In March 2024, the Solicitors Disciplinary Tribunal rejected the SRA’s case that by failing to carry out adequate checks on a “politically exposed person” under the Money Laundering Regulations 2007 (“the 2007 MLRs”), Dentons had breached Principle 7 of the SRA Principles 2011 and/or Outcome 7.5 of the SRA’s Code of Conduct 2011. A year later, however, on 11 March 2025, the High Court overturned that decision in SRA v Dentons UK & Middle East LLP [2025] EWHC 353 (Admin) and remitted the case to the SDT for further consideration. [1]
In this article, Helen Evans KC, Will Birch and Alex Forzani explain the High Court’s approach to so-called “strict liability” for money laundering check failures by solicitors, analyse how the judgment fits into a troublesome sequence of similar cases, and consider the potential impact of the SRA’s recently increased fining powers in cases involving financial crime.
What gave rise to the Dentons case?
In 2013, Dentons took over the London office of another firm and with it acquired various clients. One of them was “Client A”. Dentons acted for “Client A” or associated companies on multiple property transactions, with sums of money passing through its client account.
In 2016, “Client A” was sentenced overseas to 15 years’ imprisonment for embezzlement. Two years later, in 2018, an “unexplained wealth order” was granted in respect of Client A’s wife.
Dentons had realised that “Client A” was a “politically exposed person” and had identified him as a high risk person for money laundering purposes. According to an “Intelligence Briefing Note” obtained by Dentons in 2014, it was “supremely unlikely” that “Client A” had not benefited from some of the $1 billion that had gone missing from a Bank of which he was the Chair. However, the client partner at Dentons (who had come from the previous firm) disagreed with the Note and did not think that further enquiries were necessary into the client’s source of funds under Regulation 14 of the 2007 MLRs.[2]
The SDT took the view that Dentons had not been permitted to rely solely on the client partner’s assessment that “Client A’s” wealth derived from a shareholding in the Bank without seeking evidence to substantiate this. It had therefore breached Regulation 14 of the 2007 MLRs (which, in broad terms, set down requirements for enhanced customer due diligence and monitoring for politically exposed persons).
However, the SDT then went on to find that such an error did not amount to a breach of Principle 7 of the 2011 Principles (which required a solicitors’ firm to comply with its legal and regulatory obligations) or Outcome 7.5 (which required a solicitors’ firm to “comply with legislation applicable to its business, including anti-money laundering and data protection legislation). [3]
The reason for this outcome was that the SDT felt that Principle 7 and Outcome 7.5 did not impose strict liability and instead required a finding that the AML breach in question was serious, reprehensible or culpable.
What happened on appeal in Dentons?
The appeal to the High Court focused on the issue of whether or not the 2007 MLRs combined with Principle 7 and/or Outcome 7.5 imposed a form of “strict liability” on solicitors.
The SRA argued that it was only required to prove seriousness, reprehensibility or culpability where that was inherent in the relevant SRA rule or standard. It contended that there was no such requirement in Principle 7 or Outcome 7.5, which simply turned instead on whether there had been a breach of the MLRs. It relied on the settled approach to breaches of the Solicitors Accounts Rules by way of analogy. [4]
By contrast, Dentons asserted that it was always necessary for a tribunal to assess whether a breach of the rules was sufficiently serious, culpable and reprehensible to amount to misconduct. It relied on a run of cases, starting with Briggs v Law Society [2005] EWHC 1830, to the effect that only serious misconduct ought to be stigmatised and sanctioned by a regulator.
Lang J preferred the SRA’s approach, holding that whilst it was necessary for the purposes of some SRA Principles[5] to show conduct going beyond mere negligence, this was not always so. The judge drew heavily on the decision of the Divisional Court in Beckwith v SRA [2020] EWHC 3231 (Admin), which stated that the 2011 Principles and Code of Conduct were “not formulated by reference to any defined notion of “professional misconduct whether as a threshold requirement for disciplinary action before the Tribunal or otherwise”. Lang J expressed the concern that if she were to import some form of threshold requirement into Principle 7 or Outcome 7.5, she would be “rewriting the conduct rules” [71]. [6]
What does this mean for solicitors in cases with AML issues?
Although the outcome has attracted concern, in our view, the High Court judgment may not have quite such far-reaching implications as some might fear on first reading it.
First, although the judgment depicts the combination of an MLR breach with Principle 7/Outcome 7.5 of the 2011 regulatory scheme as imposing “strict liability”, in fact establishing an MLR breach in the first place may not be straightforward if a solicitor has not made a clear or serious error.
