Solicitor suspended for ‘inept’ failure to prevent fraud

Failing to prevent fraud

A solicitor who failed to spot warning signs of fraud or exploitation of a client was suspended for 12 months.

The solicitor, with over 30 years of experience, was initially referred to the SRA for acting on behalf of both the buyer and seller of a property, risking a conflict of interests.

The SDT heard that the solicitor acted in the transfer of a property from client X, a vulnerable individual, to a company owned by client Y, who the solicitor had a longstanding professional relationship with.

Client X had a diagnosis of autism and an estimated mental age of 12.

Despite significant doubts about X’s capacity to manage their financial affairs and enter into contracts, the solicitor allowed the transfer of the property to client Y without payment or any formal agreement allowing X to continue to reside in the property.

In the client care letter to X, the solicitor said they were simply giving effect to the transfer and not advising on whether it was sensible or reasonable.

The SDT heard that the solicitor failed to:

• make the necessary enquiries in relation to the transaction
• meet the client on their own to advise them of the risks
• determine whether the transfer was in the interests of the client
• take steps to protect the client’s interests, including any right they had to continue residing in the property

Had the necessary checks been carried out on X’s behalf, the solicitor would have discovered Y had been convicted of several counts of fraud, one count of money laundering and sentenced to over five years’ imprisonment.

The SDT found the solicitor’s actions were “inept” and “reckless” and led to a vulnerable person being defrauded out of their property.

The SDT finding

The tribunal heard that the solicitor breached five SRA Principles from the SRA Code of Conduct 2011, including:

• acting with integrity and independence
• acting in the best interests of their client
• protecting their client’s money and assets

The SDT found further that there were no mitigating features, with the solicitor denying the allegations in their entirety up to the point of the hearing.

The tribunal was extremely concerned that the solicitor had previously been fined in relation to five conveyancing matters in which they acted without instructions, failed to carry out necessary due diligence and did not register lenders’ charges.

At that time, the solicitor held compliance roles in the firm.

The SDT approved an agreed statement of facts and outcome put forward by the SRA.

This imposed conditions on the solicitor’s return to practice, including the prohibition to:

• be an owner or partner in a law firm
• have a compliance role
• hold client money
• be a signatory on any client account
• work as a solicitor other than in employment approved by the SRA

Agreeing with the sanctions, the SDT said:

“It was plain to the tribunal that [….] had a complete blind spot with regard to the obligations to ‘know your client’, the risks of fraud in conveyancing transactions, management of conflicts of interest, and the obligations attendant upon accepting instructions from vulnerable clients.”

The solicitor agreed an order for costs of £12,000.

Acting in your client’s best interests

As the professional body for solicitors, we know that the vast of majority of solicitors act in their client’s best interests.

This case is a timely reminder of the importance of upholding the high-level standards of ethical behaviour expected of solicitors.

Under the SRA Standards and Regulations, you must act with integrity and in the best interests of your client to uphold the rule of law and the proper administration of justice.

When taking on new clients, you should make sure they have the information they need to make informed decisions about your services.

Our guidance on engaging clients sets out what you should consider at the beginning of a matter, including what due diligence procedures you should have in place.

Under part 6.2 of the SRA Code of Conduct for Solicitors, you must not act if you “have a conflict of interests or a significant risk of such a conflict in relation to a matter or an aspect of it” unless certain conditions are met.

Our practice note on conflict of interests will help you to understand how to identify and manage situations where a conflict of interests arises or is at significant risk of occurring.

The code also requires solicitors to consider and take account of a client’s attributes, needs and circumstances (3.4) and to not act unless satisfied that the instructions represent the client’s wishes (3.1).

Our guidance on financial abuse will help you identify which clients may be at risk of abuse and work out what action to take.

Solicitors need to adapt their practices to identify and meet the needs of clients who may be vulnerable. Explore our guidance on meeting the needs of vulnerable clients