Statutory and Regulatory Provisions for Money Laundering in Law Firms

This report examines a case study involving a solicitor, Henry Lynch, and his actions related to a client, Carlos Begby, and his business partner, Khalli. The report analyzes the statutory and regulatory provisions applicable to the situation, focusing on money laundering, terrorist financing, and the Transfer of Funds Regulations 2017. It delves into the classification of Henry's actions under these provisions, including breaches of the Proceeds of Crime Act 2002, the Terrorism Act 2000, and the Money Laundering Regulations 2017. The analysis highlights failures in client due diligence, the acceptance of cash transactions, and the use of firm accounts for suspicious transactions. The report also outlines the processes and procedures Henry may be subject to, emphasizing the importance of understanding client risks, conducting due diligence, and adhering to the SRA Code of Conduct. The report concludes by emphasizing the potential consequences of failing to comply with money laundering regulations, including criminal proceedings and disciplinary actions.

MEMORANDUM

TABLE OF CONTENTS
ISSUE .............................................................................................................................................1
MEMORANDUM...........................................................................................................................1
Statutory and the professional regulatory provisions applicable to situations ............................1
Classification of statutory and regulatory provisions for Henry's actions. .................................3
Processes and procedures that Henry may be subject to in the relation to classification of the
actions .........................................................................................................................................4
REFERENCES................................................................................................................................6

ISSUE
Henry Lynch associate of the firm has been working with Moran, Talbot & Fox LLP.
Henry in the portfolio has client named Carlos Begby. Carlos is planning to purchase three
storage units with assistance from business partner Khalli living in London. Purchases are cash
buys. Khalli did not presented any documents or passport for identity1. Henry agrees to start
work for Khalli as he did not wanted to lose Carlos and faith that documents will be provided.
Henry also permits deposit of £300000 from money transfer account into client account of firm
for purchase of the Atomic Casino by Khalli. Henry did not received any documents from Khalli
and was asked to share firm's account for brief period. Henry did not concerned the matter with
anyone in firm. Deposits ranging from £10000 - £100000 were received in 50 transactions for
business and personal expenses of Carlos2. Financial statements of Carlos for three years are all
from different bank accounts and the file of Khalli only contains contact number and reference
number for the money transfer and no other information like passport or other documents. Seeing
this internal review is carried out by the firm. Firm wants to identify the statutory and
professional regulatory provisions applicable to situations, classification of the actions of under
statutory and regulatory provisions and process and procedures to which Henry is subject in
relation to classification of actions.
MEMORANDUM
Breach of duty of care and diligence
Solicitors are the legal practitioners who are responsible for the legal document,
representing or defending the legal interest of clients. They provide legal advice in variety of
laws for clients. Solicitors must have to comply with Code of Conduct. They are set rules and
regulations in standards of the conduct expected of the solicitors. Rules reflect outcomes focused
regulations of the solicitors and provides guidance to the professional standards of solicitors
while carrying out the duty of care respect to clients. Failure by the solicitor to follow these rules
could lead to being disciplined.
1 Benson, K. Money laundering, anti-money laundering and the legal profession. In The
Palgrave Handbook of Criminal and Terrorism Financing Law (pp. 109-133). Palgrave
Macmillan, Cham.
2 Hatchard, J. Legal Practitioners as Potential Money Launderers: Beneficial Ownership
Transparency and PEPs: Solicitors Regulation Authority v Sharif (2019). Denning LJ. 31.
p.189.
1

