Ethics Hub

Scenario: You notice signs of possible economic crime

You are a Costs Lawyer working in a solicitors firm in Manchester that provides a full service offering to clients. Over lunch, your colleague in the commercial property team tells you that she has been instructed by a new client on a high-value residential property transaction. The client is a business owner based in London, and they wish to purchase a new multi-million pound apartment in the redeveloped Battersea Power Station.

Your colleague tells you that the client chose your firm based on recommendations from their business network. They know that residential property is only a small part of your firm’s practice, but say that they would feel more comfortable with a commercial firm handling such a high-value transaction.

The client wants to complete the transaction quickly, and would like to transfer the funds for the transaction to your firm’s escrow account straightaway so that the matter can be progressed without delay.

Your colleague explains that, if she can progress the transaction quickly and impress the client, it might lead to more lucrative international instructions, particularly since the funding for the property transaction is coming from the client’s family member who lives in Minsk.

What are your obligations in this situation?

There are two issues to consider:

  1. Warning signs of money laundering
  2. Sanctions compliance

Money laundering

  • Costs Lawyers do not fall into the regulated sector for money laundering and the CLSB is not a supervisor for those purposes. Therefore, the Money Laundering Regulations 2017 do not apply to Costs Lawyers directly.
  • However, Principle 2.1 of the Code of Conduct says that you must act at all times within the law. You should be alert to signs of money laundering and follow the anti-money laundering guidance for the legal sector. Warning signs of money laundering include (but are not limited to):
    • instructions from clients with no geographic connection to your firm;
    • third party funding in a transaction;
    • client wishing to complete the transaction quickly;
    • unusual instructions.
  • Where there are several warning signs of money laundering you should make suitable enquiries to satisfy yourself that you do not have a suspicion of money laundering and so do not have to make a report to your firm’s Money Laundering Reporting Officer or the National Crime Agency (NCA).
  • If, following your enquiries, you have a suspicion of money laundering, you should:
    • Alert your firm’s nominated Money Laundering Reporting Officer – they will decide whether a disclosure to the NCA is necessary.
    • If your firm does not have a nominated money laundering officer, consider whether you need to make a suspicious activity report to the NCA (see LSAG guidance).
  • This applies whenever a suspicion arises, whether or not you are directly working on the matter.

Sanctions

  • All Costs Lawyers must play their part in safeguarding the UK and protecting the reputation of the legal services industry. Breaching the financial sanctions requirements can result in criminal prosecution or a fine, and is also likely to constitute a breach of the Code of Conduct.
  • In this scenario:
    • The UK Government has sanctions in place affecting Belarus. You should therefore inform your colleague to check whether the family member is on the sanctions list.
    • If the family member is on the sanctions list and your firm decides to continue to act for the client, it will need to apply for a licence from OFSI before proceeding. You should also inform the CLSB if your firm applies for such a licence.
    • If the family member is not on the sanctions list, consider whether there are any money laundering or other risks and respond accordingly, as set out above.

  • Principle 1.1 – You must act honestly and with integrity, not only in your professional life but also in your private life where your behaviour might reasonably be considered to undermine your adherence to the core ethical principles of the profession.
  • Principle 1.7 – You must not act in any way which is likely to diminish the trust the public places in you or in the profession of Costs Lawyers.
  • Principle 2.1 – You must at all times act within the law.

See our Guidance Note on Economic Crime in the Costs Lawyer Handbook, and our resources on compliance with sanctions against Russia and Belarus also in this Ethics Hub.

See also the Legal Sector Affinity Group AML guidance.

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