SOLICITORS AS GATEKEEPERS

A solicitor frequently, and often unwittingly, assists the money laundering process by:

• acting for clients in the buying and selling of property. Laundered money may be used to acquire property at the stage when the proceeds of crime are integrated into the financial system;
• carrying out financial transactions on behalf of a client. The funds used for such transactions may be criminal funds;
• introducing clients to other professionals. A money launderer values the seal of respectability conferred by such an introduction;
• establishing corporate entities and trusts. These vehicles can assist a money launderer in concealing the source and true owner of the funds.
• giving tax advice. A money launderer may seek advice on establishing a complex offshore structure, ostensibly for tax mitigation purposes, when in fact the structure will be used as a conduit for criminal funds.

As Dame Elizabeth Butler-Sloss P noted in P v P, 8/10/03, “there are a range of ways in which a legal professional might become “concerned in” an arrangement … [T]he act of negotiating an agreement would … amount to being “concerned in” an arrangement”.

The Judge went on to warn the legal profession “to take into account … that the [law] makes no distinction between degrees of criminal property. An illegally obtained £10 is no less susceptible to the definition of “criminal property” than a sum of £1million”.

The scale of the money laundering problem in the UK is enormous. In a report published in February 2002, the IMF estimated that the UK had a shadow economy of 13% of GDP. Inevitably, almost every solicitor in the country will have handled the proceeds of crime.

In its Annual Report for 2003, the National Criminal Intelligence Service noted that purchasing property in the UK was the most popular method of money laundering identified, involving roughly one in three serious and organised crime groups. “Serious and organised criminals make use of ....legal professionals to launder money, by providing expertise or lending credibility to financial targets. The service known to be in greatest demand in 2002 was conveyancing”.

“Go directly to jail. Do not pass Go …”

In July 2002 the first solicitor in the UK was jailed for six months after he pleaded guilty to two offences of failing to report a suspicion of money laundering.

The client had been involved in drug trafficking, but at the time when he became involved in a transaction the solicitor neither knew nor suspected that this was the case. Subsequently, the solicitor became aware of the fact that the client had been arrested for possession of a large quantity of cocaine and subsequently prosecuted for drug trafficking.

Despite accepting that the solicitor had genuinely misunderstood the scope of his legal obligation to make a suspicious activity report, the judge imposed a deterrent sentence, saying that it was necessary to send a clear message to solicitors that failing to report suspicious activity would not be tolerated. The Court of Appeal agreed.

In an interview after his sentence, the convicted solicitor acknowledged: “I have paid the full penalty for not knowing”.

More recently, another two solicitors have been sentenced to periods of imprisonment in cases where they were careless and not dishonest.

Prosecution policy

The Cabinet Office issued a report in which it strongly encouraged prosecutors to take full account of the clear public interest in pursuing money laundering offences. The Cabinet Office report recommended that the Code of Crown Prosecutors should be amended to reflect this public interest. This has now been done.

The number of prosecutions to be brought for money laundering offences will increase dramatically in the next few years.

As well as investigating and prosecuting the money launderers, the prosecuting authorities will also investigate and prosecute a solicitor in any case where there has been a failure to comply with the UK anti-money laundering requirements.

Failing to report suspicious activity

The maximum sentence for failing to report a suspicion of money laundering is 5 years imprisonment. This offence may be committed in circumstances where a professional advisor ought to have suspected the client’s criminal involvement, but failed to do so.

Assisting a money laundering, turning a blind eye but not knowing

Where a solicitor assists a money launderer, the maximum sentence is increased to 14 years imprisonment if the solicitor no more than suspected that criminal property was involved.

Failing to establish or maintain compliance procedures

The Financial Services Authority has power to prosecute persons, firms and companies for failing to establish or maintain compliance procedures in accordance with the UK anti-money laundering regime. Examples would include a failure to require client identification procedures or provide staff training in accordance with relevant professional guidance and the statutory regulations. The maximum sentence is 2 years imprisonment.

Professional sanctions

The Law Society will impose severe sanctions where its members become associated with money laundering activities or fail to establish or maintain compliance procedures.

The Law Society regards professional advisors as “gatekeepers” who can facilitate or block the entry of “dirty money” into the system. Potential sanctions for solicitors involve Law Society intervention and disciplinary process, leading ultimately to removal from the roll.