News and information from the world of
regulatory compliance and risk management

Global firm made few checks on client from corrupt regime, SDT hears
4 March 2024

International firm Dentons held on to a client acquired via a legacy firm for more than four years despite obvious signs of money laundering, the Solicitors Disciplinary Tribunal heard today.

There was little evidence of any due diligence carried out before the firm took instructions from the politically exposed client from a former Soviet state, the Solicitors Regulation Authority said. The client had been the chairman of a bank majority-owned by the unnamed state, described in proceedings as an authoritarian ‘banana republic’ ruled by a handful of families with a poor record for corruption and transparency.

The tribunal heard that Dentons relied upon its client relationship manager Francois Chateau, a French lawyer now based in New York, to carry out checks on the client’s source of wealth and funds. But no file notes were available dating from when the client was absorbed by Dentons in 2013 following its merger with legacy firm Salans.

The SRA said the client hailed from a country with a ‘dubious record’ for corruption and a history of money laundering, and that Dentons was ‘well aware’ of this reputation.

‘Client A was not only a politically exposed person but a politically exposed person from a high-risk jurisdiction,’ said the SRA.

Chateau, interviewed in 2020 by the SRA, was described as ‘someone lacking in subtlety, insight and respect’ for the views of others. When one member of Dentons’ risk and compliance team raised concerns about the client when the client tried to acquire a UK bank, Chateau said in an internal memo that his colleague was ‘untrustworthy’ and a ‘big prick showing a poor judgement and not knowing what he is doing’.

The SRA said this attitude was the ‘exact opposite’ of the kind of cautious and reasonable approach that should be taken to due diligence. The regulator added: ‘Mr Chateau appears to have taken a strikingly hostile approach to anyone asking to carry out the most elementary compliance checks.’

The SRA said it was the firm’s responsibility to stop, assess and take a different approach to background checks on the client’s source of wealth and funds. When issues were raised internally, it was submitted, the firm looked at it as a reputational matter rather than a regulatory one.

The client relationship was ended in 2017 after the banker was jailed on theft and kidnapping charges.

The SRA alleges that Dentons failed to take adequate measures to establish the client’s source of wealth and/or funds. In doing so, it breached the Money Laundering Regulations 2007, failed to comply with its legal and regulatory obligations, and failed to run the business effectively in accordance with proper governance and sound financial and risk management principles.

Dentons denies the allegations on the basis that it took adequate measures in accordance with the then regulations, which have now been replaced by the 2017 MLRs, to establish the source of the client’s wealth and funds. It is due to make submissions on its defence on Tuesday. No witnesses from the firm are due to give evidence.

The hearing continues.

Source: The Law Society Gazette, 4th March 2024

read more articles