Tread very carefully
26 September 1995
3 July 2014
12 February 2014
24 January 2014
28 August 2014
24 January 2014
Ian Muirhead is the managing director of legal financial services network Solicitors for Independent Financial Advice.
Solicitors are prime targets for money launderers. Our whole ethos and apparatus lends itself perfectly to the purpose of those seeking to conceal the origin of criminal funds. Client accounts, offshore trusts, money transmissions, powers of attorney and client confidentiality, the hallmarks of respectability and discretion can all too easily be turned to the advantage of the criminal.
However, few solicitors appear to have taken the time to acquaint themselves with their responsibilities under last year's money laundering legislation.
This means that there is a growing risk that law firms could become the subject of a well-publicised prosecution which the authorities are said to be seeking in order to set an example to others.
So what are solicitors' responsibilities and what types of legal work are affected?
There are two relevant pieces of legislation. The Money Laundering Regulations 1994, apply to professionals and institutions which conduct "relevant financial business". This is a term which is defined more broadly than discrete investment business and includes non-discrete investment business, the safe-keeping and administration of securities, safe custody services, advice to undertakings on capital structure, and advice and services relating to mergers and the purchase of undertakings.
The regulations require that firms which undertake relevant financial business must: establish procedures to verify and maintain evidence of the identity of clients who became clients after 1 April 1994; to appoint a money laundering compliance and reporting officer (who will usually be the compliance partner for investment business in a law firm); and to train staff in their legal obligations.
Regulatory bodies, including the Law Society, have issued guidance as to the types of evidence which are likely to be acceptable.
The second piece of legislation is the Criminal Justice Act, 1993, which is much more far-reaching and creates a number of offences, punishable by imprisonment, which apply to individual members of the firm.
These offences centre on the participation or acquiescence in suspicious transactions, tipping off suspects and failing to report any suspicious situations.
Situations which should alert suspicion include: those clients who act through agents or who are reluctant to be identified; transactions which appear to lack any sound commercial rationale; the availability of substantial funds to surprising people; and dealings in drug-related currencies such as Turkish dinars. Actual knowledge of the provenance of funds is not required.
In one case which has already come before the courts, a firm of accountants on the Isle of Man was successfully prosecuted for arranging for substantial sums of money to be siphoned through a series of shell companies, which it then liquidated.
Clearly it is in relation to clients or prospective clients that law firms' suspicions are likely to be alerted.
Reporting is, therefore, a serious matter which can only properly be undertaken by the partners who must take care to distinguish possible money laundering from legitimate tax avoidance.
Consequently, even though the procedural requirements apply only to relevant financial businesses, they should be adopted by all firms as a matter of course. The best protection is to be seen from the record as having been aware of and to have addressed the relevant issues. Errors of judgement are less likely to be penalised.