‘Know Your Client’ Failure Costs Firm

Although clients often regard as a nuisance the extensive ‘know your client’ procedures that are required by financial institutions and professional firms, the importance of strict adherence is clear, as a recent case involving a property fraud illustrates.

The case involved the seemingly straightforward sale of a South London property. The ‘vendor’ pretended to be the real owner, who was actually abroad. When the house was sold, the proceeds of sale were transferred to the fake vendor’s account in Dubai and disappeared.

The purchaser, having laid out £470,000 to buy the property, found his title to it was void. He sued the vendor’s solicitors and the conveyancing firm he used.

In a damning decision, the court found that they had failed to undertake their ‘know your client’ procedures properly and had not taken sufficient care to obtain documentary evidence to link the purported vendor to the property.

Both firms were found liable.

Although the main reason for ‘know your client’ enquiries is to deter money laundering, this type of attempted fraud is on the rise. A solicitor’s first duty is to protect the client’s interests and the checks made are a core underpinning of that process.