Litigation settlement 'can be used as vehicle for fraud', warn leading lawyers

MONEY LAUNDERING: Society chief's fears are reinforced by Gazette poll of City lawyers

Solicitors should be aware that commercial litigation, rather than corporate transactions, could be used as a vehicle for money-laundering, two leading fraud lawyers - including the chairwoman of the Law Society's money laundering task force - warned this week.

Their views were reinforced by a straw poll of seven City litigators conducted by the Gazette.

Louise Delahunty, money laundering task force chairwoman and partner at London fraud specialists Peters & Peters, and David Greene, litigation partner at City firm Edwin Coe, both said they recognised a litigation settlement model as a potential money laundering method.

Mr Greene explained: 'Take two parties, company A and company B.

A wants to launder funds.

It cooks up a dispute with company B, and issues a claim against it.

After much prevarication and argument, the case settles, but out of court, and for a much larger sum than might have been expected.' Mr Greene explained that if the claim were really just a speculative one, and if the settlement money went through a law firm this could be used as a method of money laundering.Ms Delahunty said she had heard of the idea, adding that it would have to be 'quite a complex scenario'.

She said solicitors should be aware that it is a possibility.Of seven top City litigators canvassed by the Gazette, six agreed that this method is a feasible money laundering model, although five said they had never considered it.

However, they did express reservations about its success as a method.

One suggested that it was highly improbable, as it would require both solicitors to be 'either asleep, or involved in the fraud'.All agreed that a top litigator should always recognise a speculative action.Another said: 'It's interesting, I'd never thought of it.

It's definitely possible, but more likely to take place with claims brought in the kangaroo courts of a former colony.'Meanwhile, Dechert has successfully blocked Home Office moves to reveal bank documents to the Nigerian government - sought in the hope of demonstrating that money allegedly stolen from Nigeria by the late president Sani Abacha was laundered through City institutions, including law firms (see [2001] Gazette, 17 May, 3).

There is no suggestion that Dechert was involved.At a hearing last week an injunction was awarded to the Abacha family - for which Dechert acts - preventing disclosure of the documents pending a full judicial review of the Home Secretary's decision later next month.Jeremy Fleming