The failures which led to a record fine for Clyde & Co were “particularly glaring” as it was “a large and, previously, reputable firm”, the Solicitors Disciplinary Tribunal (SDT) has declared in approving the sanction.
It emerged earlier this month that the City practice had been fined £50,000 – the largest penalty issued against a law firm – and three of its partners £10,000 each, but the full SDT ruling has only just been published.
The case of the firm, Christopher Duffy, Simon Gamblin and Nick Purnell came before the SDT as an agreed outcome between them and the Solicitors Regulation Authority, subject to the panel’s approval.
The events all dated back to 2013. In relation to two clients, the respondents admitted allowing the firm’s client account to be used as a banking facility when there was no underlying legal transaction.
One client instructed the firm to act as an escrow agent, while for the other the firm held money for them after their bank account had been closed by Barclays, and made payments from it on the client’s behalf.
The second admitted allegation was that they failed to comply with their obligations under the Money Laundering Regulations 2007 in four respects, namely failing to carry out adequate customer due diligence (CDD), failing to conduct enhanced due diligence when a higher risk of money laundering had been identified, failing to cease to act for a client when CDD procedures could not be applied properly, and relying on a third party’s CDD without the consent of that third party.
The third admitted allegation was that the firm, Mr Duffy and Mr Purnell failed to heed the guidance in the Law Society’s fraudulent financial arrangements warning and/or the warning notice on money laundering.
The SDT said they participated in transactions on behalf of a client as escrow agent where they did not properly understand the complex underlying transactions, as shown by emails from Mr Purnell to Mr Duffy, who was one of Clyde’s two money laundering reporting officers (MLROs).
In one, Mr Purnell wrote: “We do not do much work in relation to these types of securities, so are not in a great position to assess the plausibility of the transaction.”
The SDT said: “A proper investigation of this matter would have led to establishing that the transactions were, at best, dubious. By acting as escrow agents… [they] might have been seen as lending credibility to the transactions…
“Moreover, there were examples of [Mr Purnell] and [Mr Duffy] recognising this risk, but apparently failing to take adequate actions in response.”
Clyde & Co also acted on the basis that the transactions were in the client’s best interests without considering guidance in force at the time that explicitly stressed the overriding public interest in ensuring that the firm did not facilitate investment fraud or act in dubious transactions without further enquiry.
The ruling exposed shortcomings in the firm’s procedures at the time – while Clyde’s risk register highlighted the dangers of money laundering and potential to breach the Solicitors Accounts Rules when providing escrow facilities, it was not available to the firm as a whole, and Mr Purnell and Mr Duffy were not aware of it.
The final charge related to Clyde’s failure to deal with aged residual client balances. Though the accounts rules were changed to deal with this issue in 2008, the firm did not take heed and by July 2013 it had “amassed unjustifiably in excess of £7m” on inactive matters in its client account, the SDT said. It then took more than two years for the firm to sort this out.
Agreeing to the sanctions put forward by the parties, the SDT said that while the matters which had been admitted were serious, there were “not at the highest level of seriousness”. But it continued: “Each of the respondents had let down the profession.”
“The defaults in question were particularly glaring as the firm was a large and, previously, reputable firm; it would be expected to set an example to other firms in its compliance systems. Also, [the partners] were experienced solicitors. [Mr Duffy], the relevant MLRO, had failed to carry out his duties to the standard expected.”
However, the SDT said, there was no suggestion that there had been any lack of integrity, probity or trustworthiness on the part of any of them.
It also expressed “some sympathy” with Mr Gamblin, who had referred his concerns to an MLRO and to the firm’s general counsel, and carried out his own research – which led to an “incorrect but genuinely held understanding” of the position.
The SDT was satisfied that financial penalties were appropriate, and that the figures put forward were “sufficient to reflect the seriousness of the misconduct, taking into account all of the circumstances”.
It concluded: “No more was required in order to protect the reputation of the profession, protect the public, deter others from similar misconduct, and punish the respondents.”