Client Due Diligence (CDD) for legal firms is a multifaceted and continuous process designed to mitigate money laundering and terrorist financing risks. While client identification and verification are fundamental components, effective CDD goes much further, demanding a thorough understanding of:

• The Nature and Purpose of the Business Relationship: What is the client's objective, and how does the engagement align with their known profile?

• Geographic Risk: Are there connections to High-Risk Third Countries (HRTCs) or jurisdictions with elevated corruption levels?

• Client Risk Factors: Is the client, or anyone associated with them, a Politically Exposed Person (PEP), or do they present other specific risk indicators?

• Sanctions Compliance: Rigorous screening against all relevant sanctions lists.

• Reputational Risk: Scrutiny of adverse media and other public information to identify potential illicit activity or reputational concerns.

• Ongoing Monitoring: Regularly reviewing and updating client information and transaction behaviour to ensure consistency with initial assessment

The Firm-Wide Risk Assessment (FWRA) is foundational for AML compliance in the legal sector. It's a legal requirement (Regulation 18, MLRs 2017) that helps firms:

• Identify and understand their unique AML risks (clients, services, geographies, transactions and delivery channels).

• Tailor their Policies, Controls, and Procedures (PCPs) accordingly.

• Guide individual client/matter risk assessments.

• Demonstrate compliance to regulators 

Without it, a firm's AML defence is incomplete and non-compliant. It's a living document requiring regular updates.

The Money Laundering Reporting Officer (MLRO) is a senior individual within a legal firm (or other regulated entity) responsible for overseeing the firm's compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.

Their primary duties include:

• Receiving and assessing internal reports of suspicious activity from staff.

• Determining whether a Suspicious Activity Report (SAR) should be made to the National Crime Agency (NCA).

• Acting as the main point of contact for the NCA regarding AML/CTF matters.

• Ensuring the firm's AML policies, controls, and procedures are effective and kept up to date.

References in MLR 2017 and LSAG 2025:

• Money Laundering Regulations 2017 (MLRs): The requirement for a firm to appoint an MLRO (or an equivalent role, depending on the firm's structure and size) is primarily found in Regulation 21(1)(a), which mandates firms to establish policies, controls, and procedures, including "an individual nominated by the relevant person to be responsible for the relevant person's compliance with these Regulations." While not always explicitly named "MLRO" in the Regulation itself, this is the role's statutory basis.

• Legal Sector Affinity Group (LSAG) Guidance 2025: The LSAG Guidance provides extensive detail on the MLRO's role and responsibilities. It elaborates on their independence, authority, reporting lines, training needs, and the specific duties related to internal and external suspicious activity reporting. The guidance consistently refers to the MLRO (Money Laundering Reporting Officer) as the key figure for AML compliance within a firm.

In essence, the MLRO is the designated "gatekeeper" and ultimate internal authority for a firm's AML/CTF compliance and reporting obligations.

The National Crime Agency (NCA) is the UK's lead law enforcement agency for tackling serious and organised crime.

Think of it as the UK's equivalent to the FBI, focusing on high-level criminal threats that cross regional, national, and international borders.

Key responsibilities of the NCA include:

• Investigating serious organised crime: This covers a wide range of activities such as human trafficking, drug trafficking, cybercrime, and economic crime.
• Leading the fight against economic crime: A significant part of their work involves disrupting money laundering, bribery, and corruption, as these underpin much of organised crime.
• Receiving and analysing Suspicious Activity Reports (SARs): The NCA houses the UK Financial Intelligence Unit (UKFIU), which is the central point for businesses (including legal firms) to report suspicious financial activity related to money laundering or terrorist financing. These SARs are vital intelligence for their investigations.
• Working with international partners: Given the cross-border nature of serious crime, the NCA collaborates extensively with law enforcement agencies globally.
• Providing intelligence and capabilities: They gather, store, process, and disseminate criminal intelligence, and offer specialist capabilities to support other police forces and agencies across the UK. 

In essence, the NCA plays a crucial role in safeguarding the UK from the most serious criminal threats, with a particular focus on disrupting the financial flows that enable these illicit activities.

Policies, Controls, and Procedures (PCPs) are vital for AML in the legal sector because they are legally required (MLR 2017, Regulation 19) and translate a firm's identified money laundering risks into clear, actionable steps.

PCPs ensure consistent AML practices, guide staff on their duties (e.g., CDD, reporting suspicious activity), and demonstrate to regulators (like the SRA) that the firm has a robust, practical system to prevent financial crime. They are the operational blueprint for AML compliance.

A Suspicious Activity Report (SAR) is a confidential disclosure made to the National Crime Agency (NCA) when a regulated professional knows, suspects, or has reasonable grounds to suspect money laundering or terrorist financing.

There are three main types of SARs:

1. Information SAR: This is a standard report made to alert the NCA to known or suspected money laundering or terrorist financing. It doesn't seek a defence for a future action.

2. Defence Against Money Laundering (DAML) SAR: Submitted when a firm suspects they might be dealing with criminal property and need the NCA's "appropriate consent" to proceed with a transaction or activity without committing a money laundering offence.

3. Defence Against Terrorist Financing (DATF) SAR: Similar to a DAML, but specifically for situations where there's a suspicion of terrorist property or financing, and consent is sought to avoid committing a terrorist financing offence.