The Panama Papers

Martina Hogg looks at what the Panama Papers mean for lawyers and legal firms.

60 Seconds with Martina Hogg

So are a lot of city lawyers going to be in trouble because they have been named in the Panama Papers?

Being named in the Panama Papers is not evidence of any wrongdoing by anyone. There is nothing illegal about using an offshore company or having an offshore bank account.

There is no disputing that some of the information revealed relates to criminal conduct. For example, the company set up by Mosack Fonseca was used to launder the proceeds of the Brinks Mat gold robbery. A Mr Parry ran the company set up by Mosack Fonseca and a solicitor called Michael Relton assisted Mr Parry with his money laundering activities. Both Mr Relton and Mr Parry were convicted of various offences and served prison sentences. Mr Relton was struck off following his conviction.  However, this does not mean that any solicitor or firm mentioned in the leaked documents has done anything wrong. There were over 11 million documents leaked. For all we know there be many emails and letters from lawyers telling clients that what they are doing is high risk and/or potentially illegal.

But the SRA is writing to firms

That is true, if the SRA considers it appropriate to ask certain firms some questions then, as a public interest regulator, it should do that. The fact that the firms are being asked to provide replies to concerns raised by the regulator is not evidence of wrongdoing.

It is far too early to jump to any conclusions. These enquiries might uncover misconduct but it is just too early to say. It may well be that there are solicitors out there just like Mr Relton who are prepared to join in with criminal activity. It may well be that some solicitors have allowed themselves to unwittingly facilitate money laundering and/or tax evasion. Equally, those 11 million documents may include copies of sound advice given by solicitors which their clients decided to ignore.

So I shouldn’t be put off acting for a client who has companies in Lichtenstein and the Cayman Islands?

The question of whether or not to act will all come down to whether or not you can properly manage the risks associated with such an instruction. First you need to properly identify your client (or the ultimate beneficial owner if your client is a body corporate) and the source of funds. Most important of all, don’t make the common mistake of thinking once you have identified your client and the source of funds that the risk has disappeared. Do you fully understand the transaction? If funds are going to pass through your client account, are you satisfied that handling the funds is part of your instruction? If the funds are being received from the Lichtenstein company and paid to the Cayman Islands company why did they go through client account? Is there a risk you have been providing banking facilities?

The motivation for criminals to use solicitors to access and manage funds offshore is clear. You should only be taking this work on if you are satisfied that you can distinguish between a legitimate transaction that involves offshore vehicles and money laundering or any other criminal activity.

So what other lessons can be learned from this, Martina?

There are many!

  1. Check and satisfy yourself that your client take-on procedures are robust and effective.
  2. Ensure your fee earners receive proper training to recognise red flag risks.
  3. Beware of the hackers – ensure your systems are properly protected.
  4. Check your information security policies and procedures and ensure your staff are aware of them   and thoroughly understand them.
  5. If your firm is contacted by the SRA (either on this issue or any other), you must co- operate and provide them with the information they ask for. If the SRA pay you a visit, get in touch with us – we can provide you with essential documentation and   support during what can be a stressful and time consuming process.

For more information about how Compli can help you manage these risks, including our on-line training product, please get in touch.

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