Statutory and the professional regulatory provisions applicable to situations
The statutory and regulatory provisions applicable to the situation are money laundering,
Terrorist financing, Transfer of Funds Regulations 2017 and codes of conduct of solicitors.
Money Laundering, Terrorist Financing and the Transfer of Funds Regulations 2017
The act moves EU's 4th MLD into the national law. The development place importance
over risk based approach for money laundering via internal controls and the procedures including
the client due diligence, obligations over senior management and record keeping. The
organisations keep up changes for ensuring that efficient policies and the procedures are there to
deal with risks which could be faced3.
In the present case act of Henry Lynch will account for money laundering and it can
represent funding organised and serious crimes. All the solicitors or firm is exposed to the money
laundering as they have the capacity to legitimate transactions, have access to the financial
markets and advise over property and the business deals. It makes them attractive target for
individuals finding to launder proceeds of crime. If solicitors are involved in such act even
unknowingly they tend to support crime. Solicitors are placed for detecting money laundering.
Regulations require solicitors to carry out risk assessment firm wide. The act could lead to
criminal proceedings over the firm and the partners of firm4.
Anti-money laundering guidance provide for the duties and responsibilities of the
solicitors. It provides about the actions that will comprise of money laundering.
Other Laws
Law provides for different provisions that are applicable to the Henry Lynch under
money laundering. Solicitors are required to comply with the provisions of money laundering.
The statutory laws applicable to Henry Lynch are Proceeds of Crime 2002 and Terrorism Act
2000 and Terrorism Act 2006 (TA 2006).5
3 Benson, Katie. Lawyers and the Proceeds of Crime: The Facilitation of Money
Laundering and Its Control. Routledge, 2020.
4 Zavoli, Ilaria, and Colin King. "New development: Estate agents’ perspectives of anti-
money laundering compliance—four key issues in the UK property market." Public
Money & Management 40. no. 5 (2020): 415-419.
5 Regulations of Solicitors. 2020. [Online]. Available through :
<https://www.niceactimize.com/blog/regulation-of-uk-lawyers-as-gatekeepers-for-aml-
538/>.
2

Money Laundering Regulations 2019 extends scope of regulated sector, changes for
customer due diligence and the enhanced due diligence. Proceeds of Crime Act provides that
person is suspected to have committed money laundering enter or becomes concerned in
arrangements that facilitates retention, acquisition or control of the criminal property by or on the
behalf of other person. The IFA with AML has provided list of the circumstances that provides
for risk of terrorist financing or money laundering.
Proceeds of Crime Act 2002
Act deal with the process to recover assets which are gained through the crime. Main
objective of the POCA is of reducing loop holes in financial systems and reducing successful
outcomes of criminals. It improves legislations around the money laundering lying different rules
to follow6.
Terrorism Act 2000
The anti terrorism legislations for UK combat global problems of the terrorism and
financing coming with it, something which happens through the reverse money laundering.
AACT aims at combating financing of the terrorism and reducing number of terrorist operations
as it makes people vigilant about the money7.
Suspicious Activity Reports
Law firms of UK have to submit the SARs to National Crime Agency of UK In
accordance with legislations stated within POC Act. Solicitors are required to understand about
the contents of SARs. On suspicion that firm is used for laundering money the MLRO must
submit SAR to NCA. It is essential that everyone is aware about roles and responsibilities with
regard to firm processes.
The work is started without getting client information and the transactions for purchase of
3 units and casino are all cash based. Carlos is said to have political exposed person with
Colombia and and have multiple bank account with no specified reasons. Also the Henry Lynch
6 Turner and Bainbridge. An anti-money launderinTurner, Sue, and Jonathan Bainbridge.
"An anti-money laundering timeline and the relentless regulatory response." The Journal
of Criminal Law 82. no. 3 (2018): 215-231.
7 Helgesson, Karin Svedberg, and Ulrika Mörth. "Client privilege, compliance and the rule
of law: Swedish lawyers and money laundering prevention." Crime, Law and Social
Change 69. no. 2 (2018): 227-248.
3

