Russia: Firm distributed money for client
A law firm run by an ex-Law Society president has failed in an appeal against a £68,000 fine imposed by the Solicitors Regulation Authority (SRA) for anti-money laundering (AML) failures.
The Solicitors Disciplinary Tribunal (SDT) also rejected the argument by Scott-Moncrieff & Associates, a fee-share law firm known as ScoMo, that one of the payments that made up $23m that passed through its client account with no underlying legal work was actually legitimate.
It concluded that the SRA adjudicator who made the decision applied the correct legal framework and “exercised her discretion within the range of reasonable options available to her”.
She was able to fine ScoMo, which was set up by Lucy Scott-Moncrieff, more than the standard £25,000 limit because it is an alternative business structure. It can fine those up to £250m.
In a notice published in February, the SRA said an inspection in 2022 found that none of the firm-wide risk assessment, policies controls and procedures (PCPs), matter risk assessments, ongoing monitoring, and customer due diligence were compliant with the 2017 Money Laundering Regulations.
It recommended that the firm should immediately address the concerns and provided the firm with guidance to support it in doing so, while also referring it for formal investigation.
This began the following July and identified that a consultant at the firm acted for a client located in the Russian Federation in relation to its purchase of an asset for $22.5m from a Canadian company.
ScoMo agreed to provide escrow services and general advice to the client but did not act in the sale and purchase agreement for the asset. There was “no need for it to receive or make payments relating to that underlying transaction”, the regulator said.
However, during 2021, it had received three sums into its client bank account from the client totalling $23.3m and made three payments totalling $22.5m to the company supplying the asset. On the client’s instructions, the firm also paid $525,000 to the client’s agent, located in Germany, and $262,500 to another company located in Estonia.
This amounted to providing a banking facility, according to the SRA.
A further investigation in 2023 found that the PCPs were not still compliant and did not incorporate the guidance provided the previous year.
The SRA calculated the fine at 2% of ScoMo’s turnover.
The appeal was mainly about the size of the fine, with ScoMo’s KC arguing that the adjudicator failed to have sufficient regard for its structure – specifically the fact that only 30% of profit is retained by the firm – when determining the figure.
In response, the SRA argued that, to the outside world, the individual lawyer at a fee-share firm was seen as part of a corporate legal services provider, and benefitted from “the regulatory umbrella provided by the firm”.
Indeed, it suggested that the fee-share business model, including the pressure on individuals to generate their own income, carried “a particular character of risk” and so required “a greater level of accountability and vigilance from those operating it”.
ScoMo also submitted that the adjudicator failed to take into account that little of its work was in-scope of the AML rules, as well as the lack of actual harm, and focused to much on the amount of money that went through the client account.
It said too that there was legal work underlying a $500,000 payment that was made as part of the Russian transaction and that this should discount the seriousness of the conduct.
The SDT rejected the criticisms. The adjudicator “properly considered the firm’s circumstances, structure, and regulatory arrangements”, and made an allowance for the fact that the banking facility breach was confined to one matter.
Even if one of the payments was legitimate, this did not necessary mitigate the failure. “The adjudicator properly identified a breach of the SRA Accounts Rules 2019, having considered the nature and context of the material transactions.
“The determination reflected that the adjudicator was mindful of the purpose of the regulations and made findings that were appropriate in light of the facts.”
The SDT rejected the appeal and ordered ScoMo to pay costs of £12,211.
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