Litigation solicitors are being targeted by criminals attempting to launder the proceeds of crime, the Law Society has warned.
Chancery Lane said that criminals are seeking to exploit what they perceive to be a ‘more relaxed approach’ to due diligence by lawyers when they are acting in litigation, which is not covered by the Money Laundering Regulations 2007.
Calls to the Law Society’s Practice Advice Service and information provided to law enforcement agencies indicate a growing trend of criminal funds being laundered through debt recovery litigation. Criminals set up a cash-intensive business, create documents to suggest a legitimate debt, and then approach a solicitor to recover it. When the fake debtor makes a payment, the funds are passed through the solicitor’s bank account and back to the client, effectively laundered.
Claire McLeod, a senior associate in the crime, fraud and investigations group at City firm Simmons & Simmons, said that while smaller conveyancing practices have traditionally been the victims of money laundering, criminals have moved on to smaller litigation firms. She added that economic conditions have created an ‘avalanche’ of legitimate debt recovery claims, among which bogus debts could easily be overlooked.
Signs that money laundering may be taking place include clients and debtors based some distance from the solicitor’s firm, who are never met in person; a debtor who is willing to pay the solicitor’s fees even though little legal work has been completed; fees paid in advance, often in cash, and sometimes overpaid; and a client requesting that recovered funds or overpaid fees be credited to a third party.
The Law Society has advised solicitors to undertake due diligence on litigation clients and, ‘on a risk-sensitive basis’, to make searches for an ownership or other connection between the debtor and the client.
Alison Matthews, chair of the Law Society’s Money Laundering Task Force, said criminals ‘continue to be innovative’ in seeking to launder funds, and the Society would keep solicitors informed of the latest methods being employed, to enable the profession to protect itself from criminal exploitation.
Go to: lawsociety.org.uk/moneylaundering for more information.