Financial advisers warned over fraud

Banks and professional advisers who fall foul of money laundering regulations could face the prospect of being sued by victims of fraud, a legal expert warned at the weekend.

Paula Reid, in-house counsel with the country's biggest law firm, A&L Goodbody, told The Irish Times that it is likely that businesses that launder the proceeds of fraud, could be successfully sued by the victims of the original fraud.

Ms Reid, who has written a book on Irish money laundering law, pointed out that recently, English courts have ordered banks and financial institutions that have laundered the proceeds of fraud to repay and compensate the victims of the original fraud.

Ms Reid explained that the legal mechanism involved is known as a "constructive trust". This means that where a bank or financial adviser is given cash by someone who has defrauded or stolen it from someone else, they automatically become a trustee for the person from whom it was taken.

This makes them liable for the money to the original owner, and they can be sued and forced to repay it, even though they were not involved in the original crime.

She argued that because of the similarity between Irish and English law in this area, it was likely that the Irish courts would follow the English precedents. "It is based on a very old principle of trusts law that is also part of Irish jurisprudence," she said.