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Litigation firms targeted by money launderers
The Law Society has issued advice to firms providing litigation services, that even though they are not legally bound by the Money Laundering Regulations 2007, they may still be at risk from money launders.
Litigation services are not covered by the Money Laundering Regulations as there is a duty for solicitors to protect their client’s fundamental human right to access to justice. As such, litigation specialists may be perceived as being easier to involve in the layering and placement of laundered funds. However, the Law Society have issued advice that, if a firm suspects criminal property may be involved in a retainer then solicitors may need to consider making a report to SOCA.
The successful implementation of the Money Laundering Act within the legal and money transfer sectors, combined with the economic problems at present, means that debt recovery is becoming an increasingly attractive way to launder money through litigation firms.
By presenting documentation showing fictitious debts to a legal firm and asking then to recover the debt, money launderers are able to legitimize the transfer of funds. The solicitor recovers the false debt, and retains it in their account, before then sending it back to their client, as ‘washed’ funds.
As economic pressures lead to a rise in debt recovery cases, this form of money laundering can be increasingly difficult to prevent, however the Law Society has issued the following advice, on what to look out for. These include:
- non face-to-face client, who is often quite a distance from the firm.
- the debtor may also be quite a distance from the firm.
- scant paperwork supporting the alleged debt.
- the debt is settled very quickly, sometimes even before the first letter of demand.
- the client is willing to pay your fees even though you have done very little work.
- fees are overpaid and paid in advance, sometimes in cash and other times by fraudulent cheques.
- the client requests the funds recovered or the overpaid part of the fees to be paid to a third party.
They also recommend considering:
- advising your litigators of this methodology and the warning signs they should be alert to.
- asking questions of your client, particularly the questions of why are you instructing my firm and why should these funds be paid to a third party.
- protecting your client account details by limiting their provision to clients.
- undertaking some due diligence on your litigation clients and, on a risk-sensitive basis, making searches for an ownership or other connection between the debtor and your client.
- only making payments against cleared funds.
The full advice from The Law Society is available at: http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEWSID=426168
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