Anti-Money Laundering Principles and the Legal Profession: Some Lessons of History from England, Klearchos A. Kyriakides Director, ERPIC Democracy & Rule of Law Program, International Business Law Consortium
Anti-Money Laundering Principles and the Legal Profession: Some Lessons of History from England
Klearchos A. Kyriakides
Director, ERPIC Democracy & Rule of Law Program
International Business Law Consortium
According to the UK’s National Crime Agency, many hundreds of billions of pounds of international criminal money is laundered through UK banks, including their subsidiaries, each year. It is a strategic threat to the UK’s economy and reputation. The British Government has alleged that some solicitors in private praise are ‘complicit professionals’, who have engaged in serious criminal misconduct. Dr Kyriakides argues that these solicitors have failed to comply with some basic anti-money laundering principles, which are to be found in Aesop’s fables and other ancient Greek writings.
Thank you for that warm introduction and welcome everybody to Cyprus. Going back to Brexit, I have to declare an interest, because I am an expat. I’m a British citizen who’s returned to the island of the roots of my parents. So I’m in a rather curious position here with loyalties both in the United Kingdom and here in Cyprus.
I’ve been asked to bring a bit of academic analysis to today’s proceedings. I am rusty I have to admit, I’ve been out of practice for ten years. I have had the privilege for the past ten years of teaching the lawyers of the future, namely undergraduate and postgraduate law students. I’ve also had the privilege over the years of teaching practicing solicitors, lawyers in England through continuing professional development. And I’ve kept in touch with the profession through my local Law Society in England – the West London Law Society. So even though I’m out of practice, I’ve still kept in touch with practice, albeit at a distance.
Over the next twenty minutes or so – and Christian, please tell me if I go beyond the twenty minutes – over the next twenty minutes or so I just want to draw your attention to some of the things that have gone wrong with solicitors in England. I don’t want to say very much about barristers because they, as many of you know, operate as a second branch of the legal profession in England. By and large they don’t handle clients’ money, they don’t do the type of office work that a solicitor does face to face with the client. So I don’t really want to say very much about barristers. My remarks will be limited to the adverse experiences of a few solicitors who found themselves in breach of either the criminal law, or the principles of professional conduct, and therefore found themselves either in prison having been convicted of serious criminal offences, or struck off, either because of those serious criminal offenses or for other reasons.
Let me make one point clear at the outset. Having taught the money-laundering law for the best part of a decade, the best anti-money laundering principles are to be found in Aesop’s fables. Those ancient Greek principles that Aesop and other ancient Greek writers articulated are as relevant to anti money laundering and indeed to legal practice generally as they were back in antiquity. And I say that conscious of the fact that Zeno of Citium was from Citium, which is within fifty kilometers or so of where we are today. He was one of the great Cypriot and ancient Greek philosophers of all time. And as I go through my analysis of anti-money laundering principles, I’ll be referring to some of these ancient Greek principles, because were solicitors have gone wrong is they fail to comply with basic principles they should have learnt
when they were at kindergarten or at primary school. I’ll give you three or four examples. “Do everything in moderation do nothing in excess.” “Do not be greedy.” “Be vigilant.” And to go back to Aesop, “Look before you leap.” So I’m going to refer to some more complicated principles as we go on, but the ancient Greek basic principles are as valid to any anti-money laundering as anything else.
I’ve put up a disclaimer like the gentleman earlier on today. I’m not giving legal advice. This is an academic analysis and I’m not holding myself out as being in practice as a solicitor. I’m an academic now, legal academic.
