A report produced by the Financial Action Task Force ("FATF") – the intergovernmental body recognised as the standard bearer when it comes to anti-money laundering ("AML") and counter-terrorist financing ("CTF") – has highlighted how law firms are the ideal conduits by which criminals seek to, and do, launder money and finance terrorism. Replete with quite shocking examples of reported misdemeanours, the report, Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals identifies the attractiveness and susceptibility of law firms to criminals and also, more worryingly, the reckless and/or knowing participation by legal practitioners in criminal endeavours.
SUSCEPTIBILITY OF LAW FIRMS
Ironically, it is the effectiveness with which lawyers have assisted with the implementation of AML protections at financial services institutions that has made the legal profession – where the risk of detection is not nearly so great - a hugely attractive target for criminals.
The appeal is obvious. The most commonly utilised services by which proceeds are filtered are those that are used every day by clients with legitimate goals. For example what may look like a standard real estate transaction could well be a case of identity fraud by a client. That is where a client masquerades as a seller of a property, forges the identity documents, and then takes the completion money with the real owner (and the solicitor) oblivious to what has happened. The transaction, and what would appear to be genuine identity documents, would not of themselves ordinarily arouse suspicion. Add to this the veneer of respectability that comes with instructing a legal professional and access to a client account and it is easy to see why those wishing to conceal and layer the proceeds of crime choose lawyers to do so.
NATURE OF INVOLVEMENT
Law firms that are implicated in illicit activities may be unwittingly involved. This will happen when the money in question is laundered in the absence of any red flags or where customer due diligence has produced red flags but the warning signs have been missed or their significance misunderstood. The scope for this to happen is understandable. For example a possible red flag, and a technique often employed by money launderers, is the
case of aborted transactions where the client will appear to be conducting a legitimate transaction which collapses before completion and the client requests that the monies be returned. Absent any special requests (e.g. the payment to third parties) such abortive transactions would not be uncommon – especially during an economic downturn.
At the other extreme, law firms may be knowingly complicit in the criminality with which they are involved. This may involve them being complicit from the outset of the endeavour or being corrupted during the course of a transaction. This will often involve initial wilful blindness persisting for repeat instructions from the same client or the client's associates.
PROSECUTIONS ARE RARE
More shocking, perhaps, than the knowing complicity of legal practitioners in these offences is the infrequency with which they are prosecuted and convicted.
Over 30 countries inputted into the FATF report. It was noteworthy that the UK and the US were identified as being countries most likely to prosecute legal professionals – both "reaching double figures of prosecutions in the last five years". It is obvious that a strike rate of two prosecutions a year is no deterrent at all.
Various practical obstacles lie in the way of a prosecutor seeking a conviction, most notably the difficulty of gathering evidence. Uncertainty about the scope of legal professional privilege, the difficulty and time-consuming processes for seizing legal professionals' documents and the lack of access to client account information were all cited in the Report as being reasons for low conviction rates.
Faced with these obstacles it is apparent that prosecutors often content themselves with the removal of legal professionals from the industry via disciplinary hearings. This path of least resistance may be understandable but is it fair? Consider this example (Case 20 in the Report at page 52): a solicitor was found to have facilitated multiple mortgage frauds for a number of property developers by: (i) failing to provide full information to the lender (enabling mortgage fraud); (ii) failing to check the source of funds for the original transactions or deposits (enabling money laundering); and then (iii) fabricating notes during the subsequent investigation. His punishment was to be struck off the roll. When one considers this against the fact that the Proceeds of Crime Act 2002 punishes the basic money laundering offences with up to 14 years imprisonment one is left wondering whether it is one rule for the legal law-breakers and another for the rest.