Compliance officer detects inappropriate use of client money

The following case illustrates the importance of having a consistent approach to compliance with the Money Laundering Regulations throughout the entire firm.

Mr A was a partner in a medium-sized law firm. A year ago, he started acting for XYZ Ltd (‘XYZ’). XYZ specialised in purchasing high value properties and selling them on at a profit. The directors of the company advised that their funding came from profits and bank loans. Their bank statements supported this.

A few months later, the directors told Mr A they were having some difficulties with the company’s bank account. They asked if the company could  use the firm’s client account as a temporary measure. XYZ was one of his most valued and lucrative clients, so he agreed.

Over the next two months, Mr A allowed over 100 deposits and withdrawals on the client account in relation to XYZ, for both  personal and business expenses. None of the transactions related to any legal matter in which Mr A was involved.

The transactions were discovered by the firm’s compliance officer during a routine file review. The firm launched an internal investigation and reported the matter to us.

Investigations revealed that XYZ had used the firm’s client account to accept substantial investment from a politically exposed person. Mr A had not been aware of this.

Mr A had placed his firm at risk of becoming a professional enabler of money laundering and terrorist financing. The compliance officer had prevented the risk from escalating by spotting it and preventing the firm from continuing to act for XYZ. We are currently investigating Mr A’s conduct, and the police are carrying out a separate investigation.

 The red flags in this case were that the client asked to use the firm’s client account improperly, they used corporate funds to fund personal expenses, and the client account had been used to accept funds from unknown third parties.