Money laundering: beware the escrow
Why solicitors should consider carefully whether to accept certain instructions to hold money in escrow relating to supposed foreign property transactions
The Society has recently been made aware of more than one transaction in which a firm of solicitors in Scotland was invited to hold money in escrow on behalf of clients based abroad. The scenario broadly is as follows:
New clients come to the firm and instruct wills or some routine business. The clients are based abroad but wish wills which will deal with Scottish property and assets which they have here. ID is provided and this piece of business happily conducted. Some time later the clients contact the solicitors from abroad (a variety of jurisdictions appear to be involved), advising that they are in fact selling their property abroad. It is explained that under the laws of the relevant jurisdiction the price is normally held in escrow by a trusted third party while the transaction is processed. The purchaser however does not live either in Scotland or in the relevant jurisdiction and accordingly the funds are coming from a third jurisdiction. For this reason the client proposes that the funds should be held independently in the hands of the Scottish agent. Accordingly the Scottish agent is invited to receive the funds from the purchaser (who is not a client) through an offshore bank.
While it is perfectly possible that such a transaction is entirely proper, there are several obvious concerns:
(1) Master policy cover extends to “business customarily conducted by solicitors in Scotland”. Solicitors asked to participate in transactions similar to those described above should consider carefully the position in regard to insurance cover.
(2) When one stands back from this transaction and looks at what exactly is happening, it is not unreasonable to conclude that the Scottish solicitor has been invited to act as a banker. Funds are to be deposited and withdrawn. The solicitor only represents one of the two parties and will not represent either of them in the actual transaction. This is another cause for concern.
(3) Given that the solicitor is not a participant in the transaction and it is taking place in a foreign jurisdiction, it is difficult to see how the solicitor could be satisfied that the transaction exists at all or whether the appropriate trigger events in relation to the funds in escrow will have taken place properly or otherwise.
(4) In 15 years the Professional Practice Department of the Society has not been consulted regarding such an arrangement. That it has now had more than one in a single week with identical principal features (although the jurisdictions and personnel are different) might indicate a pattern.
The Society urges its members to be vigilant in considering both the relationship between themselves and their clients and the actual nature of transactions in which they are invited to participate.
(First reported on www.journalonline.co.uk)