City accusations send sparks flying

Robert Mendick reports on the knee-jerk reactions that followed accusations of money laundering by some City firms. City pages edited by Richard Tyler.

Last week, Simon Goddard, of the National Criminal Intelligence Service (NCIS), revealed exclusively to The Lawyer that six big City law firms were under investigation for their links with organised crime.

“We certainly have lawyers who perform the role like an old consigliere in the Mafia films,” he said.

The revelations have spread panic among City law firms. Two top-ten City firms are known to have held emergency meetings on Monday and Tuesday in the wake of the revelations. And gossip is rife as solicitors scrabble to discover the firms involved.

The story also sent the Law Society into a spin. A Law Society spokesman telephoned The Lawyer on Monday morning – the day the story broke.

The spokesman said: “We are trying to find out what the hell he [Goddard] is talking about, as it stands it could be they [NCIS] are just having another go at self-promotion.

“The truth is, solicitors are not the first choice of money launderers. My gut feeling is they probably are investigating six firms over money laundering, but they are probably investigating every City bank on the same basis. If they are following laundered money, it would be no surprise if it went through a law firm. Whether a law firm would be aware of this is in question. They probably thought they were dealing in an international property transaction. Whether there is any criminal culpability is open to question.

“I would take it with an enormous pinch of salt. To bring up these images is terribly sexy and exciting but the Godfather was fiction. It was just a movie and a book. My gut feeling makes me think he [Goddard] is talking out of the back of his head.”

But NCIS has reacted angrily to the Law Society's attempts to play down the investigations. An NCIS spokeswoman says: “Simon Goddard is not someone to make up a story. You cannot possibly launder money to the levels criminals are without using lawyers – and top lawyers at that.”

Alistair Walters, a senior associate at Dibb Lupton Alsop, believes the Law Society is burying its head in the sand.

“It is simply ignoring the reality of the situation,” he says. “While it may be politically and publicly desirable for the Law Society to try to dismiss money laundering as a problem which only affects banks and financial institutions, this is simply to ignore what is happening within law and accounting firms and other businesses such as company formation agencies.

“They are being used as the tools of money launderers and either are not realising due to a lack of understanding of the problem, or because they are unable to turn down the lucrative rewards offered by criminals.”

The sums of money involved are enormous. The temptations for professionals – even well-paid solicitors – are great. The extent of dirty money in the financial system is, by its nature, impossible to quantify accurately.

Michael Camdessus, head of the International Monetary Fund, was quoted as saying this week: “The estimates of its present scale are almost beyond imagination – two to five per cent of global GDP.” If that was true, up to $1,500bn (#937.5bn) of laundered money would be entering the world's financial system every year.

Back in 1994, a Bank of England estimate submitted to a House of Commons select committee put the figure for the drugs money laundered in the UK alone at #2.4bn.

The Financial Action Task Force (FATF), established to combat money laundering following a G7 summit in 1989, is in no doubt that lawyers play a significant role in washing organised crime's dirty money. Its two-day meeting, hosted by NCIS, reiterated lawyers' involvement.

Says Goddard: “Most of the scenarios that were discussed over the two days involved lawyers being used to set up money laundering systems on behalf of organised crime.”

There are precedents for City lawyers arrested for money laundering. Back in June, the national crime squad, working alongside the New York district attorney's office, arrested a London lawyer and a magistrate as part of a police investigation into a $17m (#10m) investment share fraud and money laundering conspiracy.

Police seized van loads of documents and the investigation continues. That solicitor was from a lesser-known firm.

The raging debate over lawyers' alleged involvement in money laundering has also opened up the thorny issue of client confidentiality. Currently, it is an offence for lawyers and other professionals to fail to disclose to police that they suspect a client is involved in drug dealing or terrorism and is money laundering the proceeds.

NCIS is not aware of any prosecutions for such an offence. The Home Office, in a report this month, called for a tightening of the law to cover all criminal activity, not just money laundering, from drug dealing to terrorism.

But many lawyers see client confidentiality as a sacred, untouchable right, that outweighs all other considerations. Francis Neate, group legal adviser to Schroders, the merchant bank, and a former partner at Slaughter and May, says: “If they [the lawyers] are doing it [money laundering] they are not doing it on purpose. It is perfectly possible to launder drug money without lawyers realising what they are doing.”

