SDT: Very serious misconduct
The two partners of a firm whose purpose is to serve the non-legal business interests of one of them have been fined for multiple rule breaches, including using client account as a banking facility.
The Solicitors Disciplinary Tribunal (SDT) said the breaches of the 2017 Money Laundering Regulations (MLR) were “especially concerning”.
Ayub Bhailok and Robert Michael Fielding are partners at Preston firm Bhailok Fielding. Mr Bhailok, 57, qualified in 1993 and takes 80% of the profits; Mr Fielding, 60, qualified in 1998 and takes the remaining 20%.
The firm has no qualified employees, with Mr Fielding’s wife handling the bookkeeping.
Mr Bhailok is also a businessman, buying and selling properties. Each property is owned by a special purpose vehicle (SPV), of which Mr Bhailok is director and a (or sometimes the) beneficial owner.
Mr Bhailok is in business with his brothers, who operate a similar structure for their properties.
In approving an agreed outcome between the Solicitors Regulation Authority (SRA) and the pair, the SDT recorded that, until Mr Bhailok had a heart attack in 2016, the firm operated as a normal legal practice.
The firm has since in general provided services solely to the property companies owned by Mr Bhailok and his family but remains authorised by the SRA.
The firm did not bill any of its SPV clients. Instead, when the office account required funds, Mr Bhailok would arrange for one or more of the SPVs to transfer funds in.
The only other work Bhailok Fielding conducted was for a distant relative of Mr Bhailok in India, and pro bono matters for some charities.
The solicitors told the SRA that they considered the law firm to be the in-house legal department of Mr Bhailok’s property business.
The SRA investigation found that large amounts of money generated by the SPVs were held in the client account. The firm “routinely transferred these sums between the individual ledgers of different SPVs” – £17m was involved just in the sample matters considered by the regulator.
The tribunal said: “They were not underpinned by the provision of regulated services. Even if some regulated services were provided, these were not sufficient to justify the passage of funds through client account. Funds should instead have been transferred directly between clients themselves.”
The SRA gave details of Greyfriars Assets Ltd, which held the profits of all of Mr Bhailok’s companies. There was no evidence of related legal services in the various payments it made, which included £185,000 for a personalised car numberplate, ‘AB1’.
This also meant that funds were retained on client account “well beyond” the time when they ought to have been repaid to clients.
The SDT said: “They were retained in client account as a running ‘float’ for ongoing investment, rather than because of any continuing need for legal work in relation to the transaction(s) from which the funds arose.” One instance saw £5m left on client account for 267 days.
The agreement added: “Even if, as the partners suggest, the clients were continually involved in considering prospective purchases, that did not provide sufficient justification for funds to be held in client account…
“It is unrealistic to suggest that Mr Bhailok was mentally ‘advising himself’ as to whether to make specific loans and that this required legal work justifying the retention of funds on client account.”
The firm did not have the various requirements of the MLR in place, such as a firm-wide risk assessment, client and matter risk assessments, ‘policies, controls and procedures’, or staff training.
Mr Bhailok told the SRA that, as he had personal knowledge of the companies from which money was received, he could be satisfied the source of funds was legitimate.
The SRA noted that most of the companies had other co-owners, while Mr Fielding did not own or control any of them.
The SDT approved the proposed fine of £12,000, for which the partners and the firm would be jointly and severally liable, with the latter prosecuted too to recognise that “these were systemic issues going beyond just the individual responsibility of either partner or specific client matters”.
It found the misconduct to be “very serious” – the partners had “used their privileges as solicitors to promote Mr Bhailok’s self-interest”, as holding the money in a solicitor’s client account gave him a competitive advantage when bidding for properties.
But it accepted that the circumstances were “unusual”, meaning the use of the client account as a banking facility could not have facilitated money laundering, nor could it have lent a veneer of respectability to otherwise illegitimate schemes.
“In addition, the respondents’ misconduct had involved breaches of the compliance standards rather than breaches of fundamental tenets of the profession.”
The partners have also accepted a condition on their practising certificates requiring them to attend a training course on each of anti-money laundering and the accounts rules within three months.
The SDT ordered the respondents to pay costs of £22,000, again on a joint and several basis.
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