This is because there are many parts of the 2007 MLRs (and some parts of the 2017 MLRs) that arguably permit latitude to professional people about what checks need to be undertaken. Regulation 5 of the 2007 MLRs, for instance, required customer due diligence to be performed on a “risk sensitive basis”. The same was also true of the enhanced due diligence requirements under Regulation 14. A similar point applies to Regulation 28 of the 2017 MLRs, which requires source of funds enquiries “where necessary”. In other words, both sets of Regulations import some element of discretion – a point apparent from the SDT’s judgment in January 2025 in SRA v. Morris and Candey or the High Court’s SRA v Sa’id decision discussed below.
Secondly, the 2011 Principles and Code will be relevant to dwindling numbers of cases, since new Principles and Codes came into force in November 2019. These are briefer and less prescriptive, and do not contain precise equivalents to the 2011 Principle 7 or Outcome 7.5. AML cases arising under the 2019 regulatory scheme have tended to be charged under new Principle 2, which requires solicitors to act “in a way that upholds public trust and confidence” in the profession. It is harder to suggest that rules of this nature could give rise to “strict liability” in conjunction with the MLRs (and indeed para. [72] of the judgment in Dentons suggests that the SRA conceded as much).
Third, even where the 2011 regulatory scheme applies, there is something of a mismatch between the “strict liability” outcome in Dentons and the SRA’s own Guidance on the 2017 MLRs (“the AML Guidance”), which states that only serious breaches need to be reported (and would potentially be investigated). The examples given of such serious breaches in the AML Guidance include intentional or reckless failures, systemic problems or the facilitation of business that bears the hallmarks of money laundering.
The AML Guidance means that despite the outcome in Dentons, there is still scope for solicitors to argue at an early stage that it is not proportionate or in the public interest for all AML errors to be referred to the SDT. Indeed, Lang J suggested (at [77] of Dentons) that the AML Guidance may act as a brake against “over-zealous enforcement”.
Finally, questions of culpability and seriousness are always relevant at the sanctions stage even if a breach of Principles/the Code of Conduct is made out: see para [22] of the SDT’s Sanctions Guidance, updated February 2025.
How does this fit in with what’s been happening in other AML cases involving solicitors?
Dentons is not the only recent example of the SDT and High Court disagreeing with the SRA’s interpretation of the relevant MLRs. In SRA v Sa’id [2024] EWHC 1619 the SRA appealed against the SDT’s decision in relation to four allegations of professional misconduct against a solicitor arising from the 2017 MLRs. In brief, the SDT had found that the solicitor did not carry out enhanced due diligence on his client, who was a politically exposed person. However, the SDT also concluded that “Whilst the Tribunal found the factual matrix proved to the required standard, it did not find the Respondent’s failure on the two transactions was of a degree which brought the failure within the ambit of professional misconduct as a breach of the relevant Principles and Codes of Conduct and therefore the Applicant had not proved its case in that regard to the required standard.” (see [69]).
What this meant was a matter of some controversy. As in Dentons the SRA in Sa’id appealed against the apparent application of a threshold test by the SDT, contending that the SDT was wrong to hold that the SRA had to prove that the solicitor’s due diligence failures were serious enough to amount to “professional misconduct”.
That argument was rejected – because in contrast to Dentons, the High Court in Sa’id held that the SRA had in fact fallen at the first hurdle.
Thornton J explained that, when the SDT’s decision was read in the round, it had actually found that the nature of the solicitor’s failures meant there was no breach of the MLR’s at all, rather than finding that there had been a breach but the breach was not serious enough to constitute professional misconduct (see [77]). The Judge explained at [74] that the SDT had evaluated the solicitor’s conduct “in the context of a regulatory regime which adopts a risk based approach to discharge of the money laundering obligations and permits the exercise of professional judgment as to the nature and extent of action required.”
Sa’id is therefore an interesting precursor to Dentons. It makes clear that the SRA has for some time been troubled by the notion that the SDT may consider a threshold requirement of professional misconduct, even after it has been satisfied there has been a breach of the MLRs. Furthermore, it shows that Thornton J was willing to recognise that the MLRs permitted the exercise of discretion.[7]
How does this fit in with the SRA’s increased fining powers in relation to financial crime?
At the time of the SDT’s original decision in relation to Dentons, significant changes were being made to the SRA’s power to impose fines on firms (and individuals that work for them) under the Economic Crime and Corporate Transparency Act 2023 (the “2023 Act”).
