12/01/24

AML: Clyde & Co fined £500,000 for anti-money laundering failures

As published on: rollonfriday.com, Friday 12 January, 2024.

Clyde & Co has been fined £500,000 after the firm and its former star shipping partner admitted breaching anti-money laundering regulations.

Ed Mills-Webb, who was Chair of the Marine Global Practice Group when the firm suspended him in 2019, was fined £11,900.

The fine represents the joint-equal highest issued by the SDT, matching Locke Lord's penalty in November 2017 for failing to properly supervise a partner who was involved in potentially dubious investment schemes.

When Mills Webb quit, four other shipping partners resigned in solidarity and founded Preston Turnbull, where he is currently a consultant.

This week he and his old firm agreed a statement of facts and admissions with the SRA following their referral to the SDT which revealed how their assumptions that adequate client identity checks had been carried out paved the way for a regulatory smackdown.

The SRA had alleged that between 2014 and 2019, in contravention of money laundering regulations, Clydes and Mills Webb failed, adequately or at all, to conduct due diligence or to conduct ongoing monitoring of a shipping client identified as ‘Company A’, and had failed to cease transactions or terminate the relationship with the client despite such omissions.

In their statement of agreed facts and admissions, Clydes and Mills Webb accepted that they had committed breaches of anti-money laundering regulations and principles of the solicitors' Code of Conduct.

Company A was onboarded by Clydes before Mills Webb became involved in its matters, but in 2014 it asked him if Clyde & Co could hold money (lots of money) as an escrow agent in respect of various ship purchases.

Different companies, referred to as ‘Principals’, were to be used by Company A to buy and sell the vessels, and were to have access to the escrow account.

Mills Webb expected that Clyde & Co’s risk and business acceptance teams were aware that Principals, rather than Company A, would be used to purchase the ships, as it was a common practice in the shipping industry, but both parties conceded that they failed to adequately identify the Principals in question.

On one occasion Mills Webb informed the firm’s Business Acceptance Unit that a particular Principal being used by Company A wished to keep the identity of its shareholders confidential, which he and Clydes admitted should have rung alarm bells as to the necessity of “punctilious” customer due diligence, which was not carried out.

The due diligence collected on Company A was six years old, while another transaction saw Company A using a Principal incorporated in Liberia. Although the jurisdiction was commonly used to ‘flag’ vessels, Mills Webb accepted that he should have considered whether the use of an entity located in Liberia heightened the risk of money laundering.

When it became apparent that money for one transaction was being provided by a Principal and not Company A, Mills Webb’s team checked with ‘Person A’ that he was its ultimate beneficial owner, but did not seek any documents to substantiate the claim. Mills Webb had understood from his team that Clyde & Co's Business Acceptance Unit had told them that documentary proof wasn’t necessary, but accepted he should have done more to check the position.

The firm had also agreed with Mills Webb that it would carry out periodic checks into Company A and Person A, but it did not do so in relation to several transactions.

Because of failures in the client onboarding process, escrow monies were paid into Clyde & Co’s client account by Principals who were not identified as clients or third-party payers. The SRA’s case focused on six transactions, but they formed part of a larger spread of 30 transactions involving Company A which saw just under $50 million passing through Clyde & Co's account.

Although the SRA said it had no evidence that Company A, the Principals, or Person A were in fact involved in money laundering or financial crime, the transactions “carried risks of both, and the fact that inadequate [customer due diligence] was carried out in this instance meant that such a risk was not properly addressed. As such the risk of money laundering cannot be ruled out".

Clyde & Co received a base level fine of only £50k which was uplifted to £500k to reflect its turnover, and it must also pay £128k of the SRA’s costs. Mills-Webb was ordered to also pay costs of £55k.

It is the second time that Clydes has been fined for money laundering failures. In 2017 three of its partners were ordered to pay £10,000 each, and the firm £50,000.

It was the SDT's biggest ever fine at the time, after which Clydes said that it had "reviewed and strengthened a number of aspects of our approach to risk management" so that "the circumstances which led to these breaches could not happen again".

This time it really means it. In a statement the firm told ROF, “Clyde & Co sincerely regrets any compliance failings - relating to a series of client shipping transactions that we identified in 2018 - which led to this hearing. Having reported the issue to the SRA, we fully assisted with its investigation and have sought to learn appropriate lessons.”

“Under the firm’s current leadership, we have significantly enhanced our risk management and regulatory compliance capabilities including restructuring our in-house risk and legal functions; appointing a Head of Financial Crime; and further enhancing our processes, policies, levels of oversight and training.”

“We hold ourselves to the highest professional and ethical standards and take responsibility for ensuring we meet them. This SDT determination is a reminder that regulatory compliance and risk management requires continuous, diligent attention. Our senior management is fully committed to ensuring firm-wide adherence.”

Mills Webb did not respond to a request for comment.

The SRA previously fined Mishcon de Reya £232,500 in January 2022 for money laundering failures, and Ashfords £100k in December.

Paul Philip, SRA Chief Executive, said, “Money laundering is not a victimless crime and firms have a key part to play in preventing legal services from being used by criminals. Firms must ensure they are playing proper attention to identifying clients and mitigating money laundering risks".

“This fine should be a wake-up call to any firms that are not meeting their responsibilities to have robust AML processes in place, otherwise they could be facing a similar penalty”, he said.

Tags

Clyde & Co AML Anti-Money Laundering