If a law firm uncovers evidence that a trusted employee has dishonestly transferred thousands of pounds of client monies into their own personal private bank account. How should the firm respond?
In a recent case the Solicitors Regulation Authority highlighted the case of BMC Law Limited where one of its staff had transferred £24,475 worth of client monies into his bank account. Incidentally the employee was employed as a fee earner and was not a qualified solicitor so was not on the prestigious roll of solicitors.
Similar to most organisations law firms are required to conduct audits. When a senior manager audited the firm’s files it discovered six discrepancies involving client accounts which had been administered by the respective rogue employee. The transfer of the money to his own private bank account was not the original intention for it. In fact, the monies were due to be paid from the law firm’s designated client accounts to clients who had been injured in personal injury claims. The payments would have given the clients in question some closure and put them in the position they would have been in had the incident not occurred.
Lawyers are under a duty to act in the best interests of clients and must uphold the image of the profession in the eyes of the public. However, the employee’s conduct was motivated by selfishness and pure greed. He was on the pay roll of the law firm in the trusted position as a fee earner. However, this was apparently not good enough for this employee.
However, more developments emerged when a manager reviewed the files and discovered the discrepancies. He felt compelled to take action in the form of making payments to clients in the amount of £24,475, alerted the SRA and the police about the fee earner’s behaviour. The quick thinking of the manager paid off because the firm retrieved £18,000 and paid this to five of its clients. However, the damage caused by the fee earner going rogue left the firm in a precarious situation with a shortfall in its client account funds and trying to find another £6,475 to make up the financial deficiency.
An investigation uncovered how this rogue employee had been able to transfer the monies and it discovered that the firm had employed a bookkeeper to administer its accounts. However, twelve weeks before this incident the firm had parted company with the respective bookkeeper and inexplicably there was no mechanism in the firm to administer the accounts. As a direct result this left the door wide open for the rogue employee to pass his own bank account details off as those of the respective firm without this conduct being challenged by any internal accounts process. Due to this oversight the firm were in no position to detect that monies held in designated client accounts had been dishonestly transferred in breach of the Solicitors Accounts Rules.
This is a reminder for law firms to ensure that they have a dedicated accounts department in place which can alert the firm to suspicious activity such as transfers and incorrect bank account details, discrepancies in terms of payments and breaches of the Solicitors Accounts Rules. Firms should also ensure they have robust insurance provision in position which can provide cover. This strategy will mitigate against the risk of this situation happening again.
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[SOURCE 1] Hyde, John – Owner fined after rogue employee diverted £25,000 to himself – 14 March 2022 - Owner fined after rogue employee diverted £25,000 to himself | News | Law Gazette
[SOURCE 2] Solicitors Regulation Authority – Brendan Martin Casey – 24 February 2022 – CDT/1227779-2018 - SRA | Casey, Brendan Martin - 184654 | Solicitors Regulation Authority
[SOURCE 3] Principle 2 of the SRA Principles 2011
[SOURCE 4] Principle 4 of the SRA Principles 2011
SOURCE 5] Principle 5 of the SRA Principles 2011
[SOURCE 4] Principle 6 of the SRA Principles 2011
[SOURCE 5] Principle 8 of the SRA Principles 2011
[SOURCE 6] Principle 10 of the SRA Principles 2011
[SOURCE 7] Rule 20.1 of the Solicitors Accounts Rules 2011
[SOURCE 8] Rule 20.6 of the Solicitors Accounts Rules 2011
[SOURCE 9] Rule 29.1 of the SRA Accounts Rules 2011
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