“1.SRA Principles These are mandatory Principles which apply to all. You must: 1. uphold the rule of law and the administration of justice 2. act with integrity 3. not allow your independence to be compromised 4. act in the best interests of each client 5. provide a proper standard of service to your clients 6. behave in a way that maintains the trust the public places in you and in the provision of legal services. 7. comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner. 8. run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles. ….”
“2.SRA Principles – notes 2.1 The Principles embody the key ethical requirements on firms and individuals who are involved in the provision of legal services. You should always have regard to the Principles and use them as your starting point when faced with an ethical dilemma. …. 2.3 These Principles: ….. (b) will be breached by you if you permit another person to do anything on your behalf which if done by you would breach the Principles; …...”
“The following provisions are mandatory: the outcomes; …… The outcomes describe what firms and individuals are expected to achieve in order to comply with the relevant Principles in the context of the relevant chapter….”
“Outcomes You must achieve these outcomes: …. O (7.5) you comply with legislation applicable to your business, including anti-money laundering and data protection legislation; ….”
“Rule 1: Interpretation ... SRA finding is a decision that the SRA is satisfied: (i) that a regulated person (which for the avoidance of doubt, shall include a solicitor) has failed to comply with a requirement imposed by or made under the SA,[Solicitors Act 1974 ], AJA [Administration of Justice Act 1985 ] or the LSA [Legal Services Act 2007 ]; ….. Rule 2: Scope 2.1 These rules govern the procedure for the SRA to: give a regulated person a written rebuke; direct a regulated person to pay a penalty; …. (e) make an application to the Tribunal. ….. Rule 3: Disciplinary Powers 3.1 The circumstances in which the SRA may make a disciplinary decision to give a regulated person a written rebuke or to direct a regulated person to pay a penalty are when the following three conditions are met: the first condition is that the SRA is satisfied that the act or omission by the regulated person which gives rise to the SRA finding fulfils one or more of the following in that it: ….. (iii) was or was related to a failure or refusal to ascertain, recognise or comply with the regulated person’s professional or regulatory obligations such as, but not limited to, compliance with regulatory requirements imposed by legislation or rules made pursuant to legislation, the SRA, the Law Society, the Legal Ombudsman, the Tribunal or the court; …. (b) the second condition is that a proportionate outcome in the public interest is one or both of the following: (i) a written rebuke; (ii) a direction to pay a penalty; and (c) the third condition is that the act of omission by the regulated person which gives rise to the SRA finding was neither trivial nor justifiably inadvertent. …… 3.6 Nothing in this rule shall prevent the SRA making an application to the Tribunal in accordance with rule 10. …… Rule 10: Applications to the Tribunal 10.1 The SRA may make an application to the Tribunal in respect of a regulated person at any time, if the SRA is satisfied that: (a) there is sufficient evidence to provide a realistic prospect that the application will be upheld by the Tribunal; (b) the allegation to be made against the person under investigation either in itself or in the light of other allegations is sufficiently serious that the Tribunal is likely to order that the person: (i) be struck off; (ii) be suspended; (iii) be subject to an order revoking its recognition; (iv) pay a penalty exceeding the maximum that can be imposed from time to time by the SRA; or (v) be subject to any other order that the SRA is not empowered to make; andit is in the public interest to make the application. …..”
“14. The first two grounds of appeal are to the effect that the Tribunal erred in its approach to Allegation 1.2 by not first considering whether the allegation amounted to “professional misconduct” and by not then concluding that the Appellant’s actions did not reach the standard of “professional misconduct”
“9.374 The Firm relied upon the actions of Mr Chateau as regards establishing sources of wealth and funds. The Tribunal accepted that the Firm had, in good faith, relied on the assertions made by Mr Chateau that Client A’s wealth derived from his business activities prior to the acquisition of his shareholding in the Bank, and subsequently his 30% share in the Bank. However, it was clear that Mr Chateau had failed to ask the relevant questions of Client A in order to satisfy the obligations under Regulation 14. As detailed above, Mr Chateau did not ask Client A questions about his wealth or source of funds as “it is not the culture … because we don’t do that in Europe … this is not something we do”. 9.375 Whilst it might have been plain to Mr Chateau that Client A was wealthy, this was not the same as establishing the source from which that wealth arose. Equally, knowledge that Client A was in funds did not equate to establishing source of funds. And establishing the source from which that wealth and those funds arose was what was required by the MLRs. 9.376 The Firm and the other partners who worked on matters for Client A, had all relied on Mr Chateau to have established source of wealth at the outset of the retainer. That this was the case was clear from the interviews with the matter partners and others at the Firm. That erroneous belief meant, the Tribunal found, that the failure to establish source of wealth endured throughout the retainer, including in relation to the purchase of Property 1 and the aborted Purchase of Property 2” 9.377 In failing adequately (or even reasonably) to establish source of wealth, the Tribunal found that the Firm had breached Regulation 14 as alleged.”
