Thornton: Money laundering regulations leave scope for the exercise of professional judgement
The High Court has upheld a ruling by the Solicitors Disciplinary Tribunal (SDT) that a solicitor’s errors in conducting due diligence for anti-money laundering (AML) purposes did not amount to professional misconduct.
Mrs Justice Thornton dismissed an appeal by the Solicitors Regulation Authority (SRA) against a hitherto unreported tribunal decision involved George Fahim Sa’id, a sole practitioner operating as West London firm George Anthony Andrews.
Last autumn, the SDT rejected allegations that Mr Sa’id failed to carry out adequate enhanced due diligence or have appropriate anti-money laundering systems in place when conducting two property transactions worth a combined £35m for a wealthy Iraqi family.
One member of the family had been a minister in the Iraqi government and so was a politically exposed person (PEP). The family owned extensive land in Iraq, a high risk country for the purposes of the AML rules.
The events in question occurred not long after the SRA give the firm a clean bill of health following an assessment of its AML systems.
Mr Sa’id had acted for the family since 1999. While accepting that he had made errors in failing to identify the connection with a PEP and in recording the transactions as being of medium instead of high risk in relation to money laundering, Mr Sa’id argued that the due diligence measures were not sufficiently inadequate to find a breach.
The SDT agreed, saying: “It was clear that Mr Sa’id recognised his system let him down on the two transactions as it did not identify the presence of a PEP. He accepted that had the PEP been identified the risk would have been marked at a higher level.
“This was entirely regrettable, however, Mr Sa’id was not in a position of having no system at all or indeed that his system should be considered inadequate based on a single failure.”
The SDT found that the AML regime was based on assessment of risk and that there was scope for professional judgement.
“Mr Sa’id had carried out [due diligence] and proceeded in an otherwise cautious manner relying on his knowledge of his clients and the source of their substantial wealth, accrued over 20 years of business in which. He therefore did not ‘fly blind’ into a situation where he was oblivious the risk.
“The tribunal considered that issues relating to money laundering must be treated with utmost seriousness for reasons of preventing crime and the encouragement of terrorism, however, this case revealed an element of the ‘counsel of perfection’ on the [SRA’s] part.”
In dismissing the SRA’s appeal, Thornton J accepted that the 2017 Money Laundering Regulations “permit a risk-based approach to compliance with its obligations and leave scope for the exercise of professional judgment in the discharge of the obligations”.
The SRA argued that the SDT had found a breach of the regulations and therefore a breach of the SRA code of conduct should follow.
However, the judge said that although the SDT did not expressly state that Mr Sa’id had not breached the regulations, “this conclusion is apparent when the decision is read, as required, as a whole”.
This showed that the SDT did not regard his AML systems as inadequate and that the due diligence he conducted was sufficient in the light of his prior knowledge of his clients and the source of their wealth.
The SRA separately appealed – with Mr Sa’id’s support – against the SDT’s decision to refuse its request to anonymise individuals, locations, companies and the country featuring in the case.
The tribunal said it was troubled by the extent of anonymisation proposed and decided that the rights of the press and public prevailed. This meant it was reasonable and proportionate to name the individuals and entities.
But its decision contained legally privileged information and Thornton J said the SDT had failed to follow High Court authority last year that public interest in protecting privilege trumped the public interest in open justice.
She concluded that the SRA’s schedule of anonymisation was “more restrictive than necessary” and allowed limited details that would not identify the individuals or their companies, such as their country of origin and the city where the properties were located.
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