Russian sanctions put emphasis on independent legal advice

This alerts of the importance of lawyers in the whole lending process. As lawyers, we are required by law and by our own regulation to be gatekeepers for money laundering risk.

We have to validate the source and integrity of funds passing through our offices.

In some respects, some may take view that applying the rules with a holier than thou attitude can be less than pragmatic, and I agree, we do not make it easy, but we take this approach with a clear purpose and it’s important. The legislation does not provide for tolerance, and the sanctions for misapplying rules can be criminal in nature.

What some don’t appreciate, is that by applying rules and regulations to the letter, we provide an extra layer of protection for our clients, one that builds on and adds to their own compliance systems and process, and at no cost to them! It’s a part of the overall service and package, that many clients take advantage of, but is rarely mentioned or credited.

Even the most regulated of lenders, complete with their own internal legal teams and anti-money laundering resource, often seek additional guidance on rules which are draconian in sanction, but often open to interpretation.

The crisis in Ukraine and the press around sanctions on Russian individuals bring out the importance of this robust approach, but it’s not just Russia and Russians that raise money laundering red flags. And it’s not just about where money is lent, to whom and for what purpose, it’s also about ensuring that when the money is returned, it is paid by the right people from legitimate funds. Being absolutely comfortable with the repayment of a loan is a key element of anti-money laundering processes.

Q1 2022 has produced something relatively new and growing.

Monies paid to redeem loan facilities into solicitors account from unverifiable sources, monies realised from sales and due to non-contactable owners or persons of suspicion, net sale proceeds due to joint owners in dispute with one another, all give rise to distribution difficulties, and potential liability to lenders – if they get it wrong.

A solicitor’s client account cannot be used to just hold money and so, in situations such as these, we cannot just hold the money and do nothing – and the lender remains under a duty of care to its borrower or persons with interest.

By making appropriate application to the court, the lender can discharge its duty, and their solicitor meet their regulatory obligations. Simply put, let the courts decide. Not only are the actors well protected, but also the public interest and purse!

Anti-money laundering rules should always be high on the agenda for lenders in our market and this crisis brings this to the fore with even greater clarity. The best way for lenders to ensure they have the right level of protection is by engaging with independent legal counsel that has experience and expertise in this sector and working with them throughout the lending process.