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MPs back tougher economic crime fines and oversight for lawyers

MPs have backed giving the Solicitors Regulation Authority (SRA) unlimited fining powers in cases of economic crime.

The committee scrutinising the Economic Crime and Corporate Transparency Bill also approved a new regulatory objective for the Legal Services Act 2007 that will require regulators to promote the prevention and detection of economic crime.

Speaking on Tuesday, security minister Tom Tugendhat observed that the government’s 2020 national risk assessment “assessed the legal services sector as being at high risk of exposure to money laundering”.

He continued: “The crisis in Ukraine has highlighted that the sector is exposed to further-reaching risks, such as sanctions breaches. The bill therefore contains measures that strengthen the legal sector’s response to economic crime.”

He praised the UK legal sector as “internationally renowned for its high standards of excellence and professional conduct”, acknowledging that “the vast majority of the sector is compliant with its economic crime duties”.

Mr Tugendhat continued: “However, it is crucial that regulators have the right tools to effectively promote and monitor compliance. The [new regulatory objective] puts it beyond doubt that it is the duty of legal services regulators to take appropriate action to ensure that their regulated communities comply with economic crime rules.

“It will give frontline regulators a clear basis for any supervision or enforcement action they may carry out to uphold the economic crime regime.”

Speaking for Labour, Stephen Kinnock said all MPs would welcome removing the fine cap – currently £25,000 – “if, as the government argue in their impact assessment, it increases the deterrent effect of the financial penalties that may be levied for disciplinary matters”.

He continued: “Although the government provide limited evidence to support that claim, it is at least a reasonably logical conclusion.”

But Mr Kinnock questioned how much consultation with the profession there had been, noting the “serious concerns” expressed by the Solicitors Disciplinary Tribunal earlier this year when the SRA consulted on increasing its general fining power from £2,000 to £25,000.

These focused in particular on reducing the level of transparency of decision making if cases of serious misconduct were not held before a public hearing of the tribunal.

“Could it not be argued that the government have not provided enough time for the effectiveness of recent changes to be adequately assessed?” he asked.

Mr Tugendhat replied that “removing the cap, which, in modern terms, is actually relatively low – certainly, when compared with financial abuses and other forms of regulation – is entirely reasonable”.

The tribunal remained “an extremely important part of the disciplinary process” given its power to strike off solicitors, he added.

MPs also agreed an amendment which would give the Scottish Solicitors Discipline Tribunal the power to levy unlimited fines in cases of economic crime. It is currently limited to £10,000.

The Law Society has previously spoken out against the fining power and the Bar Council against the regulatory objective and Legal Futures understands there is widespread opposition among the frontline legal regulators to the latter.

However, none made formal submissions to the bill committee, unlike the Legal Services Board (LSB).

Supporting both changes, it said: “We consider that it is possible to infer from the existing regulatory objectives in the Act that legal services regulators should be focused on identifying and preventing the involvement, by regulated legal services providers, in economic crime.

“However, we have found that the lack of explicit reference in the current framework has contributed to a position where the eight legal services regulators are taking different interpretations of the extent to which they should proactively focus on economic crime.”

As an example, it pointed to the “wide range of responses” among the regulators in response to the sanctions regime, with “some regulators far more ready than others to pursue proactive measures”.

The LSB went on: “The proposed objective would put beyond doubt that identifying and preventing the involvement of legal professionals in economic crime is within the remit of legal services regulators, including the LSB.

“This would help to ensure that economic crime receives proper focus and attention and would be of significant benefit to the public interest.”

The LSB suggested it would develop a statutory policy statement that would establish criteria that regulators would need to take account of when interpreting and implementing the objective.

At the start of the committee stage, MPs took evidence from witnesses, including renowned anti-corruption campaigner Bill Browder, whose work has focused on Russia.

He was asked about the Bar Council’s argument that the new objective could be incompatible with barristers’ duties and may confuse the role of lawyers.

Mr Browder said: “The bad guys in Russia are a big part of the problem, but you cannot export this type of corruption and money laundering unless you have somebody doing the importing.

“And who is involved in the importing? It is the western enablers – the lawyers.

“I have had shocking experiences with western law firms that are benefiting from this. If there were some kind of duty whereby they had to actually look into the source of their funding or the legitimacy of the business, I think that would be an extremely powerful thing, if it was actually enforced.

“There is a whole other long discussion of law that one could have about the role of western enablers, and particularly the lawyers.”

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