
Anti-money laundering: Firm failed to make source of funds checks
The director of a law firm and the firm itself have each been fined £25,000 for a series of compliance failures, including widespread accounts rule breaches and anti-money laundering (AML) shortcomings.
The Solicitors Disciplinary Tribunal (SDT) said Francis Mathew, senior director of East London firm Law and Lawyers Ltd, took a “cavalier attitude” to his regulatory obligations, recklessly telling the Solicitors Regulation Authority (SRA) that the firm had an AML risk assessment when it did not.
Mr Mathew, admitted in 2004, was a director of Law and Lawyers Limited with “significant control”, and held all the compliance roles.
An investigation by the SRA, which began in 2022 “following concern about the firm’s AML procedures and business management”, uncovered a failure to undertake accurate reconciliations of client account, a client account shortfall of over £40,600 arising from 423 matters, and residual balances across 1,786 matters totalling over £287,800.
On residual balances, the SDT said “there had been no movement on these accounts for a year” and efforts to identify recipients and return money “only accelerated after the SRA investigation began”.
There was “no proper reason” for Mr Mathew to keep the money “and it should have been returned promptly to clients or alternatively billed where proper to do so”.
On the AML failures, the tribunal observed that, although it had been argued in mitigation that money laundering was not taking place, the firm did a lot of conveyancing, “an ideal work type for this risk to manifest”.
The SDT said Mr Mathew had submitted a declaration that a risk assessment was in place “without making sure that he understood exactly what a firm-wide risk assessment was and without making any or any adequate enquiries as to whether one existed”.
Mr Mathew and his law firm admitted all the allegations against them. The SDT said the solicitor and the SRA had also agreed the factual background of the misconduct.
On client account shortfall, the tribunal said Mr Mathew was aware of “widespread practices” at the firm whereby payments were authorised in excess of funds held for the client – “he was aware that this was akin to taking money from one client to pay another and allowed this process to continue”.
The SDT found that, on at least nine occasions, Mr Mathew had failed to conduct client account reconciliations within five weeks, as required by the accounts rules.
On source of funds, the SRA said it reviewed AML documents provided by the firm on a total of 15 conveyancing matters, 12 of which had “AML issues”.
Three were funded by third parties in China, while in three others the source of funds was unclear, but Law and Lawyers Ltd did not make the necessary enquiries.
The public would be “alarmed by the extent” of the solicitor’s failure to uphold AML provisions, the SDT said.
In mitigation, counsel Rory Dunlop KC said the accounts issues arose during the stamp duty land tax holiday, “when the firm had a spike in work but a reduction in available staff (who had to work at home due to Covid)”, while the AML failures were caused by Mr Mathew “taking on too many responsibilities at a fast-growing firm, without fully understanding” the requirements.
Further, Law and Lawyers had more than enough funds to cover the client account shortfall, while around 70% of the residual balances was fees and disbursements the firm had yet to claim.
More than half of the remaining £88,000 were small sums owed to clients who had left no forwarding contact details and the firm had since donated it to charity, as allowed by SRA rules.
Mr Dunlop described Mr Mathew as “a remarkable person dedicated to serving his community” and had “even donated his own kidney, in 2015, in an act of altruism which is consistent with his guiding values and principles”.
Counsel argued that “all the breaches arose through inadvertence and neither Mr Mathew nor the firm obtained any profit or advantage from them”, and suggested fining each of them £15,000.
The SDT went for £25,000 instead, with costs of £38,000 on a joint and several basis.
The risk of harm “was clear and real as opposed to theoretical” and it did not matter that the firm could make up any shortfall on client account. “The underlying errors and breaches found proved reflected firm-wide issues including a lack of effective training,” it noted.
Conditions were imposed preventing Mr Mathew from holding a compliance role in future – he said he had already passed them on to others in the firm.
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