AML: Partner did not conduct proper checks
A partner at a London law firm “dishonestly assisted” in misappropriating a company’s funds by turning a blind eye to money laundering issues raised by three property transactions, the High Court has ruled.
Deputy High Court Judge Saira Salimi ruled that Daniel Broughton “repeatedly failed to obtain documentary evidence of funds and their source, and to follow up on inquiries he had made”.
As a result, £2.4m of funds misappropriated from the claimant, Grosvenor Property Developers Ltd, passed through Portner & Co’s client account.
She continued: “The repeated explanation for these lapses is an acknowledgement that he was ‘sloppy’ or ‘overlooked’ a failure of a third party to provide information he had asked for. This is simply not credible, especially in an experienced solicitor who was also a partner.”
The liquidators of Grosvenor brought the claim on the basis that Portner & Co, through Mr Broughton, dishonestly assisted in breaches of fiduciary duty by the company’s former directors.
In separate proceedings, Judge Salimi recorded, Grosvenor’s sole statutory director, Jonathan England, and its de facto director, Sanjiv Varma, have been found liable for misappropriating approximately £7m of investors’ money.
Mr Varma has since also been found in contempt of court and left the country to avoid imprisonment.
Portner & Co – which was acquired earlier this year by Kent firm Judge & Priestley – was instructed to act by Mr Varma and his son (who was not involved in the fraud) in relation to a series of property transactions.
The law firm accepted that £2.4m of monies beneficially belonging to Grosvenor, or their traceable proceeds, were paid into its client account and used in three transactions. The question before the court was whether Mr Broughton dishonestly assisted in Mr Varma and Mr England’s breaches of duty. He remains a partner at Judge & Priestley.
There was no suggestion that Mr Broughton had actual knowledge of the underlying fraudulent misappropriation of money.
Judge Salimi said the question for the court was whether he was culpable to the extent of “blind eye” or “Nelsonian” dishonesty – that he had a suspicion the transactions might not be wholly proper and deliberately failed to take steps to verify the position.
Noting that the solicitor, who qualified in 2006, was the firm’s deputy anti-money laundering officer, she concluded that he was, even though he honestly believed the Varmas to be legitimately wealthy individuals.
The ruling detailed multiple instances where Mr Broughton’s treatment of funds received from the Varmas and associated companies was not compliant with either Portner & Co’s internal policies or with money laundering guidance issued to solicitors, particularly around source of funds.
Judge Salimi said Mr Broughton’s interactions with his clients involved “show a pattern of disregard for his obligations as a solicitor, and repeated turning of a blind eye to obvious causes for concern.
“I have also found that in certain matters he was actively dishonest and made false representations concerning matters that were within his knowledge, notably in his certificate to the mortgage lender in relation to [one of the properties].
“There are no extenuating circumstances which enable me to find that this disregard was other than dishonest.”
The judge rejected the argument that Mr Broughton could not be dishonest because he did not have specific suspicions about individual transactions.
“A solicitor, especially an experienced solicitor, cannot be said to be ‘honest’ if he or she persistently fails to carry out basic checks on clients, even if there is no particular suspicion about any individual client: as a professional, the solicitor is aware that the purpose of the required checks is to identify attempts to use the firm for dishonest or unlawful purposes.
“In any event, the defendant accepted that the case law shows that ‘reckless disregard’ for another’s possible rights constitutes strong evidence of dishonesty. Mr Broughton’s behaviour demonstrates such disregard for the source of the funds with which he was dealing.”
The court found too that Mr Broughton failed to co-operate with the joint liquidators in their inquiries, even following service of the freezing order made against Mr Varma.
“As a solicitor he had a duty to the court, but appears to have regarded that duty very lightly. Again, this is not the approach that an honest solicitor would have taken.”
On damages, Portner & Co argued that the claimant should give a credit for funds already recovered in other proceedings so as to avoid double recovery. The claimant has offered £300,000 but the law firm said this was too low.
Judge Salimi ordered the parties to make further submissions so she could decide at the consequentials hearing.
We have approached Mr Broughton and Judge & Priestley for comment.
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