- Publication Date
- 2024-01-16
The Solicitors Regulation Authority (SRA) conducted an onsite forensic investigation into the law firm following a report that raised concerns about three conveyancing transactions that took place between 2018 and 2020.
The law firm was instructed in the purchase of three properties financed through mortgage advances and the clients' own funds. One purchase did not proceed after the buyer was unable to secure a mortgage.
In the first and second matters, the law firm was instructed by Client A.
In the third matter, the law firm was instructed by Client B. Client B was understood to be a financial advisor to Client A, but Client B's identity had not been verified by the firm.
The investigation identified areas of concern in relation to the firm's compliance with the Money Laundering, Terrorist Financing (Information on the Payer) Regulations 2017 (MLRs 2017).
Between June 2017 and January 2020, the law firm did not have in place a AML firm-wide risk assessment (FWRA), as required by the MLRs 2017; policies, controls, and procedures (PCPs) to mitigate and effectively manage the risks of money laundering and terrorist financing, also required by the MLRs 2017; and client and matter risk assessments (CMRA) to record the assessment of the level of risk arising in any particular case, as required by the MLRs 2017.
A review of the client files for the three conveyancing transactions revealed that in all three matters, the firm failed to obtain and/or scrutinise source of funds documentation to evidence how its clients' funds had been accumulated. In the second matter, the information the firm received from its client was inconsistent with the client's explanation of how they were funding the purchase. The firm recorded that a deposit of £185,000 had been previously paid to the seller's solicitor by its client's former solicitor. The firm failed to undertake any inquiries to verify this payment. The investigation identified that the client's former solicitor had never been instructed in this matter and had never received a deposit. If the firm had scrutinised the information it received from its client, it would have identified that the client could not have funded the deposit and completion funds in the manner described. In the third matter, the firm released £46,000 to the seller's solicitor on the instructions of Client B, who was not properly authorised to provide instructions on behalf of Client A. At the time of the payment, the transaction appeared to have fallen through because of difficulties obtaining a mortgage, and there was no reason to have made this payment.
The firm admitted that by failing to comply with the MLRs 2017, and by acting on instructions it received from a third party without obtaining its client's authorisation, it failed to maintain proper governance and sound financial and risk management principles.
The amount of the fine was calculated in line with the SRA’s published guidance on its approach to setting an appropriate financial penalty. The nature of the misconduct was considered more serious because the firm was directly responsible for complying with the Money Laundering Regulations in place at the material times and failed to have in place the necessary documentation. The failure to have proper documentation in place left the firm vulnerable and exposed to the risks of money laundering, particularly in high-risk conveyancing transactions involving large sums of money.
The impact of the misconduct was considered medium because in three conveyancing matters, the firm failed to undertake, evidence, or scrutinise the source of funds for significant amounts of money. The firm's inquiries were limited and did not ensure the funds were not proceeds of crime. Additionally, in one matter, the firm made two payments totalling £131,000 without any instructions from the client, including one payment made on the instructions of a third party.
The firm's annual domestic turnover was £1,451,020, and the misconduct was placed in the penalty bracket Band “C,” recommending a broad penalty bracket equating to 1.6% to 3.2% of annual domestic turnover. A financial penalty in Band C2 was recommended, reflecting the seriousness of the misconduct and the improvements made by the firm since. The basic penalty of 2% of annual gross income equated to £29,020, reduced by 20% to £23,216 to account for the firm's cooperation with the investigation and the improvements made.
The firm did not appear to have made any financial gain or received any other benefit as a result of its conduct, so no adjustment was necessary.