has allowed transfer of funds from client's money bank accounts. All the above situation give
rise to high risk for money laundering.
Classification of statutory and regulatory provisions for Henry's actions.
Statutory provisions
Accepting the deposits in firm's client account without getting proper identity proof and
will attract the provisions of Proceeds of Crime Act, 2002, Terrorism Act 2000 and the Money
Laundering Regulations 2017. Also the purchases are proposed to be made in cash for the
property. The internal review also provides that business of Carlos is using separate bank
accounts in all the three years.
Henry Lynch has failed to disclose the provisions 330, 331 and 332 of MLR 2017. The
law applied where the person has reasonable grounds for suspicion or knowledge on or after due
date that offence involving money laundering is committed. Solicitors fail the provisions when
they do not report such issues to the concerned authorities8. Henry did not disclosed that the
firm's client accounts was being used for transactions that are suspicious to money laundering as
clients were not providing authentic documents or proof of the identity. Henry Lynch could be
held guilty under section 330 or 331 if they have known or suspected the money laundering.
Regulatory Provisions
On the other The code of conduct of solicitors requires them to ask for the complete
information of the clients they are dealing for. Henry has breached the duty of care and diligence
in respect of their client as it they are carrying out transactions in cash for purchase of property
and also the solicitor is acting for Khalli who is not resident of UK and works is started even
when the documents and passport has not provided. The actions of Henry not informing or
discussing with other members and partners of firm amounts to breach of SRA Code of Conduct.
On the other, no in depth inquiry about the proceeds in firm's client account and purchase
proceeds to be made in cash was made.
Solicitors' firm conducting work regulated by MLR are required with nominated officer
for receiving and making disclosures to NCA. MLRO is responsible for implementing
8 Case Study. 2019. [Online]. Available through :
<https://www.sra.org.uk/solicitors/guidance/money-laundering/>.
4

compliance procedures, policies and the controls9. Law firms conducting works which are
regulated by MLR are required to apply CDD on risk sensitive basis at the time of establishing
business relationship with client, carrying out occasional transactions suspects money laundering
or the terrorist financing or doubts veracity of the identification documents supplied. Firms are
required to monitor the activities of their client.
Processes and procedures that Henry may be subject to in the relation to classification of
the actions
It is essential to understand the clients and particularly to recognise the cases or they are
at higher money laundering risks. Solicitor is required to conduct the due diligence checks over
clients and to be aware of the up dates.
AML policies have been designed for ensuring that solicitors are aware of their
obligations and responsibilities towards the acts that are suspected of money laundering. The act
of money laundering attracts various regulatory and statutory provisions.
The case studies given on money laundering is quite similar to the situation of Henry
where the client planning to purchase high value properties and the funding are from the Khalli.
After few months Khalli having problem in the immigration documents and bank account made
use of firm's client account for the transfer of funds. Around 50 deposits were made for personal
and business expenses of Carlos and were not related to any legal matters with solicitor. The
transactions were not inquired from the client due to fear of losing a wealthy client.
Case study in such situation reveals Carlos and Khalli used client account for accepting
substantial investments from the politically exposed person10. Here Lynch has placed the firm to
risk of becoming professional enabler of the money laundering and the terrorist financing. The
firm's client account has been used for funding the personal expenses and to accept funds from
the unknown parties11.
9 Master, Emerald. "Slipping Through the Net: The Financial Conduct Authority’s
Approach in Lessening the Incidence of Money Laundering in the UK."
10 Nougayrède, Delphine. "Anti-Money Laundering and Lawyer Regulation: The Response
of the Professions." Fordham Int'l LJ 43 (2019): 321.
11 Eboibi, Felix Emeakpore, and Inetimi Mac-Barango. "Global Eradication of Money
Laundering and Immunity for Legal Practitioners under the Nigerian Money Laundering
Regulation: Lessons from the United Kingdom." Beijing L. Rev.10 (2019): 769
5

