Clyde & Co fine is a ‘wake-up call’ for law firms over dirty money

Law firm Clyde & Co has been hit with a record fine over its failures to ensure a shipping client was not laundering dirty money.

Regulators fined the company £500,000 ($636,000) after it admitted professional misconduct linked to a four-year business relationship with an unidentified large Middle East-based dealer buying and selling ships for scrap.

Clyde & Co braced for new fine over anti-money laundering rule breach

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A three-day tribunal heard that the company and senior partner, Ed Mills-Webb, had failed to carry out full anti-money laundering checks on the owner of the business, to check full shareholder details or scrutinise the structure of special purpose vehicles set up in Liberia and Nevis.

Mills-Webb was fined £11,900 for what he said was “carelessness” over the checks but had expressed fears that the company was preparing to “throw him under the bus” to deflect attention from its own failures, a disciplinary tribunal was told.

The fine for Clyde & Co is the second major penalty imposed on the law firm in the past seven years after it was ordered to pay £50,000 in 2017, when it admitted previous accounting and anti-money laundering breaches. It introduced changes aimed at ensuring the problems did not happen again.

But the changes were not introduced before Clyde started talks in 2014 with the dealer, identified only as Company A, about the law firm holding money in an escrow account for ship purchases.

A disciplinary tribunal has heard that Clyde relied on six-year-old information on the structure and ownership of Company A and failed to update the details before the relationship ended in 2019.

While there is no evidence that money laundering took place, the failure to carry out proper checks meant Clyde was unable to rule out the risk, Solicitors Regulation Authority (SRA) counsel Andrew Tabachnik told the tribunal.

The company reported Mills-Webb to the Solicitors Regulation Authority in 2019 and the case took five years to complete, in part because Clyde had solely sought to blame Mills-Webb, his legal team claimed during the hearing.

Both parties publicly admitted their joint failings for the first time on Tuesday. Clyde was also ordered to pay costs of £128,000 and Mills-Webb to pay £55,000.

The company, which made global revenues of £259m in the last financial year, had warned during the hearing that a sizeable fine would have a “material adverse impact” on the firm.

The fine for Clyde is the equal highest ever imposed by the Solicitors Disciplinary Tribunal, which hears misconduct cases involving law firms in England and Wales.

Law firm Locke Lord was fined the same amount in 2017 for failing to supervise one of their partners, who was involved in a dubious investment scheme and was later struck off and jailed. The previous highest fine given by the tribunal for money-laundering offences was £75,000 in 2014.

In a statement, Clyde & Co said that it “sincerely regrets” the failures that were identified and has “sought to learn appropriate lessons”.

“We hold ourselves to the highest professional and ethical standards and take responsibility for ensuring we meet them,” the firm said.

Clyde & Co said the judgment was a reminder that risk management work “requires continuous, diligent attention”.

The firm added: “Our senior management is fully committed to ensuring firm-wide adherence.”

Clyde & Co was told it was facing a disciplinary hearing only in August 2023 after years when the focus of the investigation had been on Mills-Webb, his lawyers told the tribunal.

His legal team told investigators in 2020 that Clyde had “panicked” after recognising that it was threatened by a second investigation into the breach of anti-money laundering rules and made a clumsy attempt to pin the blame on him.

In a letter to the SRA, the lawyers explained that it was his view “that the firm had panicked due to its regulatory history” and made a clumsy attempt to ‘throw him under the bus’ to divert from scrutiny of its own systems”.

He claimed that Clyde’s own “blinkered” internal investigation was flawed as it failed to interview key players who had worked on checking the credentials of Company A and its owner within the firm.

Mills-Webb quit the company in 2019 and worked with other former Clyde staff to set up a new firm, Preston Turnbull, where he is listed as a consultant. He has not been able to play a full role at the firm because of the case hanging over him.

He has consistently argued that the company “had some responsibility for what went wrong, which, nearly five years later, the firm has done”, his lawyers said.

“However, he has never done so at the exclusion of making admissions of his own wrongdoing,” they said.

Paul Philip, SRA’s chief executive, issued a warning to other law firms in light of the decision.

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