21 Feb 2014

Close call for Manx lawyer

A recent case highlights how lawyers dealing with money must be acutely aware of the perils of potential money laundering, says Thomas Garner.

Swill Klitch Swill Klitch

On 19 February 2014 Lord Hughes delivered the judgment of the Privy Council in an appeal by Isle of Man lawyer Jenny Dee Holt against her convictions for money laundering and falsifying file notes.The appeal turned on the inadequacy of the summing at trial but the facts provide a salutary lesson for all lawyers involved in privately funded work.
The facts 
The caese, Holt (Appellant) v HM Attorney General on behalf of the Queen From the High Court of Justice of the Isle of Man [2014] UKPC 4,  provides a major lesson for lawyers. The Appellant, was employed by an Isle of Man firm who had previously represented Trevor Baines. Baines was a man with an extravagant lifestyle and apparently considerable wealth. In 2007 Baines and his wife were charged with money laundering offences in relation to $175 million.
The Appellant and her firm acted for the Baines in connection with their defence. Experienced counsel from London were briefed to represent the couple. Baines was involved in the administration of a number of trusts. The Appellant was aware of this fact and that the management of the trusts were in the hands of specially appointed managers.
It became clear that the Baines were struggling to raise the cash required for their legal fees. After much communication between the Appellant, counsel and the Baines, which would later prove central to the trial, £400,000 was transferred to the Appellant’s firm. This money had in fact been obtained from one of the trusts managed by the Baines by deception. Mr Baines had dishonestly told the trust’s bank that he needed the funds transferring for an investment for the trust. 
In accepting the funds as legal fees and forwarding them to counsel the prosecution contended, and ultimately the jury found, that the Appellant had connived in the use of the £400,000, knowing or suspecting that it was criminal property. 
In the run up to the deposit, Baines had indicated to the Appellant that he was looking to obtain a loan from one of the trusts and sought advice on the same. He subsequently told her that he had received approval for this loan from the trust protector. This was a lie.
The Appellant spoke with counsel to question whether there was any issue over the funds for their fees being taken from a loan from a trust. The Appellant claimed that she made it clear that this was a trust to which Baines was a trustee but this was disputed. These calls formed the basis of the charges of falsifying file notes. Counsel’s advice was that if the loan was arranged on a proper basis then there would be no issue. Counsel maintained that they were not aware Baines was a trustee of the trust in question. 
The Appellant outlined to Baines the next steps in obtaining a loan and began to prepare the necessary documentation. However, prior to completing the loan agreement, the disputed monies were in fact received on the firm’s accounts.
Discussions continued about the preparation of a loan agreement after the receipt of the funds. The Appellant maintained that she believed that the source of the £400,000 was something else, with the loan from the trust to be arranged separately but she was disbelieved at trial.
State of mind
The sole issue, in respect of the money laundering charge, was the Appellant’s state of mind. The first issue for the jury, was whether the Appellant may have believed the source of funds to be other than the trust in question. If she may have done then she was entitled to be acquitted. But, if the jury was sure that she did know that the money came from the trust, the next question for the jury was whether or not she “knew or suspected”, when continuing the arrangement for the transmission of the funds to counsel, that it was the product of criminal conduct.
Fatally, in the view of the Privy Council, that second question was entirely absent from the Judge’s summing up. The failure to give that direction to the jury rendered the conviction in relation to money laundering unsafe. Consequently, the convictions in relation to falsifying notes were also quashed. The Privy Council were of the opinion that there was no public interest in a retrial but this remains a matter for consideration by the prosecution.
The case highlights the importance of satisfying oneself as to the source of funds received by a law firm particularly in cases where clients have complex financial affairs. Firms should ensure that their compliance regimes are up to scratch and, perhaps more importantly, that all fee earners are alive to the risks. The nature of the charges faced by the Baines in this case should perhaps have acted as a red flag in terms of their money laundering procedures but balanced with that is the fact that this was a long-standing client of the firm. 
Dangerous decisions
Fundamentally, the case illustrates the dangers that arise when decisions are taken at speed and under pressure. The moment the funds arrived questions should have been asked as to the source of the funds, particularly given the discussions that took place immediately beforehand.
Whatever one thinks of the Appellant’s actions in this case it should remind all lawyers of the importance of maintaining proper systems and checks in relation to money laundering. Practitioners should consider whether the evidence they have of source of funds is consistent with the risk profile of their client and the scope of their retainer. It is often uncomfortable to ask clients, particularly pre-existing clients, about the source of funds. Practitioners should remember though these questions can be crucial in protecting their own position when it comes to money laundering.

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