“Inadequate customer due diligence” by Rachel Clark, barrister at Bright Line Law

Rachel Clark looks at a case where it was established that a law firm had no duty to investigate client’s struck-off solicitor agent.

The recent case of Lennon v Englefield and others [2021] EWHC 1473 (QB) highlights an important limitation to the impact of the UK anti-money laundering regime.

Sitting in the High Court, His Honour Judge Gosnell held that the customer due diligence checks (CDD) imposed under Money Laundering Regulations 2007 (MLR 2007) were aimed at preventing fraud and protecting the general public, and could not be relied on in a civil claim brought by a client against her own solicitors.

The facts

The case was brought by the first claimant, Michelle Lennon, against the solicitors’ firm, representatives of a late partner at that firm and the individual solicitor (the third through fifth defendants, the ‘solicitors’) who had represented her in a conveyancing transaction relating to a property belonging to her deceased father, and in which her mother (the second claimant) had a beneficial interest.

She had settled her claim against Mr Englefield (the first defendant) who had acted as an agent for her through his company (the second defendant).

The first claimant had thought that Mr Englefield was a solicitor. In fact, he was struck off in 1991 for stealing £900,000 from his firm’s client account.

However, he was chosen as agent by the first claimant and her mother, oblivious to this history. He liaised with the solicitors on their behalf. The first claimant also signed for all the closure monies to be paid into his firm’s account. The bulk of those monies were never seen again, having been purportedly funnelled into a joint venture in Guatemala by Mr Englefield.

The solicitors never met the first claimant or her mother in person. Despite requesting identity documents from them, these were never provided. Nor had the solicitors realised that the first claimant’s mother held a beneficial interest in the property. They never completed any checks on Mr Englefield or his company. It was obvious that he was not a solicitor, from his own letterhead, but they did not see fit to advise the first claimant of the risks of allowing the completion monies to be held in his account.

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