He adds: “Lawyers should never report suspicions if it breaks confidence to the client under any circumstances. The fact you should not report suspicions does not mean you should act on your client's instructions in all cases.”

But the police are not convinced. Says Goddard: “Those that are involved in this business have to examine their own conscience and see if they have a moral responsibility [to disclose suspicions] and whether they should exercise it.”

Dr Phil Williams, editor of the journal Transnational Organized Crime and a professor of international affairs at the University of Pittsburgh, says the problem is caused by a global financial system which allows instant wire transfers of money.

In an article for the International Association for the Study of Organized Crime, he writes: “Drug trafficking and other criminal organisations have developed a series of highly specialised techniques and methods designed to remove the taint from the money and to place it out of reach of law enforcement.

“Money laundering usually involves a series of legitimate activities within normal banking procedures and commercial transactions.

“In extreme cases, connivance can become collusion, as the rewards of criminal enterprise are extended to those members of the licit economy who facilitate laundering. Money laundering has become so lucrative that bank officials and others with access to the financial system can be corrupted.”

Only as the weeks unfold – and only if the investigations are substantiated – will we learn the true nature of City law firms' involvement with organised crime. If anecdotal evidence is to be believed, it is likely to be an anxious wait for many top City law firms.

Russia and Eastern Europe

The fall of the Soviet Union has given alarming rise to the Russian mafia. Between 1990-1995 the number of gangs rose from 2,000 to 5,000, while crime rates doubled to 50 per cent. In 1993 Russian gangs were thought to be operating in as many as 29 countries worldwide. According to experts, the mafia is “washing money in London and the other European capitals on a grand scale”.


According to NCIS, London has become a centre for money laundering operations. The capital's good reputation makes it a perfect place to wash dirty money and make it respectable, says NCIS. Lawyers, it says, are prominent in laundering the ill-gotten gains of the world's organised gangs.


The Italian mafia is famously ingrained in Italian society. Roberto Calvi, who laundered mafia money, but then made the mistake of stealing some of it to keep the Banco Ambrosiano afloat, was found hanging from Blackfriars Bridge in 1982.


US gangsters are the most glamourised of all organised criminals. Legend has it that the phrase money laundering derives from a practice pursued by Al Capone, the best known of all gangsters, who disguised the origins of his dirty money by converting it into nickels and dimes and claiming it was the proceeds of a series of successful laundry businesses. Capone was never prosecuted for the murders and the extortion. Tax evasion proved his downfall.


The Yakuza were, back in the seventeenth century, a lesser group of Samurai, their pre-eminence dating to the modernisation of Japan in the nineteenth century. Yakuza are not shy. They sport flamboyant tattoos and readily hand out business cards with their rank clearly noted. In 1996 Yakuza members were estimated to number 79,900.

The Caribbean

Jamaican posses and their British equivalent the Yardies first came to prominence in the 1970s. Their principle trade is drugs but stolen cars are also big business. Yardie gangs are based in north-west and south London. Police believe up to 100 Yardies are daily dealing in crack-cocaine on the capital's streets.

Hong Kong and China

The Triads grew out of the survivors of a monastic rebellion in the seventeenth century. Despite semi-religious beginnings, by the 20th century they had become firmly entrenched in all the usual rackets: drugs, prostitution, protection, money laundering. Influence stretches to London, South Africa, Australia, New Zealand and North America.


According to NCIS, the cost to the UK economy of West African fraud is in the region of #3.5bn. African gangs are also heavily involved in drug trafficking. In 1996 it was estimated there were 450 organised crime syndicates in South Africa, costing #5bn a year. Nigerians have a strong influence in South Africa, where townships are gripped by crime.

Latin America

Until the rise of drugs as a major money-maker for organised crime, Latin America was fairly free of gangs. But an increasing world demand for cocaine, coupled with a power vacuum in Colombia, led to the rapid rise of the Medellin and Cali cartels in that country. By the mid-1980s more than half the cocaine imported into the US was controlled by the Colombian cartels. Profits amounted to $2bn a year.

Source: Gangland International – The Mafia and other Mobs, James Morton