Nicola Sharp explains why anti-money laundering checks must be carried out thoroughly in any organisation. A recent lapse in AML procedures led to a partner in a law firm dishonestly assisting a scheme to misappropriate funds from investors.
Anti-money laundering checks are important in any organisation, but particularly for lawyers who practise conveyancing. Criminals are known to use solicitors’ client accounts to ‘clean’ money, and law firms must apply stringent standards to guard against money laundering.
Unfortunately, in a recent case, a partner in the law firm admitted that his procedures were ‘sloppy’. In this case, it led to a finding that he had dishonestly assisted two people in fraudulently misappropriating funds from investors. There was no suggestion that the partner had actual knowledge of the underlying fraudulent misappropriation of money belonging to the company, but his failure to carry out the proper checks amounted to ‘blind eye’ knowledge.
This case serves as a reminder that AML checks are not a tick box exercise. They must be carried out to the highest standards on every client and in every transaction.
Brief background facts
In 2021 Sanjiv Varma and Jonathan England were found to have misappropriated over £7 million of investors’ money. Investors thought they were investing in new student accommodation in Bristol, but it transpired that England and Varma had never applied for the correct planning permission. Instead, they spent the money on lavish lifestyles including flights, designer clothing, and gifts. Varma has since been found in contempt of court and has fled the country to avoid imprisonment.
Now the investment company, Grosvenor Property Developers Limited, is in liquidation and the joint liquidators are seeking to claw back company assets.
In this action, the company (through its liquidators) alleged that a solicitor (Mr Broughton) had dishonestly assisted in breaches of fiduciary duty of Varma and England, in respect of funds which passed through Portner Law’s client account. Around £2.4 million passed through the firm’s client account for use in three property transactions.
‘Bling eye’ dishonesty
The question in this case was whether Mr Boughton was culpable to the extent of ‘blind eye’ dishonesty. In other words, did he have a suspicion that the transactions in which he was engaged might not be wholly proper, and then did he deliberately fail to take steps to verify the position?
In this respect, negligence, even gross negligence, is not sufficient to found a claim for dishonest assistance.
It was undisputed that Mr Broughton’s treatment of funds received from the Varmas and associated companies was not compliant with his firm’s internal policies. Neither was it compliant with the money laundering guidance provided by The Law Society.
Mr Broughton obtained suitable evidence of the client’s identity and address in an initial meeting. But in other respects the anti-money-laundering checks were not complete.
For example:
- The firm’s internal policy required a money laundering risk assessment to be carried out for new clients. Mr Broughton had not kept a file note of his initial conversation in which he said the details of the risk assessment were completed.
- The money laundering policy set out a series of “red flags”, which included:
- payment by way of third party cheque or money transfer
- payments made into the firm’s client account which were followed by requests for return of funds or for the transfer of funds to a third party.
- Mr Broughton failed to distinguish adequately between his client, his client’s father and a company wholly owned by his client’s father. These were three separate persons whose interests might not be identical.
- Money was to be transferred to the firm’s client account without being required for any specific transaction. The funds preceded any instructions to act in any legal matter, and no transaction was immediately contemplated at the time of the transfer. Mr Broughton did not inquire why the funds were to be held on the law firm’s client account rather than in a bank.
- Some initial payments to purchase the properties were paid into the firm’s client account by Casa Investments Limited. Mr Broughton accepted funds from a source that was not his client.
The court found that Mr Broughton failed to ask questions and that failure was dishonest because any honest lawyer would have done so. The court expected a conveyancing solicitor of Mr Broughton’s experience to carry out basic checks to ensure that he was not facilitating money laundering, given the number of parties participating in the transaction.
A reminder of the standards
For dishonesty to be made out, it is not necessary that the allegedly dishonest individual must have a suspicion of any specific wrongdoing. It is enough for him or her to be aware of facts that would cause any honest individual to make further inquiries, and to fail to do so without a credible reason for that failure.
This is a high standard. Paying lip service to the requisite AML checks, and ignoring red flags is not sufficient. This case is a reminder that organisations can become inadvertently embroiled in nefarious schemes if the standards are not upheld.
Read the full judgment here: Grosvenor Property Developers Limited (in liquidation) v Portner Law Limited [2025] EWHC 2362 (Ch)