Let me just draw your attention to some eye-watering statistics that the British government has done. The British government loves washing its dirty linen in public and here we have a good example. The National Crime Agency, which is an agency of the British state, has stated that the best available international estimate is that money-laundering is an equivalent to some 2.7% of global GDP, or 1.6 trillion US dollars by 2009 statistics. The National Crime Agency assesses that many hundreds of billions of pounds – that’s not millions of pounds with an “m”, that’s billions of pounds with the “b” – many hundreds of billions of pounds of international criminal money is laundered through UK banks, including their subsidiaries, each year. Not each decade – each year. So this is obviously a serious problem, and if we believe ministers, this is a high priority of the British government. And indeed if you read the materials published by the National Crime Agency and other British governmental publications, one finds that the scale of the laundering of criminal proceeds is a strategic threat both to the United Kingdom’s economy and its reputation.
Now, in this context the British government departments – and I’m referring here to the Treasury and the Home Office in particular – have alleged that some solicitors in private practice are “complicit professionals” – their expression. Now we know from convicted solicitors who’ve been brought before the criminal courts, or solicitors who’ve been found guilty of professional misconduct through the Solicitors Disciplinary Tribunal, that some solicitors have indeed engaged in serious criminal misconduct. But what is interesting about what the Home
Office and Treasury have told us is that they’re keeping an eye on firms of solicitors through intelligence gathering activities. That comes across quite clearly, for example from the” UK national risk assessment of money laundering and terrorist financing” publication of October 2015. Now, we’ve all seen what happened with Hillary Clinton and John Podesta, and other people in America who, it appears, have had their emails or telephones broken into. And we need to just bear in mind that there is an ever-present risk of our telephones and our computers being hacked into, either by malevolent foreign entities or private individuals, but it could be – and I’m not saying this is happening – but it could be that we’re under investigation by the authority. So we all need to be aware that this is the world in which we are living in. The professional enablers under the scrutiny of the governmental authorities include members of the legal profession, for obvious reasons. In England the solicitors are the ones who handle client money through client account and they’re involved in the acquisition of property, or the acquisition of shares, or the acquisition of other assets on behalf of their clients. So money – and it may be hundreds of thousands of pounds or hundreds of millions of pounds – comes in and out of solicitors’ clients accounts. And that is one reason why, at least in England, crooks, fraudsters, imposters, other devious people might gravitate towards a firm of solicitors.
I’m not sure how the client account system operates in other jurisdictions, but in England the client account is one of the main dangers for firms of solicitors. And one of the principles I’m mentioning now – and I’ll mention it perhaps later to – is all firms of solicitors and all lawyers generally should keep a close eye on their accounts – their bank accounts, whether their client account or office account – both in terms of risks that may exist within the firm, but also in terms of risks which may arise from beyond the firm. That’s a very important lesson of recent history.
Before I just whip through some lessons of history in numerical format, let me just make the obvious point that money laundering doesn’t happen by accident. There needs to be an underlying crime. And I’m addressing an international business forum, and it’s obvious that the grave risks that business lawyers need to be aware of are proceeds of bribery or payments that might be interpreted as bribes by the authorities or by a court, the proceeds of false accounting, either accounting that’s false as made by practicing lawyer on behalf of the client or in his own right, there’s proceeds of fraud, proceeds of tax evasion, and proceeds of theft. And we just need to be aware even though we may be business lawyers – I’m not a business lawyer – but all
Lawyers, including business lawyers, need to be aware of these areas of the criminal law and how these areas of criminal law can come into existence and come into play.
Let me just go through eight basic principles of anti-money laundering law in no particular order. Number one: Most obviously, know the law and uphold it or at least try your utmost to uphold it. This is where lawyers get into trouble because they are either complicit in a criminal activity, or – and this is probably where the risk lies with honest, decent lawyers – they are reckless in terms of their understanding of the law. And I’ve chosen the word ‘reckless’ because it appears in a number of court cases and the judges have come down hard on lawyers who have been reckless,
either in terms of the use or misuse of their clients account, or what they have done or not done in court, or however they have dealt or not dealt with their clients. And I think the message to take back to your firms is keep an eye on your staff, keep an eye on your trainees, especially your trainees: bring them up in the right way, and teach them the importance of not being reckless. Because that’s something that has caught out many otherwise good and honorable lawyers.
