AML: Lawyers had blasé attitude to AML
Two licensed conveyancers found guilty of widespread misconduct have been disqualified after a panel described theirs as “one of the most serious cases” it had ever heard.
James Marshall and Jeremy Kotze of Stratega were found guilty by a Council for Licensed Conveyancers (CLC) adjudication panel of a host of breaches of its code of conduct as well as anti-money laundering (AML) rules.
They lied to their regulator, overcharged clients, were involved in stamp duty land tax (SDLT) avoidance, and, in one case, obstructed a client’s access to her file to prevent her from making a complaint.
They were permanently disqualified from holding licences to practise.
They were two of the three directors of Stratega, an alternative business structure which ceased trading on 30 June 2022, having been on the CLC’s radar for a couple of years. It had around 10 staff working from offices in Buckhurst Hill in Essex and Cheam in Surrey.
The third director, who was not a licensed conveyancer, also provided tax avoidance advice through both Stratega and another company, Cornerstone Tax.
Mr Marshall was the head of legal practice and latterly money laundering reporting officer (MLRO), taking over from Mr Kotze, who was also head of finance and accounts, in March 2021.
The panel found they had a “blasé attitude” to AML compliance, with “evidence of poor client due diligence and sources of funds and wealth checks”.
Whilst Mr Kotze was the MLRO at the relevant times, “he was effectively only nominally in that post, and the panel saw and heard evidence that he was not always conducting the role properly and with the required level of scrutiny and compliance”.
In one case, the firm held £2m for a Qatari client – received before it was needed for the proposed transaction – and transferred it on his instructions to another law firm.
“Mr Marshall, in his evidence, indicated that he did not believe he should have been concerned about transferring M1’s funds from his client account to that of another practice, because that was in essence returning the client’s funds back to them i.e. to the original source.
“The panel disagrees. In fact, the money had been allowed to pass through two legitimate practice accounts without any underlying transaction being completed, in circumstances where the respondents were sufficiently concerned to have lodged [a suspicious activity report], yet continued to transfer over £2m pounds at the client’s request and without sufficient documentation to satisfy themselves as to source of funds and wealth.”
There was no evidence that money laundering actually occurred, however.
In another case, the lawyers satisfied themselves that a client was not a politically exposed person after his name came up on a search by accepting his statement that he did not consider himself one when they asked.
In a third matter, they accepted that “personal account Doha Qatar” was sufficient information from a client for the purposes of a source of funds check, while in a fourth Mr Marshall agreed to transfer a client’s money to a solicitors’ firm on condition that it would not report any concerns to the CLC.
The lawyers had considered their firm as low risk of being involved in money laundering in their practice-wide risk assessment. This was despite acting for developers and for overseas investors in multiple off-plan flats, and on both sides of those transactions. This all arguably made it high risk, the panel said.
Mr Marshall conducted files where Mr Kotze was acting on the other side of the transactions; this is allowed under CLC rules with informed consent but the panel said Mr Marshall’s evidence “showed a clear lack of understanding of the rules around conflicts of interests”.
The particular problem was that Mr Kotze was also the MLRO. “This in itself meant that there would be a conflict of interests if Mr Marshall had concerns about potential money laundering, as he would effectively have to notify the person representing the other side of his concerns, which he would not be able or authorised to do if that person worked in another practice.”
In another set of transactions where Mr Marshall was acting for a property developer on multiple sales, he supervised an unauthorised caseworker at Stratega who was working for the other side.
The panel said it “struggled to see” how Mr Marshall could not conclude that this would not amount to a conflict, while Mr Kotze had “a clear responsibility to ensure that the practice did not act in a situation of conflict”.
In five other transactions, the firm only obtained the clients’ consent to acting on both sides two years after they had completed. It was “nonsensical” to suggest that this was sufficient, the panel said.
On charging, Stratega had an arrangement with a client who was set to buy a large number of units within blocks of flats for a fee of £1,000 each; the firm had planned to expand the practice as a result, only for the position to change and just a small number of transactions were undertaken.
In some of them, the firm provided completion statements providing an estimate of £16,000 in costs, VAT and disbursements but then sent a bill for £101,364.
“The panel found that there was no systematic approach to the respondents’ billing of these files, and there was no evidence to support the additional work billed…
“It concluded that the respondents had planned on being paid £1,000 on each separate file, and when it became clear that was not to happen, they sought to charge as much as they could on the cases on which they had been instructed.”
The panel further found that they had facilitated SDLT avoidance by allowing two subsidiary companies to provide advice on notional sub-sales to conveyancing clients of Stratega.
Obstructing a client’s access to a file and lying to her about it have been destroyed was “particularly concerning and serious”, it went on.
The property had been bought with her husband and was part of the settlement when they divorced. Having initially been given digital access to the case file, the client raised concerns that she was signed up to an SDLT avoidance scheme about which she had no knowledge, and claimed there were at least two forged signatures in the file.
She received no response and could not access the digital file when she tried to again later in the year. She was told her file had been destroyed, but the panel found this was not true. The lawyers also lied to the CLC about the matter.
The panel said it “found this conduct to be extremely serious, and very far below the standard expected of licensed conveyancers”.
There were various other findings against the pair and the panel concluded this was “one of the most serious cases it had considered”.
It concluded that “the only way to meet the seriousness of the matters found proved in relation to the public interest, the client interest (both past and future) and to uphold the reputation of the profession and the regulatory process itself, was to order permanent disqualification”.
Each was also fined £10,000 and ordered to pay costs of £44,000.
How come the firm was on the Regulato’s radar for a few years befor action was taken?