In a landmark ruling, the Solicitors Regulation Authority (SRA) fined leading US law firm Simpson Thacher & Bartlett £300,000 for failing to implement adequate anti-money laundering compliance measures in its London office. This penalty marks the largest fine ever imposed for breaches of this nature, highlighting the increasing scrutiny of law firms’ AML obligations in the UK.

The Scope of the Breach

The Solicitors Disciplinary Tribunal (SDT) approved the agreed outcome between the SRA and Simpson Thacher after it was found that between June 2017 and March 2020, the firm failed to implement a firm-wide risk assessment. Additionally, between June 2017 and October 2022, the firm lacked compliant client and matter risk assessments on four files.

Furthermore, between June 2017 and January 2023, Simpson Thacher did not have fully compliant policies, controls, or procedures in place, as mandated by the Money Laundering Regulations 2017.

A Regulatory Crackdown on AML Failures

The investigation into Simpson Thacher’s anti-money laundering compliance began in 2021 when the SRA’s AML proactive supervision team selected the firm for a routine desk-based review. By the time the SRA referred the case to the SDT in November 2023, the firm had achieved full compliance. However, the SRA proceeded with sanctions, underscoring the importance of historical AML compliance rather than just remedial action.

This case follows last year’s £500,000 fine imposed on Clyde & Co, another City law firm, for similar AML failures. The SRA has been actively sanctioning smaller firms for compliance shortcomings, demonstrating its firm stance on preventing money laundering within the legal sector.

Simpson Thacher Responds

Following the ruling, a spokesperson for Simpson Thacher & Bartlett LLP stated: “We are pleased that the tribunal has accepted the resolution agreed with the SRA in respect of this matter. The London office acknowledges and regrets certain historic shortcomings in some of our UK AML written policies and procedures and has made significant investments to enhance our robust compliance function.”

The firm was also ordered to pay £62,000 in SRA costs, which added to the financial burden of regulatory penalties.

Evolving AML Regulations and SRA’s Fining Powers

Simpson Thacher’s fine reflects the limitations of previous SRA fining powers. As a traditional law firm, the SRA could only fine it up to £25,000, necessitating an SDT referral for a higher penalty. However, the recent Economic Crime and Corporate Transparency Act 2023 has granted the SRA unlimited fining powers for breaches related to economic crime, meaning similar future cases may not require SDT intervention.

An SRA spokesperson reinforced the importance of compliance, stating: “Money laundering is not a victimless crime and can have detrimental effects on many, many people. Solicitors have an important role to play in keeping the profits of crime out of the profession and the wider UK economy.”

He emphasised that law firms must focus on catching money launderers and eliminating risk through effective policies, procedures, and personnel.

Challenges for US Law Firms in the UK

Regulatory experts note that anti-money laundering compliance can be challenging for US-based law firms operating in the UK, as parent companies in the US are often not subject to the same obligations. This discrepancy has led to cases like Simpson Thacher’s, where compliance failures stemmed from a lack of robust UK-specific AML frameworks.

Future of AML Fining Guidelines

In response to recent enforcement actions, the SRA consulted on new fining guidelines, including how to apply its economic crime powers. However, this consultation received strong pushback from legal professionals, prompting the SRA to consider further consultation before finalising financial penalty frameworks.

Additionally, the SDT is reviewing its sanctions framework, aiming to ensure compatibility with the SRA’s new approach. The outcome of these reviews will shape the future of AML enforcement within the legal sector, potentially leading to even stricter compliance expectations.

A Stark Reminder for All Law Firms About the Importance of Anti-Money Laundering Compliance

The £300,000 fine imposed on Simpson Thacher & Bartlett reminds us of the increasing regulatory scrutiny of anti-money laundering compliance within the legal profession. As the SRA strengthens its enforcement powers, law firms must proactively ensure comprehensive AML procedures to avoid financial penalties and reputational damage. Viable solutions in technology have helped firms create effective AML procedures to ensure they are meeting their compliance obligations.

With the Economic Crime and Corporate Transparency Act 2023 now in force, firms can no longer rely on historic compliance efforts to mitigate regulatory action. Instead, maintaining rigorous and up-to-date AML controls is crucial to navigating the evolving UK legal regulatory landscape.