A law firm partner is facing an £85,000 bill for failing to excercise adequate due diligence to check the background of his clients, following a disciplinary hearing centering around the huge data leak from former Panamanian law firm Mossack Fonseca.
London solicitor, Khalid Mohammed Sharif, partner at the Westminster private client company Child & Child, has been fined £45,000 by the Solicitors Disciplinary Tribunal (SDT). Costs of £40,000 were also imposed.
According to the SDT findings, Sharif’s failings led to a “large amount of money being laundered” and his “culpability was high”. However, the tribunal noted that he co-operated with the investigation and had voluntarily reported himself to the Solicitors Regulation Authority.
The tribunal representative also said that Sharif “failed to take any or any adequate steps to ascertain from publicly available information” and that the fine was an “appropriate and proportionate sanction in all the circumstances.”
Under the current rules and legislation concerning money laundering, (regulation 14 of The Money Laundering Regulations 2007) any person connected with senior political officials should be considered as a politically exposed person (PEP) and simple due diligence should have ensured that this protocol was followed.
Sharif claimed that the two women had no political connections. But, according to the published outcome, Sharif admitted that he failed to take adequate steps to check this, when even an internet search may have identified them as PEPs.
The solicitor, admitted to the roll of solictors in 2005, also admitted to not undertaking enhanced customer due diligence even though he had not met the clients. Sharif was the company’s money laundering reporting officer (MLRO).
The judgement said: “The respondent was wholly culpable for his misconduct. Further, he was the MLRO at the firm. This should have heightened his sense of his obligations, and his awareness of the risks.”
Sharif’s clients were not identified in the ruling but have been reported to be two daughters of the president of Azerbaijan. The women Leyla and Arzu Aliyeva – the daughters of President Ilham Aliyev – set up a secret offshore company to help manage their multimillion-pound property portfolio in Britain. The firm, Exaltation Limited, was based in the tax haven of the British Virgin Islands. The properties were worth nearly £60m.
Although contracts were exchanged in 2015, the deal failed. Again, when completing the source of funds for the reported £14 million worth of deposits, the PEP status was still not recognised by the lawyer.
It has been alleged that the clients were also the owners of a British Virgin Islands company that was set up by Mossack Fonseca, the law firm from which sensitive information was stolen during the Panama Paper data breach. The list of failures to ascertain the PEP credentials of the clients has culminated in the conclusive verdict from the Tribunal.
However, while the Tribunal viewed the potential of money laundering through property to be extremely serious, the SDT also conceded that the misconduct “was not so serious that the protection of the public and the protection of the reputation of the profession required him to be removed from practice.”
Details of the offshore company emerged in April 2016 following the Panama Papers leak. Child & Child had instructed Mossack Fonseca to incorporate the company.
The Panama Papers are an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm and corporate service provider (Mossack Fonseca.) The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung, which shared them with the International Consortium of Investigative Journalists (ICIJ). The ICIJ then shared them with a large network of international partners, including the Guardian and the BBC.
Reporters found that some of the Mossack Fonseca shell corporations were used for illegal purposes, including fraud, money laundering, tax evasion, and evading international sanctions.
The documents reveal the myriad ways in which the wealthy – including some public officials – can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians exposed, as well as their families and close associates from around the world known to have been using offshore tax havens. The leaked files identified 61 family members and associates of prime ministers, presidents and kings, and members of their families, including Margaret Thatcher’s son, Mark Thatcher.
In a 2013 letter, unearthed by the Financial Times to the then president of the European Council, Herman Van Rompuy, from the then Prime Minister of the UK David Cameron said that offshore trusts should not automatically be subject to the same transparency requirements as shell companies. Cameron’s personal involvement in the EU-wide debate emerged as he continued to face questions about his family’s connections to Blairmore Holdings Inc, the offshore trust set up by his late father, the existence of which was revealed in leaked papers from the database of Mossack Fonseca.
While no standard official definition exists, the International Monetary Fund describes an offshore financial centre, or tax haven, as a jurisdiction whose banking infrastructure primarily provides services to people or businesses who do not live there, requires little or no disclosure of information when doing business, and offers low taxes.
Tax havens are one of the key engines of the rise in global inequality. Oxfam blamed tax havens in its 2016 annual report on income inequality for much of the widening gap between rich and poor. “Tax havens are at the core of a global system that allows large corporations and wealthy individuals to avoid paying their fair share,” said Raymond C. Offenheiser, president of Oxfam America, “depriving governments, rich and poor, of the resources they need to provide vital public services and tackle rising inequality.”
It’s widely known that the world’s super-wealthy have taken advantage of lax tax rules to siphon off at trillions of pounds, from their home countries’ economies and hoard it abroad – and the offshore drain involves a sum larger than the entire American economy. The sheer scale of hidden assets held by the mega-rich also strongly suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true level of inequality – the gap between rich and poor.
It also strongly suggests that the Conservatives are radically overestimating the value of their hero ‘wealth generators’ and their contribution to the UK economy, along with their strange neoliberal theory of ‘trickle down’. Then again, perhaps these are justification narratives to prop up the immoral financial habits of a wealthy and powerful elite.
Mossack and Fonseca were detained February 8, 2017 on money-laundering charges. In March 2018, Mossack Fonseca announced that it would cease operations at the end of March due to “irreversible damage” to their image as a direct result of the Panama Papers.
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