Know your client: ‘If it walks like a duck...’

There are lawyers whose professional obligation is to accept instructions, regardless of the lawyer’s view of the client and their actions: the ‘cab rank’ rule. And there are lawyers who represent unpopular clients fearlessly, such as Gareth Peirce and the Birmingham Six. This piece is not about those lawyers and it is not about that branch of the law. This is about the solicitors whose role in UK transactions, often commercial or residential property, is seen to have played a role in facilitating the transfer of wealth out of the former Soviet Union.

What do the Solicitors Regulation Authority and the Money Laundering Regulations 2017 require? We need to understand the source of wealth and source of funds for a transaction, and to know our client. Identity information alone will not reduce the risk of money laundering. If you rely only on a passport and a utility bill, you might accept a drugs baron client who pays his gas bill on time. Identity information will help you establish whether someone is a politically exposed person (PEP), when greater scrutiny of their wealth will be needed.

Suppose you are introduced to a teenager who wishes to acquire a flat in Mayfair. She will pay for the property using a loan from a bank. This is therefore her source of funds and the bank’s involvement may provide reassurance. The bank loan itself is not evidence that the money is clean – perhaps the bank has filed a report and is waiting for consent to act. They cannot tell the potential client without committing the offence of ‘tipping off’ and they will not share that with you for the same reason. Even if you are content with the bank loan as a source of funds, you still need to be curious about the cash. Why has this bank decided to lend this person so much money? Loans of that nature are not normally offered on the security of the property alone. Is there family wealth involved which is swaying the banker’s decision? You are not required to question a wealthy private client about their entire financial history but you do need to make sure that the transaction is consistent with your knowledge of the client, their business and their risk profile.

Law firms and the way they are managed have a role to play. Software can identify whether a person is a PEP as well as checking the validity of a passport in a way a solicitor could not. Some clients will not know what a PEP is and others may be surprised to find that they are one. Being a PEP is not, in itself, intrinsically bad. I had a client who was offended to learn he was a PEP, but reassured when he discovered this was due to his role chairing an accountancy committee.

However, management may have a less benign role. Solicitors, especially partners, are expected to bring in clients and are rewarded for the amount they bill. When invited to accept a retainer for complex structuring work which will provide complete anonymity for the ultimate beneficial owner, are partners under such pressure to bill that they consider only the fees? Of course it is flattering to be approached and such work may well be lucrative. Not all structures are morally dubious. For example, readers who recoil from offshore anonymity might consider such an arrangement progressive if it is used to avoid forced heirship laws mandating all wealth passes to sons.

Is the compliance function within the firm well regarded, or an obstacle to be steamrollered over into accepting a new client? At a previous firm, I was told that the potential client had ‘people’ who could explain why a Google search disclosed such unfortunate allegations of involvement with organised crime in the US, and I could use the ‘right to be forgotten’ in the EU to ‘get him through’ compliance. It is easier to manage what can be measured. In the context of a law firm that translates to invoices delivered and paid.  

I believe that solicitors should also be recognised for the work they have turned away each year. This may be because it is not an area of law the firm covers but might also be because of the reputational risk to the firm. My firm requires me to report every year on work I have rejected, but my impression is that Wedlake Bell is unusual in this regard.

And yet, it is not all the fault of the law firms. You might expect a lawyer to say that, but hear me out. We are enjoined so often to watch out for money laundering, and have been for so long, that it can be a shock to realise how little happens when you report it, or try to.  

Some clients were offered an opportunity to buy land owned by a nation state but could only be contracted through a series of intermediaries and an offshore share purchase. Apparently a reason this deal was not as suspicious as one might think was the involvement of a top-30 law firm. It looked like a duck, it walked like a duck and it quacked like a duck. The partner at the law firm could see why I might think that, but did not feel I needed to be concerned. He had to be reminded what a SAR was and what MLRO stood for. I told my clients I could not give any assurances to their investors that the purchase price would all go to the registered owner and we could not act. When deciding not to accept the retainer, our duty was only to consider submitting a SAR. I would like to live in a country where laws to prevent money laundering are robust, and the agencies who enforce them are adequately resourced.

When I declined that instruction, my clients were pretty cross: this was a great opportunity and I’d wasted 48 hours in progressing it while my colleagues and I had fretted about nothing. They went to another law firm and I worried about ever getting a deal from that client again: I too have billing targets. Much later the other firm realised that they could not report to investors that there was no money laundering risk. In contrast, our 48 hours looked like decisive analysis, and the flow of instructions resumed.  

There are stories I cannot tell here because the parties are identifiable. Those do not worry me. What worries me is the ones I have not seen - the ducks I didn’t recognise. 

Suzanne Gill is a partner at Wedlake Bell