AML: Firm did not have proper procedures in place
A law firm and two of its partners have been fined nearly £50,000 between them for allowing two wealthy clients to use its client account as a banking facility.
Many millions of pounds passed through central London practice WGS Solicitors, with one of the partners saying he had thought it a “grey area” as for existing clients.
However, the Solicitors Disciplinary Tribunal (SDT) found that his motivation was not to lose the client (‘Person A1’), “a high-net-worth individual who was president of a commodities company”.
There was no suggestion that money laundering actually took place.
Jonathan Richard Maurice Gerber, who qualified in 1991, was and is an equity partner at the firm, while Bridget Catherine Miller, admitted in 1992, was a salaried partner. She is not currently in paid work.
Person A1 first instructed the firm in 2010 to provide matrimonial advice and then on £16m of property transactions. Following a request, Mr Gerber allowed him to use its client account to facilitate the purchase of high-value art for “the convenience and anonymity” of the client and a special purpose vehicle registered in the Seychelles to own the art.
The funds came from Person A1’s personal bank account and a bank account in the name of a Marshall Islands company of which he was the ultimate beneficial owner.
Around £12m passed in and out of the client account before Mr Gerber said it could not operate like this in 2020. The firm only charged £2,256 for its assistance, which was later refunded.
In an interview with the Solicitors Regulation Authority, Mr Gerber said he was “probably a bit nervous” that he would lose the client: “I thought it was maybe a slightly grey area because he was an existing client and there were previous transactions.”
The SDT did not accept the submission by Mr Gerber’s advocate, well-known regulatory solicitor Paul Bennett, that there was confusion in the profession in 2018 as regards the application of the banking facility rule.
“There had been a number of reported cases and SRA guidance as to how the rule applied… As Mr Gerber stated in his interview, had he looked up the regulations at the time the impugned transactions commenced it would have been ‘black and white’.”
It went on: “The tribunal determined that Mr Gerber’s motivation for his misconduct was to ensure that he retained the client.”
Emails showed he was aware that he needed to check the anti-money laundering (AML) position, but he did not do so.
Whilst the firm had admitted its systemic failings, Mr Gerber was one of three equity partners at the time “and was thus responsible for ensuring that there were no systemic failings”.
These firm-wide failures included not applying customer due diligence measures or monitoring and not conducting risk and matter assessments.
The SDT acknowledged that Mr Gerber had self-reported, “demonstrated genuine insight into his misconduct” and taken “significant steps” to ensure that the firm would comply with the AML rules in future.
Ms Miller acted for Person B1, a long-standing client, predominantly in relation to property purchases and remortgages.
Over four and a half years to September 2019, the firm received 113 deposits worth £1.5m into its client account. It was held on a ‘general’ ledger at the client’s request and transferred to other matters as required.
Ms Miller said that, as these were only described as ‘remittances’ on bank statements, the firm only realised in 2019, when the issue was raised by the bank, that latterly they were being made in cash. They were also increasingly in round sums, both red flags for AML purposes.
The SDT said that when Person B1 said the payments were from rental properties, Ms Miller made no efforts to check this.
Ms Miller admitted failing to scrutinise the source of funds for the transactions and properly assessing the risk posed by each one.
However, she did not accept that she had materially contributed to the firm’s failure to apply enhanced due diligence and, given her other admissions, the allegation was not pursued.
In mitigation, she said she was “operating in an AML environment which was falling short of the regulations and in which firm accept that the [money laundering reporting officer] was not discharging his functions adequately”.
She was fined £3,500 given her “limited means” and ordered to pay costs of £6,500.
The firm itself was ordered to pay a fine of £25,258 and costs of £18,000.
The SDT said it “failed to have proper procedures in place in order to ensure its compliance with its regulatory obligations”.
As part of its mitigation, it said the two current equity partners had spent nearly £300,000 from their own pockets in dealing with and remedying the matters.
Embarrassing.