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News

Outdated screening puts law firms at risk

Datanomic : 06 August, 2009  (Technical Article)
Datanomic examines the state of screening systems used in UK law firms and concludes they are inadequate to cope with current demands
UK law firms remain oblivious to sanctions screening requirements of new and existing clients, and demonstrate a worrying lack of understanding around Her Majesty's Treasury (HMT) screening obligations, according to Compliance Screening and Data Management specialists Datanomic Ltd, and Legal RM, experts in Risk Management and compliance.

A recent survey of 115 firms in England and Wales conducted by The Law Society revealed that 74% of law firms surveyed have not checked their entire client list against HMT Sanctions lists, and 48% of firms do not screen new clients against HMT Consolidated Sanctions lists. Worryingly, it appears that many firms are still relying on outdated e-verification systems or monitoring systems that are incapable of cross checking aliases, abbreviated names, names that are transposed, or names that are transliterated from foreign characters into Latin characters. This means there is a high likelihood that law firms are unknowingly acting on behalf of terrorists, criminals, fraudsters, drug traffickers, gang leaders and money launderers.

"A law firm's duty to conduct on-going client monitoring and due diligence on a risk sensitive basis has been translated into file audits with no actual monitoring of clients whatsoever," said Christopher Giles, Managing Director of Legal RM. "With the global threat of terrorism, regulators are simply not willing to tolerate complacency when it comes to client screening. We're already seeing significant penalties and fines levied against individuals for failure to implement adequate records regarding identity verification of clients and AML risk procedures, as well as corporate fines imposed against firms."

Simon Pearson, Director of Compliance Screening for Datanomic, added, "It's a well documented fact that the use of multiple identities is common in the criminal world. In fact Al-Qaeda's own training manual requires its operatives to use false identities to hide their terrorist activities. Exploiting variations of a criminal's real name is one of the simplest ways of acquiring a new identity. The fact that law firms use verification systems that are dependent on clients giving their real name makes a mockery of the entire screening process. If they are not compliant with client screening regulations, it's important that they revaluate their screening systems for their own risk mitigation and business protection."

Datanomic's dn:Director Sanctions & PEP (Politically Exposed Persons) Screening software enables organisations to rigorously and systematically screen their customers against Sanctions, PEP, money laundering, terrorist financing and other risk data sources. Industry-leading accuracy and Datanomic's unique 'Decision Intelligence' drive down compliance costs by reducing the burden of false positives. End-to-end data preparation, case management, workflow, auditability and reporting tools ensure that businesses are protected from compliance risk.

Datanomic and Legal RM are offering a free Data Assessment Workshop for law firms which provide an in-depth analysis of your client data to identify potential weaknesses in meeting and fulfilling compliance requirements.
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