In The Attorney General for and on behalf of the Republic of Zambia v Meer Care & Desai (a firm) and Others1 , the High Court ruled that it would have little sympathy for solicitors who failed to adhere to money laundering regulations if allegations of dishonesty were subsequently made against them.
The Attorney General for and on behalf of the Republic of Zambia v Meer Care & Desai (a firm) and Other
This was a claim against 20 defendants, including highranking Zambian government officials and English firms of solicitors. The claim arose from an alleged conspiracy to defraud the Zambian government of around $46m. The Zambianbased defendants did not participate in the trial and it was left largely to the UK-based defendants, including the solicitors, to defend the conspiracy claims.
After considering the evidence, the judge concluded that the Zambian defendants (who included the ex-President of Zambia and the head of the Secret Service) had all participated in a conspiracy to defraud the Zambian government and had breached their fiduciary duties.
The allegations against D1, a firm of UK solicitors, were that they participated in the conspiracy and provided dishonest assistance to the Zambian-based defendants, by receiving and paying funds in and out of their client accounts. There was effectively no dispute as to the funds received and paid out by D1, given the extensive records maintained by the firm. The claimant was unable to point to any personal gain, financial or otherwise, on their part, and there was no direct evidence of dishonesty against D1. Instead, the claimant relied heavily on allegations of bad accounting, myriad breaches of the Solicitors’ Accounts Rules and failure to adhere to money laundering regulations as evidence of dishonesty.
The key question for the court was whether D1 had crossed the line from being incompetent to being dishonest. The partner concerned in D1 gave evidence over the course of six days in the witness box that he had relied on instructions from his longstanding client whom he had known for 20 years, and had carried out those instructions without questioning them. His client was a Zambian businessman, whose involvement in the international movement of large sums of money was not out of the ordinary over the period. D1 maintained that he had no reason to suspect bad faith by his client. When considering the issues, Smith J took into account D1’s experience as a solicitor and his approach to dealing with the instructions received from his client.
The judge considered the money laundering guidance issued throughout the period in question (ie 1995-2002). He emphasised that this guidance was meant to be read and that the court would have little sympathy with a solicitor subsequently confronted with a claim, who said he did not read those warnings. The court would carefully scrutinise a solicitor who maintained that although he was grossly negligent in not reading the warnings, he was not fraudulent. Smith J accepted that breach of the Solicitors Accounts Rules and money laundering regulations was not determinative of dishonesty, but he emphasised the importance of heeding the guidance provided. The judge held that failure to do so would expose a solicitor to allegations of gross negligence and would add to the evidence in deciding whether the solicitor was dishonest.
The judge quoted the recent decision in Abou-Rahmah v Abacha1:
“It is one thing to be negligent in failing to spot a possible money launderer, providing the negligence does not extend to shutting one’s eyes to the truth. It is another thing however to have good grounds for suspecting money laundering and then to proceed as though one did not.”
Smith J concluded that the partner in D1 was not a conspirator in the overarching conspiracy to defraud, and that he was not necessarily an active conspirator, ie that he knew that there was a conspiracy and agreed to join it. Nevertheless, he became a conspirator because he was aware that money was being improperly applied and chose not to question that activity. This was, the judge said, a classic case of blind eye dishonesty.
This case shows the importance of adhering to money laundering guidance. Failure to do so will leave the solicitor exposed to allegations of dishonesty if a claim subsequently arises out of the transactions concerned.