Firm fined for inadequate checks on politically exposed persons across 194 matters
A Mayfair law firm has been fined £23,588 after the Solicitors Regulation Authority found that it failed to carry out adequate background checks on a potentially high-risk client. The regulator said Charles Douglas Solicitors acted for a foreign politically exposed person in 194 matters over a period of 2.5 years.
Most of the matters involved residential property transactions and refinance work. Although the majority of these transactions did not proceed, 56 were completed. Following a review of the firm’s files, the SRA found that while substantial information had been gathered about the client’s sources of funds and overall wealth, the firm had not taken sufficient steps to verify the origins of a small portion of the funds involved. The review also identified concerns about the questions asked during the onboarding process regarding wealth derived from overseas business interests.
The SRA accepted that the firm had conducted checks on the client. However, it found that financial statements relating to the overseas business interests, which had been prepared by qualified accountants based overseas, raised concerns about the scrutiny applied. The documents showed substantial revenue, minimal expenditure and a pattern in which most net profit was paid out immediately as dividends. The regulator said this should have prompted additional enquiries.
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Charles Douglas Solicitors admitted that although extensive checks had been conducted, further steps could have been taken. The firm stated that it believed it had complied with its obligations but accepted that areas existed where more rigorous measures would have been appropriate.
The SRA said the firm was required to comply with money laundering regulations and that any failure to meet those duties had the potential to cause significant harm. In this case, the regulator accepted that the harm or risk of harm was low. However, it noted that although enhanced measures were applied, they did not fully meet the requirements of the Money Laundering Regulations 2017.
The financial penalty was calculated at between 0.4% and 1.2% of the firm’s annual domestic turnover and then reduced to reflect early admissions and full cooperation with the investigation. The final fine was set at £23,588. The firm also agreed to pay £1,350 in costs.
The SRA said the outcome highlighted the need for law firms to carry out thorough and well-documented due diligence, particularly when acting for individuals who present heightened risk. It added that firms must be able to demonstrate clearly how they have verified the source of funds whenever required to do so.