I won’t go through the details of our code of conduct, but we are under a duty as solicitors to uphold the rule of law and the proper administration of justice. That’s our number one mandatory principle, and that flows from our status as officers of the court. It’s often overlooked that solicitors are not just the trusted advisers of their client; they are officers of the court with corresponding duties to the court, and they are also subject, at least in England, to the inherent jurisdiction of the court. There was a case where a solicitor was found guilty, his sentence was reduced on appeal. The case is called ‘Crown and Griffiths’, and the Court of Appeal emphasized in the context of the proceeds of crime act and anti-money laundering law generally the following: “We do not leave the case without underlining to all professional people involved in the handling of money and with an involvement in financial transactions the absolute obligation to observe scrupulously the terms of this legislation and the inevitable penalty that will follow failure so to do”.
The courts have set a very, very high standard for lawyers to adopt and this is the sort of expectation that the judges have in relation to lawyers. Which is why these anti-money laundering principles are so important, because many – not all – but many of the solicitors who have found themselves before the criminal courts have breached these basic principles. And as you can see, most of them are not particularly complicated. Ancient Greek principle ‘Know yourself’, and in that context know your firm’s procedures, know your colleagues, and of course act with integrity, which is our number two mandatory principle in England. It’s required of lawyers practicing in England that they should discharge their professional duties with integrity, probity and complete trustworthiness. That is a common law principle delivered by Sir Thomas Bingham, the then Master of the Rolls, later Lord Bingham, the great judge. That is the test that is used by the Solicitors Disciplinary Tribunal whenever a solicitor is brought before the tribunal on charges of misconduct based on failing to act with integrity. That is the test. It is an exceptionally austere test, but it’s the one that we have in England. It applies to barristers and it’s being used in relation to other professionals as well. Again, pass on those of you to whom this test applies, I’m talking about the English solicitors who may be here, lawyers in Cyprus and other common law jurisdictions. If that’s the test in your jurisdiction, bring it to the attention of your trainees and your staff, because that is what you will be judged against in the event – and hopefully you won’t ever have to face this – but if you ever are, at least in England or another common law jurisdiction that applies that test – that is the test. And it’s not as well-known as it should be. I’m rather surprised by that when I meet some solicitors I should say. And it’s important to note, there’s a recent High Court case Scott and Solicitors’ Regulation Authority – it’s part of a line of cases which made clear that lacking integrity can arise without necessarily being dishonest. So acting without integrity is normally associated with acting without honesty, in other words acting dishonestly. But we have here a relatively recent case which has underlined that you can act without integrity if you have acted recklessly. For example, as in this case, acting recklessly as to the use of various client accounts.
Money laundering principle three: Know your client, and take appropriate action if the duty to the client conflicts with the duty to the court. This is really very much aimed at the litigators who may be in this room. It’s an exceptionally difficult balancing act to strike: acting in the best interest of your client, which of course it is a supreme duty, but you also have another supreme duty which is the duty to the court, and more specifically, for example, the duty not to knowingly mislead the court. And again, solicitors have found themselves in difficulty both in relation to criminal type cases and in other cases, civil cases, where these two duties have either not been properly balanced, or the solicitor has chosen or found himself giving weight to the duty to the client as against the duty to the court. There’s a very important judgment – you may be interested in reading it – Brett and Solicitors Regulation Authority. It’s not a money-laundering case, but it’s a case in which the Lord Chief Justice of England and Wales, Lord Thomas, took the opportunity to set out the common law principles that any solicitor or barrister need to bear in mind if they found themselves in an ethical dilemma, where they’re caught between their duty of disclosure to the court on the one hand, and their duty of confidentiality to the client on the other. It’s an exceptionally difficult balancing act, and it’s one that you need to be fully aware of if you go into court, at least as an English solicitor or an English barrister, so read that judgment. It’s a very clear guidance from the Lord Chief Justice on that very difficult balancing act.
