SRA refers solicitors to disciplinary tribunal for misuse of client account
On 18 February the SRA published notices in respect of their decision to refer three solicitors to Solicitors Disciplinary Tribunal in respect of…
60 seconds with Martina Hogg, Lead Compliance Consultant, Compli
On 18 February the SRA published notices in respect of their decision to refer three solicitors to Solicitors Disciplinary Tribunal in respect of allegations that they allowed client account to be used as a “banking facility for clients”. What is the problem? Client account is a banking facility.
When the SRA talk about using client account as a banking facility they mean that the firm has been acting much in the same way your bank would act. So making payments on behalf of a client/third party and receiving funds for that client/third party.
I still do not see what the problem is, surely solicitors need to receive funds and make payments on behalf of clients?
Yes they do but solicitors should only receive funds or make payments that are directly related to the matter they are instructed on. So if Mrs A instructs her solicitor to sell her house for her then the solicitor should receive the purchase funds from the other side, redeem any outstanding mortgage and pay all fees connected directly to the sale with the consent of Mrs A. Once the sale has been completed the net sale proceeds should be returned to Mrs A. If however, once the sale is completed, and all directly related payments made, the firms retain the net sale proceeds and begin making ad hoc payments when requested to do so by Mrs A they may be providing Mrs A with banking facilities.
But if Mrs A has instructed them to do this then surely they should do it ? After all, it is her money
Life is never that simple and any solicitor faced with a situation like this needs to consider the situation carefully. If you were instructed by Mrs A to deal with the sale of her property and you have now concluded that sale the money needs to go back to Mrs A. In this particular example the solicitor needs to look at why Mrs A does not want the money transferred to her bank account. Is Mrs A in financially difficulties and therefore liquidating assets with a view to concealing the cash from creditors or a Trustee in Bankruptcy? Is Mrs A subject to any criminal proceedings that could result in confiscation proceedings?
That sounds potentially quite serious!
Yes it could be and the use of client account as a banking facility might also be part of the money laundering process. Part of the process of trying to legitimise the proceeds of crime or provide terrorist financing involves disguising the true origin of the funds and the final destination of the funds. By passing funds through a solicitor’s client account criminals or terrorists can make it more difficult for law enforcement to follow the money. The use of the client account might be one link in a long chain of transactions all designed to obfuscate the origin and destination of the money.
That sounds even more serious. Should I be worried? What can I do?
Well you need only be worried if you do not have the appropriate policies in place. Remember, the policy should not just be filed away to gather dust, you need to make sure you review and monitor how it works on a day to day basis. Training is key too. I very much doubt that in this day and age anyone working in a law firm would even consider accepting bags of cash, but, those attempting to conceal the origin and destination of funds are much more sophisticated than that. You need to be very clear on what you are instructed to do for the client and ensure that you only deal with the receipt and payment of funds that relate directly to that instruction. This is in addition to the appropriate client due diligence you need to undertake on each matter.