Landmark ruling on AML liability

7th October 2016

A recent court case has once again brought the issue of client verification and property fraud to the top of the agenda.

In the case of P&P Property Ltd v (1) Owen White & Catlin (2) Crownvent Ltd t/a Winkworth, a fraudster posed as the owner of a property in Hammersmith, convincing a Winkworth franchisee to list and market the property, and a well-established regional law firm to act on his behalf to sell the property to P&P Property Ltd. A fee of over £1m was agreed and a total of £927,000 was transferred to the fraudster.

Once the fraud came to light, when the actual owner of the property walked past to find builders ripping out his kitchen(!), questions were asked of the process.

The claim made by P&P Property Ltd was that both OWC and Winkworth had failed in their duty of care, the first time a case considered what, if any, liability the agent has to the buyer.

In the final ruling the judge highlighted that an agent’s and vendor’s solicitor duty of care is to the vendor, not the purchaser. BLM Law, who defended OWC, commented on the ruling:

“Whilst there must be sympathy for the position that P&P finds itself in, to have found for it in its claim against OWC would have been to put a vendor’s solicitor in the position of effectively guaranteeing their client was the true owner and that he had title – that just can’t be right”

The case highlights a couple of significant and interesting issues in the context of the Money Laundering Regulations.

The first is the importance of being able to document and evidence client verification. This means if a case ever came to pass, you are able to go to your on or offline documentation and produce client verification documentation for the requisite period of 5 years.

The second is that you will not be held liable by a third party, provided Customer Due Diligence as defined within the regulations¹ has been carried out, for the verification of your client. In the ruling the judge said

“The court has to be cautious about holding a professional person to have undertaken an unqualified obligation in the absence of special facts or clear words to that effect.”

Commenting BLM added:

“The checks that are routinely carried out…on the identity of the client are designed to reduce the risk of fraud – it’s not possible to eliminate it entirely…  it would be a brave seller’s solicitor who gave any sort of undertaking concerning his client due diligence in the light of that.”

 

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Compliance in a Box is a pay as you go service that provides online AML checks, training for your staff, and storage for your records for the mandatory 5 years. We are also able to identify individuals on government sanctions lists and Politically Exposed Persons (PEPs). Through one easy to use online portal you can standardise your AML processes across your business. Sign up below to try Compliance in a Box FREE on your first 3 properties.

 

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^{1. [Regulation 5 (a) “identifying the customer and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source.]}

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