https://www.legalfutures.co.uk/latest-news/solicitor-cleared-of-aml-offences-he-had-admitted-to

The Solicitors Disciplinary Tribunal (SDT) has taken the unusual step of rejecting a solicitor’s admissions that he should have done more due diligence on £24m paid into his firm’s client account.

It held that, in fact, Richard James Morris and City firm Candey, where he was a partner at the time, had not been required to undertake enhanced due diligence (EDD) on the money, as the Solicitors Regulation Authority (SRA) had alleged in its prosecution.

None of the supposed risk factors identified by the SRA actually fitted that description, the SDT decided.

However, it agreed with Mr Morris’s admission that he allowed the firm’s client account to be used as a banking facility and fined him £6,000 for this.

The underlying events took place over a couple of weeks in June 2015, when Mr Morris, then a partner and head of property at Candey, was acting for a client’s private office on a property purchase.

Candey received £24m to fund the purchase from a firm in Qatar as the proceeds of the settlement of a dispute there. Ultimately, most of the money was not needed and the remaining £21m was distributed to multiple recipients.

The SRA’s core allegation was that, although the circumstances were not such as the make EDD mandatory under the Money Laundering Regulations, it should have been applied on a risk basis.

It cited four warning signs: the size of the funds received; that they were coming from Qatar; that they emanated from litigation in which Candey was not involved; and the risk attributable to the client given that her ex-husband was a disqualified director and a convicted fraudster.

Mr Morris admitted this and Candey did not. The SDT held that none of the signs indicated a higher risk of money laundering or terrorist financing.

“Whilst the funds received were significant, they were not outwith the experience of Mr Morris, nor were they unusual given the nature of the transaction,” it said. Qatar, meamwhile, was not on the Financial Action Task Force’s list of high-risk countries.

The funds emanating from litigation in which the firm was not involved “was not a recognised risk factor”, the tribunal went on, and “there was no suggestion, and indeed no evidence, that this was sham litigation”. The firm had seen a copy of the settlement agreement.

Finally, the SDT noted that Candey had acted for the client on 12 matters and none had raised any money laundering issues, either in relation to the transactions themselves or due to any connection with the ex-husband. It held that this connection did not trigger the need for EDD.

Accordingly, notwithstanding Mr Morris’s admission, the SDT found the allegations on EDD not proved and thus dismissed them against him and the firm.

But it went on to accept his admission that he and Candey were not instructed in any underlying transaction in relation to five of the 11 payments out of client account through which the money not used on the property purchase was dispersed.

He accepted that the £7.5m involved should have been returned to the client instead. Candey was not charged over this.

Mr Morris apologised and told the tribunal had “deeply regretted” his error, which he blamed on a mistaken understanding that the rule against client account being used to provide banking services related only to monies paid in, not out as well.

The SDT accepted that the misconduct was “inadvertent” and described it as “a single episode in an otherwise unblemished career”. The client suffered no loss as a result of it, although the profession’s reputation was damaged.

“Mr Morris had demonstrated remorse and insight; he had made admissions from the outset of the investigation and had maintained those admissions throughout the proceedings,” it said. A fine of £6,000 was the appropriate sanction.

The SRA sought half of its £64,000 costs from Mr Morris and none from Candey. The SDT determined that, even though the solicitor might have been the more culpable, the majority of the costs in the matter were as a result of Candey’s response and applications in the proceedings.

It said he should be responsible for 25% of the costs, which it reduced further to £10,000 to take account of the delay in the SRA bringing proceedings and the allegations for which he was cleared.

Candey sought its costs of £290,000 from the SRA. The starting point for successful respondents is no order for costs unless there is good reason to depart from it. Candey submitted that the SRA’s “misapplication” of the Money Laundering Regulations amounted to one.

However, the SDT said Candey’s reasons for denying the allegations “remained fluid” during the proceedings and only became settled at the hearing.

Further, it had made a “wholly unnecessary and wholly without merit” application for disclosure and made a strike-out application which it then abandoned. The costs claimed and time spent on the defence were “excessive” as well.

The SDT concluded that Candey’s conduct of its defence, though ultimately successful, “had been unreasonable such that there was, in the tribunal’s view, no reason to depart from the starting point of no order as to costs”.