Panama: Home of Mossack Fonseca
A solicitor who failed to do even an internet search to check whether his clients were politically exposed persons (PEPs), in the first disciplinary matter to involve infamous offshore law firm Mossack Fonseca, has been fined £45,000.
The hefty penalty was handed out to Khalid Mohammed Sharif, a partner at London firm Child & Child, for a series of breaches of the anti-money laundering rules.
Mr Sharif, admitted in 2005, acted for clients not identified in the ruling – but previously reported to be the daughters of the president of Azerbaijan.
They were to be the beneficial owners of a company incorporated in the British Virgin Islands (BVI) by Mossack Fonseca, the Panamanian firm whose systems were hacked and files splashed across newspapers in April 2016. It closed down last year.
The transaction involved the purchase of two flats in Knightsbridge in London, the combined price of which was just under £60m.
The clients were introduced by ‘Y’, a property tycoon who was a longstanding client of Child & Child.
Contracts were exchanged in April 2015 with completion set for 2017, and payments of £14m were made. However, the transaction did not reach completion and the clients were reimbursed.
Mr Sharif admitted that he failed, between February 2015 and April 2016, to take adequate steps to ascertain whether the clients were PEPs, when an internet search would likely have disclosed that they were and were reportedly linked with the proceeds of crime.
He said there was nothing about their name that should have alerted him to that. Following the release of the Panama Papers – which included details of the offshore company – and Mr Sharif said “the status of [the clients] became clear”.
He also admitted to not undertaking enhanced customer due diligence even though he had not met the clients, which meant that he was required to; that was also the firm’s policy and he was its money laundering reporting officer (MLRO).
Further, he accepted instructions from others on the clients’ behalf without confirming that they were authorised to give the instructions.
Mr Sharif additionally admitted to acting in the transaction in circumstances which disclosed a significant risk that money laundering was taking place – he ignored warnings signs such as acting for new clients about whom he know little, the high value of the transaction, and the use of an intermediary and BVI company to hold the property.
The solicitor was also charged over his role in a transaction where Y wished to gift a flat in an exclusive part of London by transferring the shares of the company that owned the flat to a new company of which the recipient was the beneficial owner.
There were warnings signs in this transaction too: the property was a high-value gift, it was transferred between foreign-owned entities in an offshore jurisdiction, and documentation concerning incorporation of the new company was given to Y.
Mr Sharif admitted that he failed to conduct ongoing monitoring of his business relationship with Y while acting for him on this, in circumstances which again disclosed a significant risk that money laundering was taking place.
In mitigation, Mr Sharif said his practice dealt with some of the most expensive property in London, and that using corporate structures to transfer it was commonplace.
The tribunal said: “Given the nature of his work, it was even more incumbent on [Mr Sharif] to ensure that he complied with the rules and regulatory regime to minimise the risk of money laundering…
“Further, he was the MLRO at the firm. This should have heightened his sense of his obligations, and his awareness of the risks.”
The reputation of the profession had suffered “significant harm”, the tribunal said, but it acknowledged too Mr Sharif’s voluntary report to, and co-operation with, the Solicitors Regulation Authority, as well as the “relatively brief duration” of the misconduct and the fact that no client had suffered loss as a result.
It concluded that the misconduct was serious, but not so serious as to warrant removing him from practice or imposing restrictions on it. A £45,000 fine was “appropriate and proportionate”.
Mr Sharif also agreed to pay costs of £40,000.
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