Risk Update

Anti-money Laundering Updates — “Astonishing” Lapse Alleged in “Polite to PEP” AML Matter — SRA Setback in Law Firm AML Prosecution, SRA Updates & Guidance

Banker’s Lawyer Accused of Being Too Polite to Vet His Funds” —

  • “A top law firm faced allegations that it broke UK money-laundering rules by being too polite to ask a politically connected banker from a former Soviet republic how he got his cash.”
  • “Dentons overrode an internal warning urging ‘extreme caution’ in dealing with him as a client and failed to ask the banker where his wealth came from in case it might be ‘impertinent or impolite,’ legal regulators had alleged at a London court. While the tribunal dismissed the case Monday, finding no breach of the industry watchdog’s principles, it did find proof of shortcomings regarding money-laundering rules.”
  • “The banker, who can’t be identified due to a court order, had spent tens of millions of pounds on London property and a family member is now the subject of a separate police probe. Dentons fought the case at the tribunal, arguing that it took ‘adequate measures’ to establish the banker’s source of funds. Lawyers for the firm said it knew that the client held a ‘substantial shareholding’ in a state-controlled bank. “
  • “The regulator’s lawsuit is one of just a small number of cases scrutinizing the role of professional services in enabling the flow of illicit finance into Britain. Few cases go to trial in the UK despite the police estimating that hundreds of billions of pounds are laundered through the UK annually.”
  • “The banker became a client of Dentons in 2013 after an acquisition of a smaller firm, and was immediately identified as a ‘politically exposed person’ — a term used to ascribe a higher level of risk and one that puts the onus on the firm to scrutinize transactions. But Dentons never asked the banker for his salary or the the size of his shareholding in the bank.”
  • “Dentons lawyer Francois Chateau, now based in New York, told the Solicitors Regulation Authority in an interview that he never asked the banker how much he earned. ‘In Europe, in my culture, we don’t do that. You don’t ask err, how much do you make?’ according to Chateau. He said he’d never asked anybody to show him their bank account and to give evidence of what they own that would be ‘visible for everybody to see.'”
  • “The regulator called Chateau’s answers ‘astonishing,’ saying that he adopted an ‘extraordinarily credulous attitude towards individuals of apparently spectacular wealth.'”
  • “Dentons persisted with keeping the banker as a client even after the firm’s general counsel said in 2014 that it shouldn’t continue working for him.”
  • “Dentons’ lawyers said even if the firm had breached money-laundering rules then its conduct wasn’t sufficiently serious to merit any kind of penalty.”

SDT dismisses case against Dentons as SRA left with massive costs bill” —

  • “The solicitors’ regulator has suffered a major setback after its prosecution of the world’s biggest firm by headcount effectively failed.”
  • “Following a six-day hearing at the Solicitors Disciplinary Tribunal, the panel dismissed all allegations against Dentons and directed the Solicitors Regulation Authority to shoulder its own costs. The SRA has since revealed its costs came to £189,000 inclusive of disbursements and VAT.”
  • “In its prosecution, the SRA alleged that the firm had breached money laundering regulations through its retention of a client from 2013 to 2017. The client, who by an order of the tribunal cannot be identified, had been chairman of a bank owned by a former Soviet state with a poor record for corruption and transparency.”
  • “The SRA sought to argue that Dentons made insufficient checks on the client’s source of wealth and funds, while the firm insisted that the regulator was not basing its prosecution on money laundering regulations that were in place at the time.”
  • “The tribunal deliberated at the end of the week and returned on Monday morning to say that one allegation relating to checks on the client’s source of wealth had been found proved, while the rest were not proved. After an intervention from Dentons to say that this allegation was dependent on the others and there was no jurisdiction to find it proved, the tribunal came back an hour later and dismissed the one remaining allegation.”
  • “The SRA then sought to argue that Dentons should be ordered to pay a contribution towards its costs, saying that the case was properly brought and an ‘important yardstick’ for the regulator and the profession.”
  • “Dentons submitted that the SRA had not taken into account its own guidance from the time of the alleged misconduct and had made no criticism of the firm’s systems and controls.”
  • “Despite both sides being asked to make submissions on costs, at no point during the hearing was it explained what the SRA’s costs were. The tribunal made no order, meaning the SRA has to pay its costs in full. A full judgment with the SDT’s reasoning will be published in around seven weeks.”

SRA (updated March 5): “Sectoral Risk Assessment – Anti-money laundering and terrorist financing” —

  • “We are responsible for the supervision of authorised firms for their anti-money laundering (AML) compliance, and we take our responsibilities very seriously. We owe a duty to society at large, and to protect the integrity of the legal sector through tackling intentional and unintentional enablers of money laundering.”
  • “This document sets out information on money laundering, terrorist financing and proliferation financing risk that we consider most relevant for firms we supervise.”
  • “We will continue to refresh this sectoral risk assessment on a regular basis to keep up to date with emerging risks and trends.”
  • “We have seen increasing numbers of firms facilitating vendor frauds. This involves properties, usually residential, being targeted by fraudsters and being sold without the consent or knowledge of the genuine owners, with fraudsters often impersonating the owners. The conveyancing process is attractive to fraudsters because it provides both the method of committing the fraud and the means of laundering.”
  • “Amendments to the Regulations in 2022 mean that all firms must now carry out an assessment of their exposure to the risk of proliferation financing. Simply put, this means the risk of the firm being involved with the global proliferation of nuclear, chemical, biological or radiological weapons by groups and countries which are not permitted to have them under international treaty. This includes both materials for weapons, and also ‘dual-use goods’. These are goods which are not manufactured as weapons but could be used in weapons or to produce them, for example fertiliser.”
  • “There are similar risks in the use of new types of financial technology, for example, fund transfer systems and crowdfunding platforms. Any use of new technologies should be preceded by an assessment of the risks they may introduce and effective mitigation of these risks where possible.”
  • “A separate issue which is of growing importance is the issue of sufficient resourcing of AML work. As economic conditions have continued to deteriorate, firms are likely to be under pressure to reduce costs, and elements of businesses that are not directly revenue generating may see their budgets reduced.”
  • “Whatever decisions are made about resourcing, firms need to understand that economic conditions do not change the requirement to comply with the Regulations. In fact, the economic conditions are more likely to increase a firm’s exposure to would-be money launderers, emboldened by a perception that they are in a position of relative strength in dealing with firms. Potential clients may seek to emphasise the amount of revenue they can bring to a firm as a bargaining tactic.”