Rise & Fine: Mishcon de Reya fined for money-laundering breaches

January 11, 2022

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3 min read

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What's going on here?

Mischon de Reya, one of the UK’s most prestigious law firms, has been fined a record amount for committing “serious breaches” of money-laundering rules, its second regulatory penalty in three months.

What does this mean?

The London-based firm has agreed to pay a fine of £232,500, plus a further £50,000 towards the cost of the Solicitors Regulation Authority (SRA) investigation. In an agreed outcome published this week, Mishcon admitted that it did not retain due diligence documents in relation to two clients between September 2015 and April 2017 when the acquisitions they were making presented a higher risk of money laundering because they involved companies in high-risk jurisdictions. The firm also allowed four substantial payments to come in and out of its client account between 22 July and 28 July 2016, none of which were related to the delivery of services by the firm. As a result, Mishcon had allowed its account to be used “as a banking facility”, contrary to SRA rules. An external investigation commissioned by the firm found that the former Partner responsible for the two clients had not received mandatory training as required by anti-money laundering (AML) regulations.

The firm accepted the SRA’s decision and fine, which is almost double the previous highest of £124,436, imposed by the regulator on Find My Claims in 2019. On Wednesday Mishcon said: “We are pleased to have come to a settlement with the SRA relating to two separate and historic investigations in relation to which we have made appropriate admissions”.

What's the big picture effect?

Having built an impressive reputation for acting for high-profile individuals, including Princess Diana and Gina Miller, Mishcon de Reya is now developing another reputation for all the wrong reasons – one beset on all sides by frequent infringements and drawn-out investigations. This is the second regulatory issue faced by the firm in recent months: in October the firm was fined £25,000 by the Solicitors’ Disciplinary Tribunal (SDT) for allowing payments to agents involved in football transfer deals to be routed through its client bank account.

The settlement does prevent the investigation looming over the firm as it prepares to float on the London Stock Exchange after partners voted to go public last year. The company is expected to seek a value of about £750m, based on typical valuations in the legal sector, a price tag that would make it the largest London-listed law firm, with all Mishcon staff, including trainees and junior lawyers, becoming a shareholder. However, persons owning and controlling publicly listed companies in the United Kingdom are subject to a fit-and-proper test. Executive directors and CEOs of large international banks facing the same issues as Mishcon can reasonably argue that they knew nothing of the operational failures that have occurred within their organisations. Presumably, it is much more difficult for senior partners in law firms to make this case. More fundamentally, if Mishcon cannot be relied upon to avoid regulatory tussles of this nature, it poses the risk of having a detrimental effect on its share price.

The SRA’s action against Mishcon has highlighted the difficulties firms face when conducting AML compliance manually. Martin Cheek, Director at SmartSearch, an online AML services provider, commented: “To have a high-profile law firm like Mishcon de Reya receiving one of the largest fines the SRA has issued should act as a wake-up call for the legal sector”. The firm has since renewed its commitment to amending its policies and procedures, including introducing and investing in new, more sophisticated IT systems which involve increasingly centralised record-keeping and are, in part, specifically designed to prevent future breaches of a similar nature. Therefore, as Cheek posits, if law firms are to truly implement a successful AML culture, they must be proactive in incorporating electronic verification systems into their practices when managing client information – or face the consequences.

Report written by Charlie Parkman

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