Criminality within the solicitors’ profession has reached the level where the Russian mafia have become involved, it emerged yesterday.
In a startling revelation, the Solicitors Regulation Authority (SRA) said that as it has modernised its approach and applied the necessary resources, “we’ve uncovered very significant levels of misconduct in firms, extending up to and including dishonesty, money-laundering and other criminality”.
SRA executive director Samantha Barrass said: “These include, just at present, multi-firm frauds involving multi-million pound overseas investment funds, multi-firm conveyancing frauds, and money laundering involving the Russian mafia.”
Further, she said, the SRA’s financial stability exercise has “led to the discovery of the high prevalence of poor and dishonest behaviour in firms experiencing financial difficulty”.
Ms Barrass explained: “With the impact of greater competition we are seeing a significant number of failing firms in the lower and middle tiers of the profession. Where we have had to intervene, it’s difficult to think of a case where we have not had to follow up on the conduct of at least one member of the firm.”
At the same time, the SRA has seen its early engagement with troubled law firms reduce the number of interventions, which typically cost £70,000 but can be much more for larger firms – had the SRA needed to intervene in Cobbetts, for example, it would have cost around £6m.
Ms Barrass said that in the years prior to 2009 there were typically around 80-90 interventions a year. In 2010 and 2011 this number reduced to around 60 and in 2012 it dropped again to 37.
“By working with firms proactively we’ve managed to oversee pre-packs, takeovers or orderly wind-down of many firms,” she said.
Meanwhile, Liverpool personal injury firm SGI Legal has called on the SRA and professional indemnity insurers to issue proper guidance on when those buying work-in-progress will be considered a successor practice, making them liable for any problems in the selling firm’s past.
“The current guidance is extremely vague,” said managing partner Simon Gibson. “Where there is a continuation of trade of the previous firm, a successor practice situation will not arise. However, in the event of a cessation of trade – which is common in cases where the WIP sale has been forced by financial distress – it can arise.” The case-law that exists is fact-sensitive and so of limited value, he added.
He added that in the current environment of firms going to the wall and unable to pay for run-off cover, insurers are left with the liability but no premium. As a result, there is increasing appetite from the seller’s insurers to seek to divert any historic liabilities to the acquiring firm and their insurers.
This then becomes a dispute between the insurers on each side over which the acquiring firm has little control but could impact their own insurance renewal.
“Until we have better clarity, acquiring firms need to start a dialogue with their professional indemnity insurer as soon as the non-disclosure agreement that allows talks to begin is signed,” he advised. “It is then a question of mitigating the risk as much as humanly possible.”