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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.



In my opinion



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  • Grey Haired Underwriter 10th November 2010 at 9:12 am

    It is sad that such a proud profession has now been brought into such disrepute. There were always the few less ‘scrupulous’ solicitors (aren’t there in every walk of life) but the numbers seem to be increasing exponentially. The problem is that lenders will react against this perceived threat and legal representation will be restricted accordingly. It is already the case that most major lenders have returned to a panel system and are heavily vetting any firm before admitting them to the panel. They are also actively removing any firm if they have been used infrequently. The simple fact of the matter is that the common practise of the lender trying to use the applicant’s solicitor is going to diminish as each lender tries to find a way of ameliorating the risk in this respect. I think that applicants will now need to face up to the fact that separate representation will become much more the norm and that the applicant will have to pick up the additional costs. It’s not fair but as we all know a few ‘bad apples’ can ruin the reputation of the rest. I also suspect that only established practises will be used and the competetion from new and emerging solicitor firms will just not make a difference. De-regulation is just going to make matters worse

    I would suspect that most brokers won’t consider that this story will have significant impact on their business but the truth is that the costs of obtaining a mortgage are likely to go up if the numbers of ‘usable’ solicitors goes down. Increase the cost and the levels of business may decline.

  • Mark stroud 9th November 2010 at 2:03 pm

    Judging by the last 6 posts solicitors are as clever as they thought they were.

  • Bob Bhalla 9th November 2010 at 11:29 am

    Ok but as you say in the very last paragraph it is actually in the lenders hands to spear head the campaigns against fraud. Most of us solicitors are inadvertently caught up in it through applications that get through a broker and lender and then we end up picking up the pieces and reporting the matter to our insurers. Please also don’t forget that brokers being unreasonably pushy on a conveyancing matter actually causes us honest lawyers to raise an eyebrow of suspicion (as suggested by the Law Society) as one of the signs of fraud, so push at your peril !!