Money-laundering and terrorist financing: Law Society obligations

The Law Society’s Money-Laundering Reporting Committee (MLRC) is one of the Law Society’s standing committees and carries out the Society’s competent authority functions in relation to suspicions of money-laundering and terrorist financing generally vested in the money-laundering reporting officer in other organisations with money-laundering reporting obligations. Appointed by the Law Society Council and operating under powers delegated by Council, the committee is comprised of solicitors and lay members. The MLRC has a duty to report to the Council of the Law Society (on a no-names basis) on the performance of these obligations.

The MLRC has a statutory duty to report any suspicion or knowledge it may have that a solicitor (and/or any other person) has been or is engaged in money-laundering or terrorist financing to the relevant authorities (An Garda Síochána and the Revenue Commissioners).

Like solicitors, who as designated persons have statutory obligations to report suspicions of money-laundering/terrorist financing to the relevant authorities, the Law Society also makes reports to An Garda Siochana via goAML and the Revenue Commissioners via ROS.

In addition, the MLRC’s remit also extends to relevant offence reporting pursuant to the Criminal Justice Act 2011. In these cases, the MLRC, where it has information that it knows or believes might be of material assistance in preventing the commission of a relevant offence pursuant to the provisions of section 19 of the Criminal Justice Act 2011 or securing the apprehension, prosecution, or conviction of a person for such a relevant offence, is obliged to report that information as soon as is practicable to An Garda Síochána.

Typical relevant offences include offences contrary to the Criminal Justice (Theft and Fraud Offences) Act 2001 (for example, theft, forgery), conduct that could be described as a conspiracy to defraud at common law, and money-laundering.

The Law Society has an internal procedure whereby suspicion that a money-laundering offence, an offence of financing terrorism, or a relevant offence has been or is being committed by a solicitor or any other person requires the submission of an internal report to the MLRC, which decides in each case whether or not a report should be made to An Garda Síochána and the Revenue Commissioners. In practice, as might be expected, any suspicion is most likely to arise during a regulatory inspection or when dealing with files of a closed practice.

Some real-life anonymised examples of suspicions of money-laundering and relevant offences relating to solicitors or clients of solicitors that arose during regulatory inspections, and where the MLRC decided to make reports, include the following.

Example 1: Undrawn costs in solicitor firm’s client account

Over a six-year period, the firm allowed the sum of €500,000 in undrawn costs to build up in the firm’s client account. The firm failed to account to the Revenue Commissioners in respect of VAT and income tax liabilities arising on the amount, which should have been transferred, thus raising the suspicion of deliberate tax evasion.

The matter was considered by the MLRC and a decision was made to report the matter to An Garda Síochána and the Revenue Commissioners under section 63(2) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010.

Example 2: Aborted transaction

A client instructed the solicitor to act in the purchase of a commercial property valued at €500,000. The client file contained proof of identity and proof of address documentation provided by the client to the solicitor. The client risk assessment on file noted that the client had instructed that the purchase would be funded by a combination of personal savings and a bank loan. The client put the solicitor in funds for the deposit to secure the property.

The solicitor requested the client to provide supporting documentation, including bank statements and loan approval. Prior to providing the documentation, the client suddenly informed the solicitor that they no longer wished to proceed with the purchase and asked for the return of their deposit. No explanation was proffered by the client.

The MLRC considered the matter and directed that it be reported pursuant to section 63(4) CJA 2010 and section 19 CJA 2011.

Example 3: Beneficiary refusing to accept full amount of bequest

The solicitor, who was dealing with a deceased client’s probate, was unable to pay one of the beneficiaries and was holding monies in his client account. It appeared that the beneficiary was in receipt of a means-tested social welfare payment and requested that the solicitor distribute his benefit on a piecemeal basis. The Law Society reminded the solicitor of his obligations under the Solicitors Accounts Regulations (that is, prohibition on retaining monies in the client account where there is no underlying legal transaction) and the solicitor distributed the monies accordingly. The Society also reminded the solicitor of his obligations under section 42 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended).

When the MLRC considered the matter, it directed that it be reported under section 63(4) of the 2010 act (social welfare fraud is a predicate offence and one of the indicators of possible money-laundering) and under section 19 of the CJA 2011.

Example 4: Cyberfraud incident

In this case, a solicitor notified the Society of a cyberfraud perpetrated in the practice where the email system was compromised. Monies from an estate due to various beneficiaries were sent to bank account numbers supplied via the ‘fake email’, leaving the real beneficiaries at a loss. The solicitor was advised to report the matter to the gardaí at a local station level and make a report to the practice insurers. The Law Society conducted an inspection, and an investigation report was prepared. A report was also sent to the MLRC, which directed that the matter also be reported to the authorities (*NB: cyberfraud is one of 22 predicate offences associated with money-laundering under the 6AMLD).

Example 5: Aborted transaction

A client recently returned to Ireland after several years living in Canada. He instructed the solicitor to assist in the purchase of a residential property valued at €400,000. The client had paid the booking deposit from money held in an Irish bank account. On initial instructions, the client stated that the purchase would be funded partially from personal savings and the remainder from a mortgage. After the contract was received, the client suddenly transferred the sum of €250,000 to the solicitor's client account from a Canadian bank account.

When the solicitor requested documentation to verify the source and origin of the overseas funds, the client became evasive. Shortly afterwards, the client abruptly pulled out of the sale and informed the solicitor that they no longer wish to purchase the property. No reason was given for pulling out of the sale. The client then requested the return of the €250,000 and instructed that it be paid to an Irish-held bank account. The MLRC directed that the matter be reported pursuant to section 63(4) CJA 2010 and section 19 CJA 2011.

Example 6: Large cash amount/SOW/SOF

A solicitor proceeded with a transaction without verifying the source of funds from the clients.

In a conveyancing matter, a married couple who were both directors of a limited company purchased a residential property for €300,000. In their initial instruction, the clients had informed the solicitor that the purchase would be financed through a mortgage, and a booking deposit had already been paid. However, during the process, the clients unexpectedly lodged the sum of €100,000 as a partial cash payment to the solicitor’s client account without prior notice or explanation to the solicitor. It appeared the funds came from a limited company. The remainder of the finance was with the assistance of a mortgage.

The solicitor did not obtain clear verifiable documentation on the source of the €100,000. The introduction of the large cash sum ought to have triggered enhanced due diligence, and the solicitor should have probed the origin of the funds to ensure that they were from a legitimate source. The MLRC directed that the matter be reported under section 63 CJA 2010.