“The uncertain law and the mess that we have here in this country is the worst creator of confusion, of bad business practice and therefore, anti-competitive practice, which essentially is very bad for British business,” Clifford Chance partner Jeremy Carver said, giving evidence to the House of Commons on the causes of money laundering in November 2000.
However, the House of Commons select committee on international development that last week published its report on the role of the City in a number of money laundering scandals, clearly felt that the lack of action of professionals, notably lawyers, was a contributing factor.
The committee of MPs recommended lawyers undergo mandatory training in spotting and reporting potential money laundering in the conclusion to its investigation into financial corruption.
The report, published on 4 April after months of testimony from City finance and legal professionals as part of a bid to stamp out money laundering, criticises the legal profession’s handling of money laundering prevention.
Although English law firms are encouraged to have a money laundering reporting officer and there is a guide published by the Law Society on the subject, there is no mandatory training for solicitors, except for those conducting investment business.
The committee also backs the controversial claim by the National Criminal Intelligence Service (NCIS) that lawyers are failing in their duty to report suspected money laundering activity.
NCIS head John Abbot is quoted in the report: “I believe there is still a lot of work to be done in terms of raising [solicitors'] awareness so they are better equipped to identify suspicious financial transactions.”
The committee criticised the ease with which money launderers use lawyers’ client accounts to maintain anonymity and also the tiny number of lawyers reporting suspicious transactions.
The last official count in 1998 by the NCIS shows that despite having more than 12,500 solicitors in England and Wales, only 57 suspicious transaction reports were filed by solicitors – less than 1% of the total filed.
The paper also highlighted the role the City played in supporting money laundering by giving the “London stamp of respectability” to money passing though financial institutions and law firms.
The report is the culmination of a series of interviews with industry specialists in money laundering regulation, including Carver, who told the committee in November that the UK Government’s rules did not meet OECD requirements tackling corruption.
Clifford Chance partner George Staple and Peters & Peters senior partner Monty Raphael also gave evidence.
The committee also called for a number of improvements in legislation to combat money laundering and added: “We believe the ‘know your customer’ principle is key to the detection and control of money laundering.”
The International Monetary Fund estimates that money laundering accounts for between 2% and 5% of global gross domestic product.
For the profession, the report is the latest episode in the increasingly bad tempered lobbying that first kicked off several years ago when the NCIS first publicly berated lawyers for a supposed slack record on fighting financial corruption. What makes the debate more pressing now are proposals by
the Government, contained in December’s Queen’s Speech to overhaul regulation with the introduction of a National Confiscation Agency to co-ordinate responsibility for civil and criminal forfeiture.
A key proposal in the Home Office-backed bill would remove lawyers’ immunity from laws requiring disclosure of client confidential information to regulatory authorities in suspected money laundering cases.
For the profession, being criticised by a cross-party group of MPs in a high-profile investigation into fraud is a worrying omen for the future. Labour MP Tony Worthington, a member of the select committee, told Legal Week that the Government should focus attention on the lawyers’ role in fighting money laundering.
“We aim to take a close look at client accounts.” he said. “There is no point examining the banks if you then leave the lawyers out of the process. With minor drug deals it may be small firms getting involved but where states are involved it could be the largest firms.”
Lawyers in turn have accused the NCIS of vacuity, citing a lack of evidence to back up the claims.
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