In a provocative call that’s sending ripples through the UK legal profession, Labour peer Baroness Margaret Hodge has urged the government to extend corporate criminal liability reforms to include legal professionals who fail to prevent money laundering and economic crime. Her comments were made amid growing political pressure for tougher enforcement measures against enablers of financial misconduct, particularly within the UK’s professional services sector.
Legal Futures, and other news providers, have revealed that suggestions have been made that lawyers should be prosecuted for failing to prevent money laundering and economic crime. The suggestion was made at an event addressing the role of lawyers in enabling corruption organised by the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax, and the campaign group Spotlight on Corruption.
Baroness Margaret Hodge, who is the government’s “anti-corruption champion” was the former MP for Barking, and is a long-term campaigner against global corruption who chaired the Public Accounts Committee from 2010 to 2015.
The Case for Reform
Baroness Hodge, long known for her anti-corruption campaigning, has argued that lawyers who knowingly or recklessly enable illicit financial flows should face criminal prosecution. Speaking in the House of Lords during a recent debate on economic crime, she stated:
“We must stop turning a blind eye to the role that some lawyers, accountants, and other professionals play in facilitating economic crime. If we are serious about cleaning up Britain’s reputation, we must make it a criminal offence for them to fail to prevent money laundering or fraud.”
Her comments follow the introduction of the Economic Crime and Corporate Transparency Act 2023, which included a new “failure to prevent fraud” offence for large organisations. The legislation, which applies only to companies and partnerships meeting certain size thresholds, imposes criminal liability where an associated person commits fraud and the organisation lacks reasonable prevention procedures. However, the Act stopped short of applying the same principle to regulated professionals such as solicitors and accountants acting in their personal or corporate capacities.
Given the apparent willingness of the Government to single out lawyers as the prime cause of the nation’s ills, it can only be a matter of time before the provisions of the 2023 Act are made to apply to them.
Lawyers in the Spotlight
Legal professionals are already subject to stringent anti-money laundering (AML) obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and must comply with guidance issued by the Solicitors Regulation Authority (SRA). However, critics like Baroness Hodge argue that the existing regulatory regime is inadequate and lacks sufficient deterrent power.
The latest push for tougher sanctions will not come as a surprise for most law firms who are already feeling the constant pressure of a Solicitors Regulation Authority who seem determined to excoriate all firms for failings to comply with even the most minor of AML regulatory breaches – irrespective of whether or not there was even the even the merest hint that money laundering was being assisted.
It is inevitable that yet greater responsibilities will be placed upon the legal profession. The Legal Services Board in their “Consultation on Guidance for New Regulatory Objective on Economic Crime” published in November 2024 and which closed in February 2025, have been looking at the new regulatory objective of ‘promoting the prevention and detection of economic crime’, from section 1(1)(i) of the Legal Services Act 2007 (“the Act”), as added by the Economic Crime and Corporate Transparency Act 2023. That consultation puts forward four outcomes that regulators should pursue to ensure compliance with the new economic crime regulatory objective:
- Understand the risks and issues that may lead to the regulated sector facilitating economic crime and take appropriate actions to prevent and detect their occurrence.
- Ensure that authorised persons understand their duties and the risks related to economic crime in the provision of legal services and are supported to act in a manner that upholds the rule of law and adheres to the professional principles and other regulatory obligations.
- Monitor authorised persons’ compliance with any standards developed by regulators to support the prevention and detection of economic crime and address instances where authorised persons fail to comply.
- Maintain active evaluation of any implemented standards and procedures to ensure they continue to be fit for purpose in addressing economic crime risks over the long term.
It can only be in a parallel universe that these requirements will not translate into greater regulation and regulatory oversight of solicitors – especially now that Baroness Hodge is on their case!
A Broader Reform Agenda
Baroness Hodge’s intervention is part of a wider movement seeking to strengthen the UK’s economic crime framework. In the wake of the Russia sanctions regime and renewed scrutiny of financial secrecy, both Conservative and Labour MPs have backed calls to improve enforcement, boost transparency, and hold professional enablers to account.
The government has indicated that it is considering further reforms, including a potential extension of the failure to prevent offences beyond fraud to encompass money laundering and other economic crimes. Any such changes would likely have major implications for compliance obligations across the legal sector.
The problem of course, is not that simple and there is a danger that the solutions that may be adopted will not only damage the legal profession but also force law firms to charge more for the work that they do – so that they can absorb the increased regulatory costs – or even to go out of business. If we are not careful we will risk throwing-out both the baby and the bathwater and leaving the legal profession so over-regulated that it cannot continue in a cost effective manner to serve its primary purpose – serving and protecting the public. The government should recognise that the more pressure that is put upon a sector the closer we get to that sector suffering as a consequence. Society needs its lawyers and will only realistically be able to retain them for as long as it is possible for them to operate in a manner that is not unduly burdensome.
There are already signs that all is not well, as those who attended the Law Society’s recent Risk and Compliance Conference will have realised. The Law Society’s Gazette reported in an article entitled “In depth: Risk and compliance conference – AML, ethics and workplace culture” that:
“The regulator’s sanctions against all types of firm for not having MLR-proof risk assessments and procedures was the biggest cloud looming over the conference. A whole session was dedicated to what measures can be taken to avoid disciplinary action, with the main takeaway being that this has to be front and centre of training for everyone dealing with high-risk client matters”.
The Law Society has previously cautioned against measures that could criminalise inadvertent compliance failures, particularly given the complexity and evolving nature of AML compliance. They have stated that whilst they fully support efforts to tackle money laundering and economic crime, it is nevertheless vital that any legislative proposals are proportionate and preserve the independence of the legal profession. Criminalising failures to prevent economic crime risks creating a chilling effect on lawyers’ ability to act in the best interests of their clients.
Some legal commentators argue that a clearer distinction is needed between wilful facilitation of crime and honest mistakes made in complex transactions. Others, however, note that the regulatory enforcement regime has historically struggled to hold powerful professionals to account, reinforcing public perceptions of double standards.
What is undoubtedly needed is a means by which the requirements being placed upon legal practitioners are proportionate to the risk they present. Some degree of responsibility must inevitably lie with the firms themselves and, whilst many firms are doing what is required of them in a perfectly adequate manner, there is still a sizeable number of firms that are not and who are simply ignoring the constant reminders that they receive. Perhaps the SRA should be focusing its attention on those firms rather than penalising those who have seen the error of their ways, implemented appropriate safeguards and who are now doing that which is required of them. The fact that they did not do so five or even seven years ago when they were not policing the profession on such matters nearly as extensively as they are now doing should be taken into account. It is also a common byline of almost all such reports that no money laundering was found to be occurring as a result leading to sledge hammers and small nuts analogies.
What Comes Next?
So what is likely to happen? For now, Baroness Hodge’s call is not backed by formal legislative proposals, but her remarks are likely to add momentum to ongoing discussions around professional accountability and economic crime. With the SRA recently stepping up its scrutiny of firms’ AML systems and controls, and HM Treasury continuing its review of the UK’s AML regime, lawyers may face increasing regulatory and reputational risks if reforms go further.
Whether or not criminal liability for failing to prevent economic crime becomes a reality, the message is clear: the role of the legal profession in safeguarding the integrity of the UK’s financial system is under closer scrutiny than ever before and firms must recognise the need to proceed with care.