Money laundering: Transactions raised red flags
A solicitor who did not understand the complex financial transactions he was acting on – which potentially had connections to Mexican drug cartels – has been suspended from practice for 15 months.
The Solicitors Regulation Authority (SRA) accepted that Steven David Kinch held “an honest, albeit mistaken and reckless, belief that it was proper to act as he did”, and dropped allegations that he had acted dishonestly.
But Mr Kinch admitted failing to comply with his anti-money laundering obligation, allowing his firm’s client account to be used as a banking facility, and failing to perform an undertaking, meaning that in all the circumstances, he improperly acted in schemes which bore the hallmarks of dubious transactions and/or potential money laundering.
In an agreed statement of facts and proposed sanction, the SRA and Mr Kinch proposed that he be suspended for a year, but the Solicitors Disciplinary Tribunal considered that two years would reflect “the gravity of the misconduct”.
It said: “The respondent had admitted to lack of integrity, recklessness and manifest incompetence and this required a significant sanction to ensure the reputation of the profession was maintained.”
However, as Mr Kinch’s practising certificate has been suspended since November 2019 – when the SRA intervened in his West Sussex sole practice, SDK Law – it decided that the appropriate length of suspension from the date of the hearing earlier this month should be 15 months.
Mr Kinch, who qualified in 1989, acted on eight matters for two companies with the same directors.
The overall scheme was that investors’ money would be sent abroad for the purchase of bank guarantees, which were to be monetised. The money would then be lent to traders, who would return profits to the clients.
The solicitor entered into a joint venture agreement with one of the companies to act as an administrator – receiving, aggregating and transferring monies, and providing his client bank account details for lenders and investors to deposit their monies. He was responsible for due diligence and compliance.
The SRA said the explanations Mr Kinch had given its forensic investigations (FI) officer showed he did not understand the transactions.
“His understanding of the role of the parties involved in the transactions was unclear, and the nature of the transactions being conducted was outside of his area of expertise, involved foreign lawyers and companies based in other jurisdictions, and contained multiple documents with confusing and meaningless terminology.
“Despite this, the respondent confirmed to the FI officer that he believed he had the expertise and experience to act on the matters.
“He described the work he had conducted as ‘due diligence’ and had no involvement in the drafting of the legal documents underpinning the transaction and gave no advice on the contents of those documents.”
This should have alerted him to the risks of acting, the SRA said, as should other red flags of dubious investment schemes, such as the movement of large sums of money, very high rate of return on offer – a guaranteed 1000% return within 45 days – and security offered to investors including that money would be held by a law firm.
There were also money laundering red flags, including loans from non-institutional lenders, the use of multiple or foreign bank accounts, and transactions outside the firm’s area of expertise (SDK handled family law, litigation, landlord and tenant, and commercial property).
Also, one of the clients had a joint venture to facilitate investments with a company incorporated in Sinaloa, Mexico, “which is an area known to be prevalent for drug cartels and drug trafficking”.
Mr Kinch admitted that he recognised “the potential for wrongdoing” but was satisfied that the clients nor the people and companies who advanced money “were acting legitimately”.
In the course of acting on four matters, Mr Kinch received £1.1m and $115,000 into SDK’s client account, which he then remitted to various entities for onward investment or in settlement of fees and expenses. At the point the FI officer reported, they had only generated returns of £12,000.
Mr Kinch admitted carrying out insufficient anti-money laundering checks on his clients and that his enquiries into third parties’ source of funds were either inadequate or non-existent, as they were provided by the clients.
Further, he allowed his client account to be used by investors and lenders to deposit monies into before they were transferred out to third parties where there was no underlying legal transaction or any related legal work.
It was, the SRA went on, improper of him to provide an undertaking to a third party to return their funds, when the funds had been sent to the US and were not under his control.
Mr Kinch said he was motivated to act for financial reasons – he had paid the solicitor who had acted on his divorce by mortgaging his mother’s property, and was also looking to fund his daughter’s tertiary education.
The SDT noted that, while Mr Kinch submitted he had received no direct benefit, “there had been some financial benefit even if it related to members of [his] family”.
After the suspension, he will not be able to practise as a sole practitioner, partner or member of an LLP, or be a COLP or COFA, hold or receive client money or be a signatory on client account, for three years.
The right decision.