The Solicitors Regulation Authority (SRA) has warned law firms about sham litigation, a tactic criminals use to bypass anti-money laundering (AML) rules by disguising illicit funds as legitimate legal disputes. In new guidance published by the SRA in January 2025, the regulator highlighted the case of fraudster Narinder Kaur, who manipulated multiple firms into pursuing false claims to launder money. Sham litigation is attractive to money launderers because litigation itself falls outside the Money Laundering Regulations 2017, meaning identity verification is not required. However, all firms, no matter the services they offer, remain subject to the Proceeds of Crime Act 2002 therefore requiring the nominated officer – typically the MLRO – to submit a SAR to the National Crime Agency (NCA).
The Case of Narinder Kaur
Kaur, previously convicted of retail fraud, used a real dispute with her brother as a cover for sham litigation, fabricating claims and enlisting law firms to process fraudulent settlements. Some firms identified red flags – such as inconsistencies in her identity, urgency to settle for a fraction of the amount and suspicious third-party payments while others filed Suspicious Activity Reports (SARs) to the NCA. Consequently, Kaur was convicted on 10 March 2023 and sentenced on 30 July 2024 to 10 years in prison due to multiple counts of retail fraud together with sham litigation.
The SRA has since urged firms to incorporate sham litigation into AML training, strengthen risk assessment protocols, and remain alert to unusual client behaviour which should also be detailed in a firm’s AML policy.
Link to the Legal Futures Article ‘SRA Issues Warning to Firms over Sham Litigation’: https://www.legalfutures.co.uk/latest-news/sra-issues-warning-to-firms-over-sham-litigation
Link to the Guardian Article ‘Wiltshire Serial Fraudster and Shoplifter Jailed’: https://www.theguardian.com/uk-news/article/2024/jul/30/wiltshire-serial-fraudster-and-shoplifter-jailed