SRA Update
Office supervision – case study
SRA Update Issue 11 – December 2009
Are you supervising your office properly? This "SRA Update case study" is based on real events. All names have been changed.
Mr Smith was a sole practitioner. He employed, and supervised, a clerk, Mr Jones. Mr Smith also oversaw the running of his practice generally, opening all post and regularly checking the accounts.
A local vicar introduced Mr Jones to Mr Charles, a businessman who wanted some conveyancing work carried out. Although Mr Jones was not a conveyancer by specialism, he did have some conveyancing experience, so he agreed to act. He did not carry out identity checks on Mr Charles (because he had never received any money laundering training), but thought he looked respectable and sincere.
Mr Charles instructed Mr Jones in relation to four conveyancing transactions. In each case, the property was being bought for cash (with no mortgage finance involved); the purchase price was being provided by third parties and not by Mr Charles; no instructions were ever received or sought from Mr Charles in writing, and no identity checks were carried out with respect to any of the paying parties.
In the course of these transactions, a total of £2 million came into Mr Smith's client account. Payments were always made by cheques, which were given to Mr Jones by Mr Charles and written up in the client account ledger.
Unfortunately, it turned out that Mr Charles was not a respectable and sincere businessman. He was an international drugs dealer. Shortly after the fourth transaction had completed, he was arrested by the police and charged with conspiracy to import cocaine. He was convicted and sentenced to 25 years' imprisonment.
Following Mr Charles's trial, HM Customs and Excise raided Mr Smith's offices and removed files relating to Mr Charles. Subsequently, both Mr Smith and Mr Jones were arrested on suspicion of money laundering (although both were eventually acquitted). Mr Smith's conduct was also referred to the Solicitors Disciplinary Tribunal (SDT).
Mr Smith admitted the allegations against him (which were, basically, that he had failed to supervise Mr Jones). The SDT gave him credit for this admission. It also gave him credit for the fact that he had not been dishonest and had not profited personally from the transactions undertaken by Mr Charles, and took account of numerous character references from counsel and fellow solicitors. It nevertheless decided to fine him £10,000. This was a heavy penalty for Mr Smith, who was only earning £25,000 a year at the time.
What could Mr Smith have done to make sure that Mr Jones was properly supervised?
- He could have ensured that Mr Jones understood his obligations under the Money Laundering Regulations.
- He could have ensured that Mr Jones was aware of the Law Society's practice notes on money laundering and mortgage fraud.
- He could have queried why no correspondence was being received from Mr Charles.
- He could have examined the individual entries within his client account ledger more carefully and queried the payments received from Mr Charles.
- He should have alerted Mr Jones to the possibility that money laundering was taking place as soon as he became aware that Mr Charles was not paying.
- He should not have allowed a clerk (particularly a clerk with limited conveyancing experience) to conduct conveyancing transactions that were blatantly suspicious.