Case studies provides for importance of the solicitors carrying out due diligence on the
clients and very serious consequences on attempt failure. The failure to carry out due diligence
by the Henry Lynch into transactions carried out by Carlos and use of separate bank accounts in
all the three years. It also did not inquired into the identity of the Khalli by whom the funds were
transferred into the client account.
As per the code of conduct solicitors is required to acquire complete information of the
client with whom they are entering into the transactions.12 In present case Henry Lynch should
have requested the clients to provide documents related to the sources of funds and the passport
of partner. Solicitor should also have inquired for Carlos who is politically exposed person. It
represents breach of duty to apply due care and diligence in respect to their clients who have
used the client account for funding the purchase of property.
Henry Lunch also did not communicated the matter to any other associate or member
regarding the dealings and transactions undertaken. For these transactions Henry Lynch should
have communicated with the Compliance Office for the Legal Practice and Compliance Officer
for the Finance & Administration for understanding the possible aspects that could occur due to
the transactions that are made by the client. None of the deposit made by Khalli was related to
the services performed by the Henry Lynch or the firm.
Henry Lynch could be held liable as in BCCI v Akinels[2001] where the court of Appeal
test is based on whether the person acted unconsciousably. Test is subjective that includes the
actual knowledge and the wilful blindness13. POCA can lead to sentence for 14 years of jail or
large fine on identifying person involved in money laundering.
The Henry Lynch has to prove that the transaction was not for personal benefit or to
involve in act of money laundering. Henry could also inform compliance officer and file SAR
giving full details of the transactions involving money laundering to NCA. If Henry is not able to
prove that the deposits were not accepted to assist in dealings of money laundering from the
12 AML Guidance. 2019. [Online]. Available through :
<https://www.lawsociety.org.uk/topics/anti-money-laundering/anti-money-laundering-
guidance>.
13 Hufnagel, Saskia, and Colin King. "Anti-money laundering regulation and the art
market." Legal Studies 40. no. 1 (2020): 131-150.
6

political exposed person the solicitor may be be disqualified from the firm and will also be held
liable under civil and criminal liability for money laundering.
7

REFERENCES
Books and Journals
Benson, K. Money laundering, anti-money laundering and the legal profession. In The Palgrave
Handbook of Criminal and Terrorism Financing Law (pp. 109-133). Palgrave Macmillan,
Cham.
Benson, Katie. Lawyers and the Proceeds of Crime: The Facilitation of Money Laundering and
Its Control. Routledge, 2020.
Eboibi, Felix Emeakpore, and Inetimi Mac-Barango. "Global Eradication of Money Laundering
and Immunity for Legal Practitioners under the Nigerian Money Laundering Regulation:
Lessons from the United Kingdom." Beijing L. Rev.10 (2019): 769.
Hatchard, J. Legal Practitioners as Potential Money Launderers: Beneficial Ownership
Transparency and PEPs: Solicitors Regulation Authority v Sharif (2019). Denning LJ. 31.
p.189.
Helgesson, Karin Svedberg, and Ulrika Mörth. "Client privilege, compliance and the rule of law:
Swedish lawyers and money laundering prevention." Crime, Law and Social Change 69.
no. 2 (2018): 227-248.
Hufnagel, Saskia, and Colin King. "Anti-money laundering regulation and the art market." Legal
Studies 40. no. 1 (2020): 131-150.
Master, Emerald. "Slipping Through the Net: The Financial Conduct Authority’s Approach in
Lessening the Incidence of Money Laundering in the UK."
Nougayrède, Delphine. "Anti-Money Laundering and Lawyer Regulation: The Response of the
Professions." Fordham Int'l LJ 43 (2019): 321.
Turner and Bainbridge. An anti-money launderinTurner, Sue, and Jonathan Bainbridge. "An
anti-money laundering timeline and the relentless regulatory response." The Journal of
Criminal Law 82. no. 3 (2018): 215-231.
Zavoli, Ilaria, and Colin King. "New development: Estate agents’ perspectives of anti-money
laundering compliance—four key issues in the UK property market." Public Money &
Management 40. no. 5 (2020): 415-419.
Online
Case Study. 2019. [Online]. Available through :
<https://www.sra.org.uk/solicitors/guidance/money-laundering/>.
AML Guidance. 2019. [Online]. Available through : <https://www.lawsociety.org.uk/topics/anti-
money-laundering/anti-money-laundering-guidance>.
Regulations of Solicitors. 2020. [Online]. Available through :
<https://www.niceactimize.com/blog/regulation-of-uk-lawyers-as-gatekeepers-for-aml-
538/>.
Money Laundering Regulations. 2020. [Online]. Available through :
<https://www.ifa.org.uk/technical-resources/aml/uk-law-and-guidance>.
Code of Conduct. 2020. [Online]. Available through :
<https://www.sra.org.uk/solicitors/standards-regulations/index/>.
8