Breaches of anti-money laundering (AML) regulations have cost a Midland’s law firm £14,000 in fines and £3,500 in costs. The firm was fined by the Solicitors Regulation Authority (SRA) after missing ‘red flag’ indicators and failing to properly identify parties to three property transactions.
The three property transactions all involved an individual who was acting under a Power of Attorney on behalf of the seller. Allegations were later made that the Power of Attorney relating to two of the transactions was fabricated, and it was claimed that the seller was imprisoned abroad.
In the first transaction the solicitor was instructed to act on behalf of the seller of a property by the attorney. The firm obtained some identification, but did not obtain photographic identification of the seller (donor) at the time. The firm also did not meet the donor or attorney in person, increasing the risks of the transaction. After the sale completed, HM Land Registry (HMLR) refused to register the transfer due to the missing identification information.
In the second transaction the solicitor was instructed by an unrelated third-party to transfer a property into the attorney’s name for nil-consideration. The firm had no identification documents on file for the donor or attorney, and no evidence that the third party had authority to act for the attorney. The donor has since objected to HMLR about the title being registered in the attorney’s name.
In the third transaction, the same third-party instructed the solicitor to sell a further property involving the same donor and attorney. The firm also acted for the buyer of the property and the lender which was providing mortgage finance. Again the firm failed to have proper evidence of authority to act on file. HMLR has not transferred the title of the property from the donor to the buyer.
The SRA says that the solicitor missed a number of ‘red flag indicators’ which should have alerted it to increased risks in the transactions. These included that the sellers, who were based in Luton, were not local to the firm in Corby; that the firm acted under a Power of Attorney without meeting the donor or attorney; that the firm failed to take into account that one transaction was for nil-consideration, and that some instructions were issued by an unrelated third party.
The SRA fined the solicitor 0.9% of its turnover which amounted to £23,361. This was reduced by 40% to £14,000 because the firm assisted with investigations, accepted its failures and committed to providing the highest standard of service to reduce the risk of future repetitions. The firm was also ordered to pay £3,500 in investigation costs.
“These fines show the severe risks to firms of missing red flags and failing to properly identify parties to property transactions under AML rules”, said James Burgoyne, Director – Claims & Technical, Brunel Professions. “The SRA says the firm should have undertaken enhanced customer due diligence as all three transactions presented higher risks of money laundering.”
“The exposures created by failures in AML procedures are not confined to fines however; we are seeing a number of claims against both legal and accountancy firms where it is alleged that wider subsequent issues around a transaction or project could have been avoided if the AML checks had identified particular information and caused the participants to undertake further enquiries at that early stage. As such, failures in basic checks at this routine level are opening the door to complex and substantial liability issues,” he explained.
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