Criminals are homing in on legal firms


Shock, horror – criminal gangs are doing their utmost to hijack legal firms. No, I’m not talking about a sequel to John Grisham’s The Firm.

This is something much bigger that has the potential to become a major problem for the legal community and law enforcement bodies – particularly the Solicitors Regulatory Authority whose job it is to police the conduct of lawyers.

It could also become a major bête noire for the lending community, as well as the scores of totally innocent and unsuspecting victims who always seem to suffer as a result of these indiscriminate activities.

Higher mortgage fraud and money laundering are two of the biggest consequences of such a nightmarish scenario becoming reality.

Other fears centre on potential abuses of advance fees, immigration and staged accidents that could net criminals hundreds of millions of pounds.

Compliance and fraud teams inmortgage lending institutions should be starting to feel nervous

But there’s another major cause for concern, one that’s straight out of the plot of a Grisham bestseller. This is the prospect that any criminal who succeeds in taking over a failing law firm will be able to conceal their true identity behind a respectable legal shield, thereby extending their ability to commit fraudulent and criminal activities.

Ordinarily I would listen to these claims with interest but wouldn’t take them too seriously. But when the man who runs the fraud prevention arm of the SRA goes on the record and says such things, then it’s a different matter.

You can’t ignore the threat, you have to sit up and take notice.

Right now I am sitting in an upright position, thinking about the bombshell Steve Wilmott, head of the SRA’s fraud bureau, dropped on the fraud prevention community just a few weeks ago.

When speaking to the Financial Times recently, Wilmott didn’t reveal how many firms are under scrutiny, but he claimed the figure was in the dozens.

In my mind that is a minimum of at least 24 firms. It could be 36, or even be 48. The answer is somewhat irrelevant. Wilmott says we’ve got a problem and since he is the expert I think we should listen to him.

Compliance and fraud teams inmortgage lending institutions should be starting to feel nervous

“There are lots of practices up for sale at the moment because of the recession,” he says. “What we are concerned about is criminals buying them up and using them for nefarious activities.”

A former head of economic crime at City of London police, Wilmott says the law firms at the heart of his probe have been opening sham offices and often use recently qualified lawyers to front the operations.

If you are someone who works in the compliance and fraud teams of one of the UK’s 100 or so mortgage lending institutions I would be starting to feel nervous right now.

After all, 2010 is the year the industry broke the unwelcome £1bn barrier in terms of the number of mortgage fraud cases that were heard by the Crown Courts in England and Wales.

My view is the real figure could be anywhere between £1bn and £5bn because the general rule of thumb is that for every case that is detected, as many as four slip through the net.

I know from the conversations I have with lenders that many compliance and monitoring systems don’t stand up to scrutiny. They may tick a number of boxes and have sexy names but do they detect a crime once it has occurred or prevent them from happening?

If prevention isn’t the key part of a fraud system, it is doomed to fail. And the gangs now seemingly targeting failing legal firms know this.
They’re not concerned about being caught. Their goal is to steal as much as they can before being detected and it is this threat that we must all work towards addressing.

The SRA says it will shortly launch revamped vetting rules for the legal profession, with tougher standards on the authorisation of firms and the people who run them.
It says this is particularly important because of new legislation allowing lawyers to go into business for the first time with other professionals, ranging from accountants to architects.

I suppose I should feel a crumb of comfort that such measures are being introduced but I don’t.

The only thing that will make me feel more confident is seeing lenders act decisively in the way they go about preventing fraud. And that day can’t come soon enough.