Money-Laundering and Dracula

Would Count Dracula make it through a modern customer due diligence process?

Over Christmas, I re-read Bram Stoker’s novel, and was struck by the shadiness of the Count, even before his true nature is revealed. The novel opens with newly-qualified solicitor Jonathan Harker on his way to Transylvania to meet Count Dracula and talk him through the purchase of an English property. Although the purchase is essentially complete, the encounter is the first meeting between solicitor and client. When he gets there, Harker and Dracula have a conversation that might give an alert modern solicitor cause for concern.

The EU’s Fourth Money Laundering Directive (MLD4) has been implemented in the new money laundering regulations and the guidance from the SRA has been updated. The guidance gives some general warning signs. Two in particular stand out: an excessively obstructive or secretive client may be cause for concern; and if the client is based a long way from the firm’s offices, the solicitor should consider why they have been instructed.

There is also some specific guidance relating to particular areas of work. The guidance on the administration of the estates of deceased persons is of marginal relevance, since the Count is more aptly characterised as an undeceased person. Similarly, the guidance relating to property transactions focuses on sources of funding and concealment of the parties’ identities. In Dracula’s case, he does not appear to be concealing his identity and his wealth certainly appears to have a long-established source:

“The table service is of gold, and so beautifully wrought that it must be of immense value. The curtains and upholstery of the chairs and sofas and the hangings of my bed are of the costliest and most beautiful fabrics, and must have been of fabulous value when they were made, for they are centuries old, though in excellent order. I saw something like them in Hampton Court, but there they were worn and frayed and moth-eaten.”

An interesting real-world example of a customer due diligence exercise is reproduced in the Crociani v Crociani judgment at para. 468(v). It consists of an email from the Mauritian trust company discussing plans to establish a trust, and notes the following points:

• The client was very secretive;
• The client was the one liaising and high net worth clients usually appoint other people to do such things;
• The client was not keen to liaise via email because she stated that she didn't want any trail;
• The client mentioned that telephone calls should be kept to a minimum;
• The client mentioned that when she sent money to the trust she wanted to do it in such a way that there was no trail, wanting to wipe out all traces of the source of funds transferred.

The conclusion:

"Given these issues I am of the view that it would be quite difficult to monitor the  transactions of the client and they would not be too keen to provide for information. Given these red flags the risk profile may be above our risk appetite.”

So how do those red flags compare to what we can discern about Dracula? The visit to Transylvania starts badly, when Harker tries to find out more about Count Dracula from the locals:

“When I asked him if he knew Count Dracula, and could tell me anything of his castle, both he and his wife crossed themselves, and, saying that they knew nothing at all, simply refused to speak further. It was so near the time of starting that I had no time to ask any one else, for it was all very mysterious and not by any means comforting.”

Count Dracula has chosen a small firm, which is far away from the property purchase. We know the firm is a small one, because there is only one principal, Peter Hawkins, who was unable to attend Dracula himself due to an attack of gout. The only other person available was Jonathan Harker, who has only just qualified: “just before leaving London I got word that my examination was successful; and I am now a full-blown solicitor!” The property, Carfax, is in Purfleet in Essex, but the firm is based in Exeter. The distance between the property and the firm is itself a potential cause for concern: why not choose a more local firm?

The Count’s gives an explanation for his choice of solicitor:

“I shall illustrate. Your friend and mine, Mr. Peter Hawkins, from under the shadow of your beautiful cathedral at Exeter, which is far from London, buys for me through your good self my place at London. Good! Now here let me say frankly, lest you should think it strange that I have sought the services of one so far off from London instead of some one resident there, that my motive was that no local interest might be served save my wish only; and as one of London residence might, perhaps, have some purpose of himself or friend to serve, I went thus afield to seek my agent, whose labours should be only to my interest.

Purfleet is some way from London. In fact, when I went there to take the photo at the top of the page, it took half an hour from Fenchurch Street. It is difficult to see how a London solicitor might have a conflict with a local interest in Essex. But even if he (and in 1897 it would have been a he) had a conflict, he would have had to disclose it and might have been prevented from acting. Dracula’s explanation is therefore not terribly convincing. What he says next gives more cause for concern:

“Now, suppose I, who have much of affairs, wish to ship goods, say, to Newcastle, or Durham, or Harwich, or Dover, might it not be that it could with more ease be done by consigning to one in these ports?”

Dracula has now gone from using a solicitor almost as far away from the subject matter of the transaction as it is possible to get, to proposing to use a local solicitor to manage his affairs. The contradiction between the reason for using an Exeter solicitor and the proposal to use a local solicitor casts doubt on the original explanation and suggests that the Count may be lying to his own solicitor: another red flag.

The same conversation illustrates another potential difficulty that a small firm might experience in dealing with a pushy, wealthy client. Dracula tells Harker that he wants him to stay at the castle for a month. Harker is disappointed, because he wants to get back to his fiancée. The Count says this:

 “I desire it much; nay, I will take no refusal. When your master, employer, what you will, engaged that someone should come on his behalf, it was understood that my needs only were to be consulted. I have not stinted. Is it not so?”

Harker can only bow his acceptance. A wealthy client dealing with a small firm might be in a position to exert improper pressure as a result of the value of fees that they might bring in. Here, Dracula has gone further than that by giving Harker an explicit reminder that he is paying handsomely for the firm’s services. The guilt trip and the power play, used against a junior solicitor are another potential red flag.

The Count is also secretive. The starting point for the conversation was about how he might divide up his affairs so that no single person could have the whole picture: “[Dracula] went on to ask if there would be any practical difficulty in having one man to attend, say, to banking, and another to look after shipping”. Harker seems to regard that suggestion as commonplace: “such is often done by men of business, who do not like the whole of their affairs to be known by any one person.” However, when he explains to Dracula the agency system, under which the client can give instructions to a single solicitor who can engage local agents as necessary, the Count is not at all keen. If Dracula refuses to trust his own solicitor with his affairs, that might be another red flag.

So it seems that there are a number of factors that at the very least ought to give a solicitor pause, and that’s before we even get to the part where Dracula locks Harker in the castle with the sexy vampires, assumes his identity and steals a baby. Triggering the warning signs is the result that we would hope for, because Count Dracula does have nefarious plans in mind, making it desirable that AML/CTF regulations should stand in his way.

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