Previously, the regulator could only impose a financial penalty itself on a firm or individual up to a cap of £25,000.[8] However, the 2023 Act removed that restriction in cases involving a breach of the SRA’s requirements or rules concerning “the prevention or detection of economic crime”, “acts and omissions which have the effect of inhibiting the prevention of such crime” and/or “professional misconduct … where the misconduct consisted of an act or omission which had the effect of inhibiting the prevention or detection of economic crime”.[9]
The 2023 Act defines “economic crime” broadly so as to include the commission of an offence under regulation 86 of the 2017 MLRs (which concerns breaches of “relevant requirements’” such as the obligation on a firm to undertake customer and/or enhanced due diligence).[10] As a result, the SRA’s power to impose financial penalties in such cases is now, in theory, unlimited.
Alongside this legislative change, the SRA’s overall direction of travel has become clearer: increased supervision, enforcement and financial penalties in relation to AML breaches. As to supervision and enforcement, in its Anti-Money Laundering Annual Report 2023-24, the regulator stated that it was “recruiting actively” to expand its proactive capability in light of its new powers under the 2023 Act which will “make sure we have the right levels of oversight and coordination of reactive and proactive ways of working that support of our fraud prevention work”.
As to financial penalties, in June 2024 the SRA published a consultation on how its new 2023 Act powers would be implemented through revised fining guidance (the “Consultation”). The Consultation closed in September 2024 and has been the subject of some criticism from the legal industry (although its final recommendations are expected to be announced imminently).
The SRA’s new fining power applies to breaches committed after 4 March 2024 (the date that the relevant provisions of the 2023 Act came into force).[11] However, in the interim, the SRA has indicated that where the misconduct concerns an AML breach which occurred before that date, it would apply the “new framework to determine the appropriate financial penalty” subject to its “previous statutory limits”.
Looking forward, the Consultation also proposes the introduction of two new fining bands for serious misconduct (“Bands E and F”) and prescribed minimum fines for existing (and new) bands. This seems to be specifically targeted at providing deterrence for AML breaches – the illustrated example given by the SRA in this context focuses on a firm that “failed to have a proper client/matter risk assessment in place on six files”. The SRA calculates that, under its current framework, the firm in the example (with a domestic annual turnover of £100,000) would receive a fine of £400 which “is not large enough to provide adequate deterrent against a further breach of our AML rules …”.
Finally, although, the changes introduced by the 2023 Act (and the Consultation) do not directly impact the manner in which the SDT determine appropriate sanctions in cases before it, one would certainly expect an increased workload for the SDT in light of the SRA’s proposed approach- given that many solicitors and firms are likely to be surprised by the size of proposed penalties.
Conclusions
AML remains a troublesome area for the solicitors’ profession. The SDT has in the past reached a number of “forgiving” decisions in favour of solicitors accused of breaches of the MLRs, but some aspects of this approach will have been affected by the recent decision in Dentons. How much this recent victory will bolster the SRA’s resolve – particularly when combined with the new fining regime – remains to be seen.
© Helen Evans KC, Will Birch and Alex Forzani, 4 New Square Chambers
March 2025
Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
[1] The 2007 MLRs were revoked and substantially replaced by the 2017 MLRs.
[2] Regulation 14 of the 2007 MLRs required a professional person carrying out a transaction for a politically exposed person to “take adequate measures to establish the source of wealth and source of funds” involved (among other things).
[3] As explained further below in the article, the 2019 Principles and Code do not contain precise equivalents.
[4] The Solicitors Accounts Rules have been interpreted in the past as giving rise to strict liability on the part of solicitors, extending even to other principals in a firm: see e.g. R (Holden) v SRA [2012] EWHC 2067 (Admin) at [19].
[5] Such as those directed to preserving the reputation of the profession.
[6] This was despite Dentons’ argument that Beckwith could not be tallied with parts of SRA v Leigh Day & Ors [2018] EWHC 2726 (Admin).
[7] That is welcome guidance, given that many matters which might otherwise come before the SDT are resolved by regulatory settlement agreements (before a matter is referred to the SDT) (“RSAs”) and agreed outcomes (after referral). A report published by the SRA on 20 December 2024 states that in 2022/2023, 43% of cases referred to the SDT were resolved by agreed outcome, and the general trend in that regard is upwards. Once RSAs are also factored in, it is likely that more than half of all breaches of the Principles/the Code of Conduct are resolved without the need for a hearing.
[8] The position in relation to an ‘alternative business structure’ (an ABS) was (and remains) different. The SRA had the power to fine these entities up to £250 million (and to impose a penalty of up to £50 million on the individuals that work for them).
[9] Section 207 of the 2023 Act which amends section 44D of the Solicitors Act 1974.
[10] Schedule 6, 2017 MLRs.
[11] Section 207(3) of the 2023 Act and The Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024.
