SDT: Fine is a proportionate sanction
A property partner who failed to undertake proper anti-money laundering (AML) checks on a client involved in a “substantial fraud” has been fined £27,500.
Dennis Ko admitted at the Solicitors Disciplinary Tribunal (SDT) that he had caused or allowed transactions and payments to be made “which bore the hallmarks of fraud”, but there was no suggestion that he been dishonest.
The SDT approved a statement of agreed facts and outcome reached by the Solicitors Regulation Authority (SRA) with Mr Ko, who qualified in 2002 and had been a partner at City firm Kennedys at the time in 2017.
He had acted for the businessman Sanjiv Varma, who the SRA said remained “at large” having been convicted of criminal contempt and jailed for 21 months.
Mr Varma attempted to buy the Grosvenor Hotel in Bristol with the intention of converting it into student flats as a buyer-funded development, but the purchase never completed.
Instead, the High Court ordered him and his company to pay a total of over £9.3m to liquidators, to “reflect significant sums misappropriated from investors”.
The court found that there had been an “undoubted substantial fraud” in relation to Mr Varma’s property company, Grosvenor Property Developers Limited (GPDL). The contempt ruling arose from this litigation.
The SRA said Mr Ko’s failings, “although not deliberate or motivated by financial gain”, were “spread out across a number of months and related to failing to identify that features of the transaction were suspicious”.
The regulator went on: “The public are entitled to expect that members of the profession will adhere to the Money Laundering Regulations and will be capable of identifying suspicious transactions.”
Mr Ko was the partner with oversight of the hotel purchase and was also instructed on four other property purchases worth a total of £16.4m, only one of which completed and even in that case Mr Varma defaulted on the loan.
The SRA was unable to find any client-care letter or letter of engagement relating to the Grosvenor Hotel transaction on the firm’s file. Mr Varma originally said he would be the purchaser, but the plan changed so it was to be bought by GDPL.
The sole director and shareholder of GPDL was Jonathan England, but “most of the instructions came from Mr Varma” and Mr England later told Mr Ko that Mr Varma was the beneficial owner of the company. But no explanation or evidence for this was sought.
Contracts were exchanged on the hotel in March 2017 but none of the money for the deposit came from GPDL.
Work continued, including the sale of dozens of units within the development, despite concerns expressed by Mr Ko’s team as well as solicitors for purchasers of units that it shared the hallmarks of those referred to in the SRA’s warning notice on investment schemes.
Mr Ko left Kennedys in September 2017, taking all of Mr Varma’s files with him, apart from that of the hotel.
Kennedys told Mr Varma it would no longer act for him in February 2018, and the purchase eventually did not complete. GPDL was wound up in November 2018, and solicitors acting for the liquidators issued proceedings against both Mr Varma and Mr England.
Mr Ko gave evidence for the liquidators and the judge acknowledged his honest and straightforward evidence. The High Court found there had been an “undoubted substantial fraud” in relation to GPDL.
Judgment was given against Mr Varma for £5.5m and GDPL for £3.8m to “reflect significant sums misappropriated from investors”.
The liquidators also sued Kennedys and the claim was settled for a “substantial” sum.
Mr Ko admitted a long list of allegations, including failing to conduct adequate client due diligence, breaching the Money Laundering Regulations, and “failing to conduct sufficient monitoring of the business relationship” with his client.
Between December 2016 and September 2017, he accepted that he had “caused, allowed or acted” in transactions which bore the hallmarks of fraud.
Between May and September 2017, he authorised payments to be made to Mr Varma of £925,000, and two further payments of £133,500 and £10,000 to third parties, in “circumstances which bore the hallmarks of fraud”.
On sanction, the SRA said the total sum paid out on the Grosvenor Hotel matter while Mr Ko was a partner at Kennedy was over £5.2m.
However, there was no evidence of dishonesty, the regulator had withdrawn allegations of lack of integrity and recklessness and Mr Ko had “co-operated fully” with it.
In mitigation, Mr Ko accepted that he fell “significantly short” of the standards expected of him but said at all times he believed the development was a legitimate transaction, albeit that GPDL was poorly run. He said he had been “deceived” by Mr Varma and noted that Kennedys continued to act for him for five months after Mr Ko left.
The SDT said it did not consider the misconduct to be “so serious that there should be any interference with his ability to practise”. A fine was “appropriate and proportionate to the seriousness of his misconduct”.
The SDT fined Mr Ko £27,500 and ordered him to pay £25,000 in costs.
Leave a Comment