Please note: This decision was successfully appealed. Read the appeal decision at the end of this article.
Justice Smith said:
The Law Society guidance notes on money laundering: 'are meant to be read. The court will have little sympathy with a solicitor who, when confronted with a claim [of handling criminal funds], says that they did not read the warnings. The court will carefully scrutinise a solicitor in that position who in effect says I was grossly negligent in not reading the warnings but I was not fraudulent.' [per Smith J at 621]
This was Justice Smith's view at the High Court in May, when dealing with the case of Attorney General of Zambia for and on behalf of the Republic of Zambia v Meer Care & Desai (a firm) & Ors [2007] EWHC 952 (Ch).
The case involved an application by the Attorney General of Zambia against the ex-president of Zambia, other former Zambian officials and two UK law firms for the return of public monies, which he alleged were inappropriately removed from Zambia and used to fund lavish lifestyles for the government officials and their families. It was alleged that the ex-president and other officials had set up secret accounts and front companies to funnel public monies out of Zambia on the pretext that the funds were being used for national security projects by the Zambian secret service. Given that the monies were actually used, among other things, to fund the ex-president's expensive wardrobe, cash gifts to family members, jewellery and cars, and building a residence valued at over 40 times his annual salary – the court was not inclined to believe the secret service expenditure explanation.
The court found that Iqbal Meer of Meer Care & Desai and Bimal Thaker of Cave Malik had allowed these funds to be paid through their client accounts for many years, often without an underlying legal transaction justifying the use of the client accounts.
Between them they had failed to:
- ask appropriate questions regarding the activities their client asked them to undertake
- keep records of their instructions
- correctly identify who their clients were and ensure that the person giving them instructions actually had authority to do so
- appropriately account for funds received and ensure that funds were only being paid to people who were entitled to them
- failed to advise law enforcement authorities that they were holding government funds on behalf of a person against whom they knew were widespread allegations of corruption
Ultimately Justice Smith found that Iqbal Meer and Bimal Thaker had provided dishonest assistance to the Zambian officials and conspired to misappropriate monies from the Zambian government. The liability of Iqbal Meer and his firm is in the vicinity of £8.3 million, while for Bimal Thaker and his firm, it is in the vicinity of £3.5 million.
The full judgment is extensive but Justice Smith has kindly provided a separate executive summary. However, the full judgment explores a number of interesting points of law including:
- When is the UK the appropriate venue to hear a civil application to recover government funds taken from another sovereign nation?
- How do you proceed with a civil case where one party refuses to participate without resulting in a miscarriage of justice?
- What evidence is required to establish a conspiracy and how important is the specific manner in which it is pleaded?
- What evidence is required to demonstrate a breach of a fiduciary duty?
- What evidence is required to show that dishonest assistance has been provided?
- Are there limitations on such actions which should be observed?
More importantly for money laundering reporting officers, this case provides a detailed discussion of what steps the court considers a reasonable and honest solicitor should take to protect themselves from being involved in money laundering and associated activities.
The Law Society's guidance has not been approved by Treasury and therefore compliance with such guidance is not something that a court must take into account when considering criminal offences. However, in this case the court made it clear that a solicitor will need a good explanation for not reading the guidance, let alone not following it.
The court also said that an honest solicitor would:
- establish exactly who their client is and whether the person giving instructions for that client has the authority to do so
- open a client account in the correct client's name
- make notes of their meetings where instructions are given
- establish the source of funds being used and the beneficial entitlement of those funds
- not mix funds from different sources when beneficial entitlement is unclear
- not allow their client account to be used to transfer funds when there are no underlying legal services being provided
- ask questions – even if you are being told that national security requires secrecy
- report suspicious activities to the authorities where legally required to do so
Justice Smith added that it would be unusual for an experienced solicitor to become involved in a dishonest conspiracy, particularly if there was no financial benefit. However, he also noted that solicitors can be dazzled by a clients' celebrity or power, which can lead a professional to act in an unprofessional and potentially criminal way.
It should be noted that both Iqbal Meer and Bimal Thaker are considering launching an appeal against these decisions, while the Serious Fraud Office and the SRA are continuing long running investigations against both men.
Appeal decision
'It is one thing to throw caution to the winds; that is likely to lead to negligent conduct. But even to do that to the nth degree does not involve crossing the dividing line and passing over to dishonesty.'
This was the view expressed by the Court of Appeal (at paragraph 146) in upholding the appeal of a solicitor who had allowed millions of pounds of money from government accounts in Zambia to be channelled through his client account.
The money had been spent on items such as university tuition fees and designer suits.
The Attorney General of Zambia brought an action for dishonest assistance against Iqbal Meer and his firm, Meer Care & Desai, for their role in the various schemes undertaken by the ex-president of Zambia and their associates.
In 2007, Justice Smith, at the High Court, in a lengthy judgement, reached the conclusion that Mr Meer had provided dishonest assistance to the Zambian officials and conspired to misappropriate monies from the Zambian government.
The firm, and Mr Desai as a partner, were found to be vicariously liable.
Justice Smith placed significant weight on the fact that Mr Meer was an experienced solicitor with extensive practice in international legal transactions and that his actions were clearly in breach of repeated warning cards and guidance issued by the Law Society.
In upholding the appeal, the Court of Appeal looked in detail at the actual answers provided by Mr Meer under cross-examination.
They particularly noted his answers which suggested that he assumed that the warnings about holding large sums of money only related to cash and that he did not understand how his client account could be used for money laundering when all the transactions were accurately recorded and open for inspection.
The Court of Appeal was of the view that some of his interpretations of the warning cards were untenable, and that the instructions given to Mr Meer plainly conflicted with the warnings and should have sounded warning bells to the anyone with half an idea of money laundering.
However as these particular aspects of evidence had not been challenged in cross-examination, the Court of Appeal were forced to conclude that he did in fact hold that interpretation and had not understood that money laundering was occurring.
The Court felt that Justice Smith had relied heavily on the test of what an honest and competent solicitor would have done in Mr Meer's position.
However, the Court of Appeal held that this comparator was not appropriate as it assumed that Mr Meer was competent .
The Court of Appeal said the evidence suggested that there were questions as to Mr Meer's competence, and that he was not knowledgeable or experienced in relation to the sort of transaction that he faced and did not really understand what was involved in money laundering (see paragraph 294 of the judgement).
While they acknowledged that this finding could form a basis for action for breach of professional conduct rules, they said that this would not be the basis for a finding of dishonesty in a civil claim.
Once Mr Meer's appeal was upheld, the claims against the firm and Mr Desai on the basis of vicarious liability were also set aside.