Leading firm fined £101,000 for anti-money laundering failures

A leading South-West law firm has been fined £101,357 for failing to act over money laundering red flags on three property transactions, two of which may have involved a sanctioned entity.

The Solicitors Regulation Authority (SRA) said both the fee-earner and the compliance team at Exeter-based Ashfords missed, did not adequately act on or sufficiently record the red flags, demonstrating “a failure in the firm’s client onboarding and ongoing monitoring processes”.

This resulted in the firm receiving “significant sums into its client account in the absence of source of funds evidence”.

Ashfords accepted the fine in a regulatory settlement agreement with the SRA, the second it has signed in three years – in late 2020, the firm paid a £16,200 fine after admitting to holding more than £1m in its client account without providing any underlying legal services.

According to the latest agreement, the firm reported itself to the SRA over three conveyancing transactions where it acted for the purchasers between October 2017 and March 2018 but received its instructions from a third-party property investment company.

The first two concerned properties for £3.2m and £550,000 bought by a company, ‘Client A’, where the firm’s compliance team raised questions about its ultimate beneficial owner – the customer due diligence having revealed conflicting information – and the source of funds, which “was not fully understood or evidenced and had changed during the transaction”.

The compliance team “purportedly” followed up its email with a conversation with the fee-earner, but there was no written record of whether these issues were fully resolved before the transactions completed.

The SRA said: “A retrospective search carried out by the firm, during its own investigation, identified a potential link between one of the purported beneficial owners and an entity subject to UK sanctions.

“Electronic AML searches had not been carried out by the firm for this individual at the time of the purchases, and consequently the firm did not take steps to mitigate sanctions risk.

“As such, in the absence of documents and information obtained by the firm, to satisfy its customer due diligence and sanctions regime obligations, there was a significant risk that these purchases were funded through a sanctioned entity.”

The third purchase, for just over £3m, was on behalf of a UK-registered charity, ‘Client B’. Ashfords had previously been instructed to act on behalf of a different client, before receiving a request to change it to Client B.

Source of funds documentation showed that it did not have sufficient funds to complete the purchase, with the balance to be loaned to the charity by one of its trustees.

“The file contained no source of funds information in relation to these funds, nor customer due diligence documentation in relation to the trustee loaning the funds,” the agreement said. “While the firm’s compliance team had questioned the source of funds, it had failed to consider any AML risks on the basis that Client B was a UK-registered charity.”

Ashfords admitted multiple breaches of the 2017 Money Laundering Regulations, including failing to assess and/or evidence the purpose of all three transactions, and failing to carry out enhanced customer due diligence and enhanced ongoing monitoring, “despite the complex corporate structure of Client A and high-value nature of the transaction”.

In mitigation, the firm admitted the breaches and said that it had procedures and controls in place – but they were not followed here.

It said there was also no suggestion that the transactions actually involved money laundering or any financial crime.

The SRA said a fine was the appropriate sanction. While the conduct “had the potential to cause significant harm”, there was no evidence of “lasting harm” to consumers or third parties.

Further, there was a low risk of repetition. The transactions happened over five years ago “and the firm has stated it has made significant investment in its AML processes and compliance team” since.

The members of the compliance team involved were also no longer working there.

The SRA said: “The firm brought this matter to our attention initially, has assisted us throughout the investigation, admitted breaches, made changes to systems, policies and procedures as a result, and ensured training to all relevant employees is regularly provided.”

Its fining methodology produced an initial figure of nearly £169,000 – being 0.4% of Ashfords’ £42m turnover – which it then reduced by 40% to take account of the mitigation.

Ashfords also agreed to pay the SRA costs of £1,350.

Article Credit: https://www.legalfutures.co.uk/latest-news/leading-firm-fined-101000-for-anti-money-laundering-failures