Monthly Archives: September 2018

Recent £7m losses see regulator urge caution over new legal business partners

Solicitors have been urged to make sure that the credentials of people approaching their firm to offer business expansion are genuine.

The SRA have recently received two reports of firms branching out into different work areas, but the reality was that new colleagues had infiltrated the firm to defraud clients. The incidents have led to potential losses of more than £7 million for those involved.

The fraudsters approached law firms offering to expand the services they offered and gave bogus credentials to support their supposed expertise. However, once appointed and away from supervision, they had access to client money which appears to have been stolen.

Small firms are targeted. This may be because the fraudsters think their apparent offers of assistance or new work will be more readily accepted and that principals in those firms may not have been able to keep up to speed with warnings such as this one.

Solicitors have a duty to run their businesses in accordance with “sound financial and risk management processes” to protect their clients’ money and assets. Reports of infiltration highlight the need for the profession to make sure that it carries out proper due diligence on those seeking to join a firm.

There is also an obligation for solicitors to provide a proper standard of service to their clients. Taking on new staff for areas where managers do not have the relevant expertise could mean they might not be properly supervising employees.

Paul Philip, SRA Chief Executive, said: “Many law firms handle large amounts of money, making them an attractive target for fraudsters.

“We know that most firms have strong systems in place to make sure they are employing the right people, as well as protections to make sure staff are properly supervised and money in the client account stays safe.

“But these recent cases show that there is no room for complacency and that undertaking careful due diligence for any potential employees is essential. Leaving the door open for fraud is damaging to both the firm and public trust in solicitors.”

Approaches of this type, particularly if it unsolicited, need to be treated with extreme caution. Carrying out due diligence would include:

  • Getting as much verification as possible from third parties such as banks and other professional firms. One check or reference from another firm is unlikely to be sufficient because the fraudsters may control or have influence over more than one firm
  • Internet searches
  • Checks on official websites such as this one and those of other regulators

Solicitors should be aware of unusual aspects of the proposal. This could be someone bringing work to the firm or even saying that they will pay the sole principal or partners a ‘salary’.

Advice on carrying out due diligence for potential employees has been outlined in a number of case studies.

The duties on solicitors – including running businesses along sound risk management processes, protecting the money and assets of clients and providing a proper standard of service – are outlined in the SRA Principles.

The reports of infiltration are still being investigated and therefore no further details on these cases can be given out at this time.

Solicitors urged to check frozen asset list

Solicitors have been urged to check the HM Treasury frozen assets review to make sure they are not holding monies belonging to a client that is subject to financial sanctions.

HM Treasury has published its annual frozen assets review. Anyone who is holding frozen assets has until Friday 12 October 2018 to submit a report to the Office of Financial Sanctions Implementation (OFSI).

Reports need to be made to the OFSI using this email address: ofsi@hmtreasury.gov.uk

Sanctions are an important foreign policy and national security tool and solicitors should be aware of their ongoing responsibilities. The profession needs to comply with financial sanctions in place in the UK and to report frozen assets and other relevant information to OFSI immediately.

Crispin Passmore, SRA Executive Director, said: “Solicitors are rightly being asked to make sure they are not helping anyone with dubious funding streams – becoming ‘professional enablers’. This risk exists for every single solicitor and law firm, whether conveyancing on the high street or handling global transactions.

“We would urge all of you to look at the review and, if a client is listed and you hold any of their assets, make a report as necessary.”

The Treasury has provided an example of what the Annual Review involves.

More information on financial sanctions can be found in OFSI’s guide

Anyone who submitted a report last year and no longer hold the assets will need to submit a “nil return”.