Fraud is a business risk that law firms cannot afford to ignore. Statistics from KMPG's Fraud Monitor (amongst others) reveal steady increases in the incidence of fraud against UK businesses. It is also an issues that has been tripping up a number of firms, and costing them (and insurers) significant sums of money.
With announcements in the legal press recently that a governmental task force will be cracking down on inadequate Anti-Money-Laundering by firms from 2016 - law firm's client and transaction vetting processes are once again in the spotlight.
Post 2008, Lockton have seen all to many examples of firms who became caught up in a wider culture of buying the business in without undertaking all the checks they really should have done. Nowhere has this been more evident than in the residential property market, where the number of mortgage frauds that firms (and lenders) have allowed to slip past have created one of the largest post-party hangovers the profession has experienced to date.
How Lockton can help
Lockton are working to produce a range of guidance and resources designed to help ensure that Lockton clients are well prepared for the Financial Action Task Force and SRA checks on AML procedures. Look out for our guidance during the course of 2015.
Fraud in Law Firms
Fraud has been on the increase across the board, and it is not jsut conveyancers who need to be alert. Nor is it just your clients that you need to vet carefully.
Recent experience indicates a significant number of frauds emating from law firms with whom you may be transacting. This might be a straightforward example of a solicitor in a bona fide law firm who absconds with funds transferred from your client account. (There is only so much you can do to mitigate this risk - but please do vet the firm that is acting on the other side as part of your overall transaction vetting process. If you are negotiating a refinancing deal worth several million, does the firm on the other side have the relevant amount of PII cover; is it a firm you already have experience of working with?; is it the sort of firm that you would expect to be instructed on the type of matter concerned?)
Fake Law Firms
The other, more insidious threat, is that of the fake law firm. Fraudsters are adept at finding gaps in our fraud-prevention armour, particularly where large sums of money are at stake. Gangs need only to dupe a few law firms in relation to a small number of hihg value transactions to walk away with £millions. The SRA have made it clear that their Find a Solicitor search cannot be relied on as a check.
How Lockton can help
We have teamed up with LawyerChecker to produce a guidance note to alert firms to the risk of fake law firms and how best to manage that risk. You can download the guidance by clicking on the link below.
If you have a specific risk issue you want to discuss, contact Calum MacLean, our Risk Manager for Professions clients.