Anti-money laundering principle four: Know your case. Very simple principle. Also try to find out as much as possible about the other side. Be vigilant and be alive to any red flags or warning signs. In England we’ve had a number of cases where fake – that’s a Donald Trump’s word, isn’t it – fake solicitors or fake professionals have portrayed themselves as something that they’re not – either solicitors or estate agents or something else. But we’ve had cases of fake solicitors. They’ve even gone as far, in England at least, to set up fake internet websites, fake identities online. We’ve even had – I haven’t got time to go into the case I have in mind – but we’ve had some really interesting cases of impostor solicitors. So one of the things that I encourage my students and at least English solicitors to do, is make absolutely certain, as far as you can be certain, that the solicitor on the other side is a solicitor, he’s regulated as a solicitor, he’s registered on the Law Society database of solicitors, his firm exists, his firm hasn’t been shut down, the solicitor that you’re dealing with is in no way associated with criminality. You have to do these checks in England now, because we’ve had this proliferation of fake solicitors. And by the same token we have this – you’ve all received them – fake emails from people who are pretending to offer you lots of money, but these fraudsters and fake professionals are becoming increasingly sophisticated. So just be on your guard for that.
As regard to “know your client”, the guidance that’s been issued by the Law Society is summarized on that page. You can find the full version on the Law Society website. It’s obviously primarily intended to English solicitors, but it might be of benefit. Can I just say ‘English solicitors’ encompasses England and Wales, so I just don’t upset anybody [Laughter]. I probably have, it’s too late. Apologies. We’ve got used to say ‘England’, but it’s, yes, it should really be (….). Well, the guidance from the Law Society which the courts take into account in appropriate cases, is quite clear: be on your guard for secretive clients – and this is easier said than done but that’s what they say – be on your guard for secretive clients, unusual instructions, instructions outside your area of expertise, changing instructions, unusual retainers. Be on your guard for an illegitimate use of the client account and, of course, the source of funds, beneficial ownership, third party payments and so on. And also, of course, be on your guard for suspect territories, which of course is a phrase open to interpretation.
Anti-money laundering principle five – I only have eight, so I’m towards the end – anti-money laundering principle five – this is the one where solicitors probably don’t follow and they get into trouble: Follow your instincts, but don’t follow the crowd, especially if the crowd is acting improperly. Now, if I was taught when I was an eighteen-year-old undergraduate and then when I was a postgraduate law student, I was told the same thing. If something smells wrong, it’s probably rotten. If something feels wrong, it probably is wrong. The basic principles of instinct, what in many cases that have gone to court the solicitors have just not followed. They’ve either turned a blind eye, buried their head in the sand, smelt money at the end of the case and they’ve just gone along with something they shouldn’t, and they found themselves in ensnared, either in a money-laundering transaction, or a scam of some sort. And then once they find themselves in this hole, instead of trying to clamor themselves out, they carry on digging. And I haven’t got time to show you the case, there’s a case where the solicitor not only breached the anti-money laundering law and thus committed criminal offences, he breached the perverting the course of justice criminal laws and obstructing police investigation laws, and so he just ended up being struck off. So just follow your instincts and don’t follow the crowd. And if you find yourself in a hole, seek guidance. But try not to find yourself in the hole in the first place.