“68. In my judgment, following Leigh Day and Beckwith, there is no universal requirement that breaches of the Principles and the Outcomes can only be established where the requirements of seriousness, culpability and reprehensible conduct are met. Such requirements only arise where they are inherent in the rule in question. 69. The natural and ordinary meaning of the relevant words in Principle 7, in their statutory context, is that legal and regulatory obligations must be complied with, and there will be a breach of Principle 7 if they are not complied with. Similarly, the natural and ordinary meaning of the relevant words in Outcome 7.5 is that legislation applicable to a business, including anti-money laundering legislation, must be complied with, and there will be a breach of Outcome 7.5 if it is not complied with. 70. In this case, for the purposes of establishing a breach of Principle 7 and Outcome 7.5, the only evaluation that was required was whether or not the Firm had complied with Regulation 14 of the MLRs 2007. That required consideration as to whether the Firm had “taken adequate measures to establish the source of wealth and source of funds” (Regulation 14(4)(b)) and whether it had conducted “enhanced ongoing monitoring of the relationship” (Regulation 14(4)(c)). The Tribunal undertook this evaluation and concluded that the Firm was in breach of Regulation 14 because it had failed “adequately or even reasonably” to establish Client A’s source of wealth (Judgment/9.377). …. 72. There is a clear contrast between Principle 7 and Outcome 7.5 on the one hand, and Principles 6 and 8 on the other. The SRA rightly conceded in its Reply to the Respondent’s Answer, paragraph 12, that considerations of seriousness were relevant to Principle 6 (public trust) and Principle 8 (effective performance of role). It was inherent in the language and content of Principles 6 and 8 that the Tribunal were able to consider the additional requirements of seriousness, culpability and reprehensible conduct. 73. In Leigh Day, the Divisional Court said, at [158], that there may be some breaches of some rules, for instance Accounts Rules, which can involve strict liability.The Accounts Rules 2019 are made pursuant to specific rule-making powers concerning accounts (sections 32, 33A, 34 and 37 of theSolicitors Act 1974 ,section 9 of the Administration of Justice Act 1985 , and section 83(5)(h) of, and paragraph 20 of Schedule 11 to, theLegal Services Act 2007 ). They are not conduct rules. All of the principals in a firm have joint liability for breaches of the Accounts Rules in order to provide the public with maximum protection in respect of money held by solicitors and firms (see The Professional Conduct and Etiquette of Solicitors (1960), Weston v Law Society, unreported,29 June 1998 , and Holden v Law Society[2012] EWHC 2067 (Admin) at [16] to [20]). 74. 75. 74. In disciplinary proceedings, the effect of a breach of Regulation 14 of the MLRs 2007 is comparable to the effect of a breach of the Accounts Rules. The MLRs 2007 were also made pursuant to specific rule-making powers and they are not conduct rules. Whilst Regulation 14 does not create an offence of strict liability, a breach of Regulation 14 is contrary to the professional standards of the profession, without the requirement of any further fault on the part of a firm, and in that sense it applies a strict liability standard. In my view, the MLRs 2007 are another example of the type of rule referred to in Leigh Day at [158] which are an exception to the general rule. 75. The rationale of a regulatory provision of this type is helpfully explained by Gould, in Chapter 4. He sets out his overall view in the introduction at 4.1 – 4.2, that a rule breach may justify a significant penalty for the purposes of deterrence and public confidence without the need to show that any individual is culpable or that systems are inadequate. Although he accepts at 4.9 that most rules are drafted in terms which require misconduct in order to be breached, he states as a general proposition that some rules may be breached without the need for fault on the part of the entity or person responsible for compliance with them. He cites Hazelhurst v Solicitors Regulation Authority[2011] EWHC 462 (Admin) which was an appeal against sanctions imposed for breach of the Accounts Rules, in which it was common ground that they were strict liability offences, per Nicola Davies J. at [29], [43]. It was cited with approval in Bass v Solicitors Regulation Authority[2012] EWHC 2012 (Admin) . Then at 4.16 to 4.21, Gould argues that a firm’s liability may arise from the breach of rules by an employee, without fault on the part of the firm or its principals, and refers to breaches of the Accounts Rules in support of this view, at 4.16 and 4.17. 76. I do not consider that the results of the SRA’s interpretation of Principle 7 and Outcome 7.5 are anomalous or unfair or disproportionate, as Mr Coleman KC submits, but if that is the view of the profession and the regulator, then the solution lies in an amendment to these rules which limits their application to conduct which is considered to be serious, culpable and reprehensible. 77. I agree with Mr Coleman KC that the stigma of an adverse disciplinary finding is a serious matter, in addition to a finding of a breach of anti-money laundering legislation. However, the SRA guidance, set out above, indicates that only serious breaches of the anti-money laundering legislation will progress to disciplinary proceedings which is a safeguard against over-zealous enforcement. Trivial breaches will not be prosecuted. 78. Mr Coleman KC relies upon the Tribunal’s findings that the Firm’s breach of the MLRs 2007 was inadvertent and committed in good faith. It had mistakenly believed that prior to the merger Mr Chateau had already asked Client A about the source of his wealth (as he ought to have done) when in fact he had not. The Tribunal found that the breach was not systemic; that the SRA had commended the Firm for its anti-money laundering systems and controls which had been deployed for each of the property transactions in issue; and that the Firm not only had relevant and responsible anti money laundering policies in place, but it also enforced them. 79. I agree that these were important considerations but in my judgment, they were factors properly to be taken into account by way of mitigation, when determining sanction. They did not justify dismissal of the allegations when there was a clear breach of the MLRs 2007. ….”
“Mr Owen has quoted cases to show that professional misconduct should only be found when the solicitor has been guilty of conduct which is disgraceful or dishonourable and is such as to be condemned by his colleagues in the profession. I do not think that definition is exhaustive. In my opinion negligence in a solicitor may amount to professional misconduct if it is inexcusable and such as to be regarded as deplorable by his fellows in the profession.”