Regulated firms are at risk of becoming enablers for sanction evasion by trusting long-term client relationships over critical compliance checks, a new SmartSearch survey has revealed.

Over two in five (41%) firms said they are confident that none of their clients are listed on sanction or political-exposed person (PEP) lists because they have worked with them for a long time.

Meanwhile, more than a third (35%) of firms said it was because they trust their clients, which is almost three times as many as in the previous year’s survey (12%).

SmartSearch added that this is in spite of the UK’s growing sanction regime over the past 12 months, fuelled by the Russian invasion of Ukraine. Among the thousands of ever-changing sanctions facing Russian nationals and entities, there are now almost 30 countries on the UK sanctions list.

Compliance experts have warned that firms who breach sanctions rules could be seen as complicit in enabling sanction evasion, running the risk of hefty fines, reputational damage and even criminal prosecution.

The SmartSearch survey of 500 decision-makers in regulated UK businesses across the legal, property, finance and accountancy sectors, found that firms in financial services (44%) are more likely to rely on client relations when conducting vital sanctions and PEP screening, closely followed by accountants (42%) and property firms, including estate agents (40%).

More than a third of legal firms, including solicitors and conveyancers (37%) believe that long-term client relationships negate the need for due diligence. Almost the same number of legal firms (32%) said it was because they trust they clients, nearly three times as much as the 2022 findings (11%).

The findings come as authorities, including the Joint Money Laundering Intelligence Taskforce, warns firms to implement robust checks to avoid becoming enablers for sanction evasion. A recent red alert from the taskforce identified legal professionals, financial advisers, estate agents and intermediaries as the most susceptible to enabling evasion.

Chief executive officer at SmartSearch, Guy Harrison, said: "Complacency is all too often the enemy of compliance and, while trust is important in any client relationship, it shouldn’t trump the robust checks required by law. This is especially true given the UK’s current stance on sanctions and the opportunity for existing clients to suddenly come under greater scrutiny. Without necessary screening and real-time intelligence, it’s worryingly easy for regulated firms to be unknowingly complicit in sanction evasion.

"Alongside screening for new and existing clients, the use of contacts to front transactions or to hold assets means firms must take a much more robust approach to sanctions due diligence. Advancements in digital compliance technologies are bringing greater efficiencies to firms by eliminating risky and onerous manual tasks and standardising processes for secure client onboarding and monitoring."

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