And this is quite important and interesting case: Serious Organised Crime Agency and Pelekanos. Full statement is a full statement regardless of the prevalence of the practice of making of such statements. You know, again – some of us have – we’ve been browbeaten by other people but everyone does this. And as I say to my students, just because everybody’s doing something improperly doesn’t mean you have to do it improperly. That’s why the banks suffered the way that they did in the United Kingdom in the late 2000s, that’s one reason why the Cypriot banks suffered so much in 2013, because everybody was following the crowd. And you just have to exercise moral courage. It’s an Aristotelian principle: exercise moral courage at appropriate moments. Anti-money laundering principle six follows on from what I’ve just said. Because of anti-money laundering laws association with criminal law, we forget that any breach of anti-money laundering law can also have knock-on implications beyond criminal law. And we have a succession of cases which have had a sort of a civil dimension, even though they may in parallel have had or have not had a criminal law dimension. So this is a good example. The judge said, this case began as one about drug trafficking, it’s ended up as one about mortgage fraud. But what this specific case was on was civil recovery law, civil recovery law under the relevant legislation, and the judge here warned us (this is of course English law): “As the law stands, any person, however otherwise law abiding, may be the subject of a civil recovery order if he makes a deliberately false statement in a mortgage application form. It is important that this be more widely known, and it is desirable that mortgage providers spell out this possible consequence of a misstatement in their application forms.”So just be on your guard. So many solicitors have got themselves into trouble because they’ve made a full statement or a misleading statement, and sometimes it’s because they made the statement on behalf of the client. So often you’ve got to check as much as you can, but there are very simple “cover your back” mechanisms if you have to make a representation on behalf of the client and you can’t verify whether what they’ve said is true. So I understand from my client that X has happened or my client instructs me to pass on the following information. Don’t make an assertion of fact if you are not in a position to know whether the fact is indeed a fact or whether it’s a falsehood. And it’s just an obvious point, but it’s one that’s often overlooked.
And that slide just summarizes my point for me: don’t just think of anti-money laundering law in terms of criminal law. It can have civil law implications. We have cases in England where the courts have taken into account compliance with anti-money laundering law in a negligence claim or in a breach of contract claim, or a breach of trust claim. I’ve mentioned civil recovery proceedings. If you’re an individual solicitor and employed solicitor in a firm, you can face internal employment law disciplinary proceedings, and of course then we have the risk of professional misconduct disciplinary proceedings externally.
Penultimate anti-money laundering principle: Know what to do and know what not to do if an ethical dilemma or other problem arises. Compliance officers exist to help firms deal with ethical dilemmas, the professional code of conduct provides a measure of guidance. The Law Society in England has a professional ethics helpline; the SRA might be able to give some guidance as well. But in difficult circumstances – I’m paraphrasing the Lord Chief Justice here – in difficult circumstances take independent advice. In England there are specialist firms of solicitors or specialist chambers that specialize in this area of law to try and help solicitors who are on the verge of tipping into a hole. So you want to maybe seek advice before you enter the hole. Don’t enter the hole and then seek advice as to how to come out of it. Again, it’s easier said than done, but it’s a useful principle nonetheless.
And finally, I would teach my students the importance of having sweep-up clauses in contracts or leases or other documents in case you’ve left anything out. Here’s a sweep up anti-money laundering principle eight: Act in line with all of the other anti-money laundering principles, of which there are too many for me to mention. An obvious one is stay up-to-date with relevant developments. You may or may not be registered in England, but it’s well worth contemplating registering to receive free updates from the Law Society. I receive several a week. They have a number of free ones. There are others you have to pay for. If you go to the website of the Law Society – I think it’s LawSociety.org.uk – you can sign up for updates which they’ll send to you electronically. And you can keep up to date with various developments. Here’s an example I found the other day from the Home Office. The UK and Nigeria had signed the memorandum of understanding on criminal asset return. So if you have any clients from Nigeria, you obviously need to be aware of any bilateral agreements of that nature. I’m not going to go through that case, but I will finish with that. The Law Society has a lot of very helpful material to help solicitors, and this may or may not be of relevance to you outside England. They’ve also published a number of books freely available on the Internet. They’re all accessible through the Law Society website. The National Crime Agency has published useful guidance as has the Solicitors Regulation Authority. ACAMS have published some useful guidance.
Maybe I’ll finish with Zeno of Citium: “The reason why we have two ears and only one mouth is that we may listen the more and talk the less.” At which point I’d better sit down. Thank you