Solicitors: SDT Dismissal of ML Regs Breach Quashed on Appeal

The Solicitors Regulation Authority (SRA) successfully challenged, on appeal, a decision by the Solicitors Disciplinary Tribunal (SDT) to dismiss allegations of breaches of money laundering regulations against the respondent firm: Solicitors Regulation Authority Ltd v Dentons UK and Middle East LLP [2025] EWHC 535 (Admin)  Lang J

The SDT found that the firm failed to take adequate measures to establish the source of Client A’s wealth and thereby breached Regulation 14 of the Money Laundering Regulations (MLRs) 2007, but that the breach was not serious, culpable and reprehensive such that it amounted to professional misconduct and did not amount to a breach of the Principles or Code.

The SRA appealed on the grounds that the Tribunal (i) misdirected itself that there was an additional or threshold requirement for the SRA to prove, namely, that the firm’s breach of Regulation 14 of the MLRs 2007 was “serious, reprehensible and culpable such that it amounted to professional misconduct” and (ii) failed to have regard, or give effect, to the wording and purposes of the MLRs 2007, Principle 7 of the Principles and Outcome 7.5 of the Code.

Solicitors Regulation Authority v Leigh Day & Ors [2018] EWHC 2726 (Admin) was to be interpreted in accordance with Beckwith v Solicitors Regulation Authority [2020] EWHC 3231 (Admin), as holding that solicitors’ professional disciplinary rules involved a seriousness and culpability requirement only where that was inherent in the standard promoted by the particular rule in question. The correct approach was to identify whether culpability and seriousness were inherent in the breach of the standard in question by a proper construction of the rule in question.

Applying that approach, Principle 7 and Outcome 7.5 did not involve any seriousness or culpability requirement, other than that which was baked in to a determination that there had been a failure to comply with the legal/regulatory requirements. Under both standards there was a simple binary question of whether or not legal/regulatory requirements had been breached.

Breach of the standards was dependent upon an anterior finding of a failure to comply with a legal/regulatory obligation. They were satisfied by proof of the anterior finding, and in that sense they had the character of strict liability standards. This was a legitimate way of achieving proper regulatory objectives.

The Tribunal erred in its construction of Principle 7 and Outcome 7.5 by adding a requirement that the breach of the MLRs 2007 must be serious, reprehensible and culpable. This added an impermissible gloss to the natural language and meaning of these provisions. It created uncertainty in the test to be applied.

The Tribunal failed to have regard to the purpose of the provisions: to detect and prevent money laundering and terrorist financing. Regulations 2 and 3(9) of the MLRs 2007 expressly made provision for firms providing legal services to be relevant persons and therefore subject to the obligation of the MLRs 2007. That purpose was undermined by the Tribunal effectively exonerating the Firm on the basis that it was not culpable.

In construing the SRA rules, the starting point was the natural and ordinary meaning of the words, in their statutory context. There was a presumption in favour of the grammatical meaning which may be outweighed by other interpretative criteria.

In the court’s judgment, following Leigh Day and Beckwith, there was no universal requirement that breaches of the Principles and the Outcomes could only be established where the requirements of seriousness, culpability and reprehensible conduct were met. Such requirements only arose where they were inherent in the rule in question.

The natural and ordinary meaning of the relevant words in Principle 7, in their statutory context, was that legal and regulatory obligations must be complied with, and there would be a breach of Principle 7 if they were not complied with. Similarly, the natural and ordinary meaning of the relevant words in Outcome 7.5 was that legislation applicable to a business, including anti-money laundering legislation, must be complied with, and there would be a breach of Outcome 7.5 if it were not complied with.

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)(c). The Tribunal undertook that 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.

As Paul Ozin KC correctly submitted for the SRA, breach of standards in Principle 7 and Outcome 7.5 was established once the Tribunal made the anterior finding that a legal/regulatory obligation or legislation applicable to the business had not been complied with. The Tribunal erred in proceeding to ask itself the further question, under the sub-heading of “Misconduct” whether the firm had breached the Principles of the Code as alleged.

The decision of the SDT was quashed in its entirety and remitted to a freshly-constituted panel for reconsideration.