Testing and Enforcing anti ML Compliance by Solicitors within England & Wales

1. Testing and Enforcing anti ML Compliance by Solicitors within England & Wales Mike Calvert Head of Forensic Investigation September 2008

2. Why Solicitors • Professional • Confidential • Unfettered access to worlds markets and financial systems • Unlimited transaction values • ‘Own’ banking system • Solicitors’ undertakings • Legal Professional Privilege • Solicitors provide credibility, reassurance and confidence • Indemnity

3. What Duties and Powers do we have • Money Laundering Regulations 2007 • The Law Society (SRA) is the supervisory authority (SA) • Reg 24(1) • ‘A supervisory authority must effectively monitor the relevant persons for whom it is the SA and take necessary measures for the purpose of securing compliance by such persons with the requirements of these Regulations’

4. What Duties and Powers do we have • Solicitors’ Code of Conduct 2007 • Rule 1 Core Duties, inter alia, • 1.01 Justice and the Rule of Law • ‘You must uphold the rule of law and the proper administration of justice’ • 1.02 Integrity • ‘You must act with integrity’ • 1.06 Public confidence • ‘You must not behave in a way which is likely to diminish the trust the public places in you or the profession’ • Rule 5 Business management • 5.01 Supervision and management responsibilities • 1 (b) ‘compliance with the money laundering regulations, where applicable’

5. What Duties and Powers do we have • Solicitors’ Accounts Rules 1998 - Specific prohibition of the provision of a banking facility in the absence of an underlying legal transaction • Note (ix) to Rule 15 • Notice under Section 44B of SA 1974 (as amended) • Securing the evidence within client matter files • S 44BA and BB come into force during 2009 • New Powers under Section 44D to be introduced during 2009 • Further powers to interview and call for explanations • Warning Cards (see EWCA Civ 1007 July 2008) • Non compliance with or taking heed of, may amount to misconduct as held at the Solicitors Disciplinary Tribunal (SDT) • Law Society Practice Notes (equivalent to best practice advice and may constitute a Warning of high risk activity; ECDD) • Mortgage Fraud March and September 2008 • Money Laundering February 2008 • Anti Terrorism July 2007 • Intervention under Part II of Schedule I of the SA 1974 (as amended)

6. What we do Not have (yet) • A Rule prohibiting ML • Right of entry • Right of search • Right of seizure • No right to ‘freeze’ bank accounts without a suspicion of dishonesty which must be evidenced

7. Regulatory Response • Regulated firm are risk based. We, The Law Society/SRA have adopted a principled approach to Supervision but remain a risk based Regulator • We encourage the achievement of outcomes which reduce money laundering [high level ambition, see Rule 5 of the SC of C] • We accept that controls and systems can and will be different even within comparable firms [no prescription, see TLS Practice Notes] • We accept that ML can never be entirely eliminated [to attempt to design and enforce a zero failure regime would place impossible burdens on the regulated and the regulator] • We do however, have a statutory duty to monitor and enforce compliance • Targeted forensic investigations based on risk • Thematic compliance visits

8. SAR’s 1998, ML Regs 2003 and POCA • Wood & Burdett - SDT No 8669/2002 • Provision of a ‘cheque cashing’ facility for clients >£2,247,299 – SDT found despite no breach of any Rule, it was not a proper use of client bank account nor of a solicitor’s practice - Wood struck off, Burdett suspended • Julian Holy – EWHC 1934(admin) CO/5379/2005 • Receipt of £15m from a Nigerian businessman ex Cayman Islands account - abortive hotel purchase and funds repaid to 3rd parties. Multiple allegations inc. above at SDT and struck off. Appealed. Found ‘above transaction required enquiry, Mr H’s knowledge of the client was scant in the extreme’. Reduced to 4 year suspension • Beverage & Gauntlett – SDT June 2007 • May 2002 – February 2003 >£197 million thru client bank account re MTIC fraud. No underlying legal transactions • 2006 2 partners acquitted at Southwark CC but clerk Ford given 6 years • SDT June 2007 – both suspended for 1 year • Court Of Appeal July 2008 – Attorney General of Zambia v Mere Care & Desai –EWCA Civ 1007 paras 227-240 • cUS$10 million through CBA • …’a short term money park’…” with almost none of the payments through client account being related to any legal work done by the firm. It is equally plain that this was not a proper thing for a firm of solicitors to do” • Non compliance with the Warning Cards highlighted

9. ML Regs 2007, so far • Limited conclusions from Forensic Investigations (targeted) • Themed visits undertaken by FI so far (limited numbers) are encouraging • Positive feedback from SOCA re SARs’ regime and solicitor reporting