SRA hands out fines nearing £50,000 for AML failures

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Anti-money laundering: Source of funds checks not done

The Solicitors Regulation Authority (SRA) has this week issued fines totalling nearly £50,000 to two law firms and a solicitor over various breaches of anti-money laundering rules.

Ilford, Essex firm TTS Legal was fined £23,216, plus costs of £1,350, over its work on three conveyancing transactions that took place between 2018 and 2020.

According to an SRA notice, between June 2017 and January 2020, TTS did not have in place a firm-wide risk assessment (FWRA), policies, controls, and procedures (PCPs) to mitigate and effectively manage the risks of money laundering and terrorist financing, or client and matter risk assessments.

In the first two transactions, the firm was instructed by Client A, and by Client B on the third. Client B was understood to be a financial advisor to Client A but the firm had not verified his identity.

The regulator found that, in all three matters, the firm failed to obtain and/or scrutinise source of funds documentation, focusing just on where the money was, rather than how it got there.

In the second matter, the information provided by the client was inconsistent with their explanation of how they were funding the purchase.

“The firm recorded that a deposit of £185,000 had previously been paid to the seller’s solicitor by its client’s former solicitor. The firm failed to undertake any enquiries to verify this payment.

“Our enquiries identified that the client’s former solicitor had never been instructed in this matter and had never received a deposit. Had the firm scrutinised the information it received from its client, it would have identified that the client could not have funded the deposit and completion funds, in the manner it had described.”

In the third matter, the firm released £46,000 to the seller’s solicitor on the instructions of Client B, who was not properly authorised to provide instructions on behalf of Client A.

At the time, the transaction appeared to have fallen through, because of difficulties obtaining a mortgage, “and there was no reason to have made this payment”.

In mitigation, TTS said it was now compliant with the Money Laundering Regulations 2017 and that it had co-operated with the investigation.

The SRA said a fine was appropriate as there was no evidence of harm to consumers or third parties “and there is now a lower risk of repetition, since the firm brought itself into compliance”.

The fine was calculated on the basis of TTS’s £1.45m turnover, with the SRA’s fining guidance indicating a penalty of 2% (£29,020), which it reduced by 20% to reflect the mitigation “and the appetite to bring the investigation to an end now with full and frank admissions”.

The second fine was for Richard Lionel Jones, who was an owner and manager of Llanelli firm Brinley Morris Rees & Jones, holding all of the compliance roles.

It was part of the Law Direct group of firms that the SRA shut down last June and then went into administration. He now works at London firm Alexander & Partners, which bought some of the group in a pre-pack.

The SRA fined Mr Jones £14,100. In January 2020, he declared to the SRA that the firm had a fully compliant FWRA.

But an investigation six months later showed that this was not the case – it had an office manual that referred to the 2003 regulations, rather than those from 2017, and no separate anti-money laundering PCPs.

The risk assessment policy had not been updated since around 2003 and staff received no training from 2007.

A review of client files also established that the firm had not verified the source of funds received from clients in conveyancing matters.

The fine was based on Mr Jones’s income and at the bottom of the band of 16-49% into which it fell. “It was found that he should and could have known what was required to ensure the firm was compliant with anti-money laundering legislation,” the SRA said.

“Although his conduct exposed the firm to the risk of money laundering and terrorist financing there is no evidence that this occurred. He is now employed in another firm and does not hold any compliance roles.” He also co-operated with the investigation.

The third fine, of £10,760, was for Stockport firm Integra Solicitors for only putting an FWRA in place in February 2023, when it was made aware that the SRA was conducting a review of its compliance, despite having undertaken in-scope work since 2017. Even then, the FWRA was not compliant for another seven months.

Though Integra’s PCPs were first drafted in September 2018, “they were not adequate for the purposes of effectively managing the firm’s risk of money laundering”, the SRA said, and were not reviewed until February 2023.

We reported earlier this week that a partner who failed to conduct proper client due diligence in property transactions that had signs of money laundering was fined £15,000.