This is especially true given the UK’s current stance on sanctions and the opportunity for existing clients to suddenly come under greater scrutiny.

Without necessary screening and real-time intelligence, it’s worryingly easy for regulated firms to be unknowingly complicit in sanction evasion.

Alongside screening for new and existing clients, the use of contacts to front transactions or to hold assets means firms must take a much more robust approach to sanctions due diligence.

Advancements in digital compliance technologies are bringing greater efficiencies to firms by eliminating risky and onerous manual tasks and standardising processes for secure client onboarding and monitoring.”