Only a quarter (25%) of regulated firms in 2023 always check new customers against sanctions or politically exposed person (PEP) lists, down from 73% of firms in 2022, new survey data by SmartSearch has found.

The anti-money laundering and digital compliance firm found that of 500 compliance decision-makers, just 24% of legal firms always perform checks in 2023, after previously standing at 84% of firms.

The financial services sector has also seen a drop in the number of firms always carrying out checks, dropping from 66% in 2022 to 22% in 2023. Estate agents saw a similar downturn, dropping from 37% to 24% in the same period.

SmartSearch said the decline is “particularly alarming” given the recent global geopolitical tensions between the West and China, which are echoing the lessons from the raft of sanctions against Russia in 2022.

The firm said the introduction of new sanctions could swiftly covert seemingly low-risk, longstanding UK clients into high-risk entities overnight, underscoring the need for robust compliance processes to avoid the substantial fines associated with a breach.

The Government has estimated that money laundering costs the UK economy more than £100bn each year, with the IMF estimating that financial crime equates to a 2-5% of global GDP.

Managing director at SmartSearch, Martin Cheek, said: "The backslide in this year’s data underlines a worrying theme of complacency on compliance. Sanctions are not a static list, they are a dynamic and rapidly evolving tool of foreign policy. Firms that think occasional checks are sufficient are not just naïve, they're risking severe penalties, including substantial fines.

"Under the Economic Crime Act, breaches of financial sanctions are punishable by fines of up to £1m - and let's not forget the accompanying reputational damage. In this digital age, news travels fast, and being named and shamed for a sanctions breach can be devastating."

Chief operating officer at SmartSearch, Collette Allen, added: "The speed at which sanctions can be imposed can catch firms off guard. It is crucial that regulated firms are proactive rather than reactive when it comes to their digital compliance.

"Our recent survey data shows that firms are still not taking adequate steps to ensure they are not dealing with sanctioned individuals or entities. It is simply not enough to have screened a client ‘sometimes’ or ‘often’ and assume the job is done."

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