Monday 26th August 2019
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Comsure operates in:the UK, Jersey, Guernsey

UK tribunal fines solicitor, AML officer 45,000 pounds for lax PEP CDD in case tied to Panama Papers

A United Kingdom tribunal has penalized a solicitor and firm financial crime compliance officer 45,000 pounds for failing to do even an internet search to check whether his clients were tied to powerful political officials, in the first disciplinary matter to involve infamous offshore law firm Mossack Fonseca – the entity at the heart of the historic Panama Papers leak.

The Solicitors Disciplinary Tribunal (SDT), in conjunction with the Solicitors Regulation Authority (SRA), recently levied the penalty against Khalid Mohammed Sharif, a partner at London firm Child & Child, for a series of breaches of the anti-money laundering (AML) rules.

Sharif was also the firm’s AML officer, or in the United Kingdom, the money laundering reporting officer (MLRO), between August 2015 to August 2016. He also had to pay 40,000 pounds in additional court costs.

The case occurs as the U.K. faces intense global scrutiny for the strength of its AML laws and the effectiveness of compliance enforcement – or perceived lack thereof.

The country is considered a world leader for creating regulations in line, and in some cases even stronger, than international standards set out by the Paris-based Financial Action Task Force (FATF), which sets global financial crime compliance goals.

In fact, in a recent FATF review, the U.K. scored high in many of the group’s 40 recommendations on money laundering and terrorist financing, but was chastised for its relatively weak enforcement mantra, with few actions and when monetary penalties came into play, overall smaller figures when compared with similar failings and penalties in other countries, like the United States.

In tandem, overall, many jurisdictions, including the U.K., U.S. and Europe, are giving significantly more attention to “gatekeepers” and their role as professional money launderers, including attorneys, or solicitors in Avalon, company formation agents, and professional services firms.

The U.K. in particular has faced international criticism from watchdog groups for allowing questionable funds from Russia and other regions into its real estate sector and tarrying on extending more rigorous beneficial ownership standards to its overseas territories — in many cases themselves considered secrecy havens.

The pressure is magnified for AML officers, who have been subjected to more penalties in recent exam cycles for extensive compliance failures at their firms, called rising “individual liability.”

As a result, for instance, in the U.S., the country has seen an exodus of senior AML officers with decades of experience at top domestic and international banks – due to regulatory pressure or fearing their heads will be next on the cumulative chopping block.

Failed to ‘take any’ CDD steps

In the case of Sharif, the judgement stated that between February 2016 and April 2016, he “failed to take any or any adequate steps to ascertain, from publicly available information or at all, at the time of acting for them, whether the X clients were” politically-exposed persons (PEP) or linked to the proceeds of crimes, requirements under U.K. AML rules.

Sharif admitted in 2005 that he acted for clients not identified in the ruling – but previously reported to be the daughters of the president of Azerbaijan.

The judgement notes he accepted instructions from one party on behalf of a second party, without even scrutinizing to determine the individuals had the authority to do so, a major breach of customer due diligence (CDD) rules.

They were to be the beneficial owners of a company incorporated in the British Virgin Islands (BVI) by Mossack Fonseca, the Panamanian firm whose systems were hacked and files splashed across newspapers in April 2016.

In light of the leak and multiple investigations in the U.S. and other jurisdictions, Mossack closed its doors last year.

The transaction involved the purchase of two pieces of property in Knightsbridge in London, the combined price of which was just under 60 million pounds, with several million more pounds to engage in construction to make them one property.

The clients were introduced by ‘Y,’ a property tycoon who was a longstanding client of Child & Child. The groups completed and exchanged contracts in April 2015 with completion set for 2017, and payments of 14.3 million pounds were made.

However, the transaction did not reach completion and the clients were reimbursed, according to the judgement.

PEPs and perps, but not a peep

As well, the judgement notes that the parties attempted to “gift” an apartment from Y to a related party, all through shell companies, on the premise the reverse had been done to Y’s benefit in a prior transaction – all actions replete with high risks, including the high value of the transaction and shadowy parties and regions.

Sharif admitted that he failed, between February 2015 and April 2016, to take adequate steps to uncover if the clients were politically-exposed persons (PEPs), when a simple internet search would have disclosed that they were – and more, were reportedly linked with the proceeds of crime.

He also admitted that he specifically wrote “no” on certain forms asking if any of the clients were PEPs or relatives or associates of PEPs,

Sharif also failed to engage in ongoing monitoring of the account and related transactions to see if they changed the initial risk assessment, in this case which should have been established as higher risk initially.

The documents also reveal a bevy of red flags that Sharif chose to ignore or actively evade, including:

  • Faceoff: The clients were new and the firm had never met them or corresponded with them in person.
  • Dirty third parties: The use of intermediaries to give instructions on behalf of another individual or entity and provide KYC documentation.
  • Prime avenue: The high value of the property, 59.5 million pounds, in an exclusive London neighborhood.
  • Island time: The use of a BVI company to hold U.K. property for foreign nationals.
  • Bank on it: The use of foreign bank accounts.
  • Known unknowns: The funds involved originated from a country Sharif knew very little about.

Put on notice with warning notice

The failings were magnified, according to the judgement, because the SRA in December 2014 issued a “Warning Notice” highlighting many of the tactics used by the parties as warning signs that illicit individuals or funds were involved, including using intermediaries that appear to disguise the identity of the true client and involving “unnecessarily complicated structures or steps in the transaction.”

In its conclusions, the judgement stated Sharif failed to “act with integrity,” according to the court documents.

“A solicitor acting with moral soundness, rectitude and steady adherence to an ethical code would have applied anti-money laundering principles diligently and would have determined not to act in the particular circumstances” laid out in the case.

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