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Solicitor helped himself to money in client account after ‘tidying -up” exercise

A solicitor who helped himself to client money while carrying out what he claimed was a “tidying-up” exercise of historic client account balances has been struck off by the Solicitors Disciplinary Tribunal (SDT).

The tribunal decided [1] that Vernon Burke’s actions showed a “lack of moral soundness, a lack of rectitude and no adherence to an ethical code”.

It said Mr Burke had “maintained that bills had been sent out but had provided no evidence to support this assertion and he had not been believed in this regard”.

Acknowledging that this was a “sad case”, the SDT went on: “If the tribunal did not strike the respondent off, there was risk of harm to the public, not from the respondent who the tribunal considered would have learnt his lesson, but from the message that would be sent to the profession that it was acceptable to help oneself to small amounts of client money if subsequently it was repaid.”

The tribunal said client money was “sacrosanct” and had to be safeguarded.

Mr Burke, 57, was a sole principal, practising family law from Bridge Burke Solicitors in Kingston, Surrey, since 2005. He qualified in 1992.

The Solicitors Regulation Authority (SRA) found out in 2015 that the firm’s accountant’s report had been qualified the previous year for having debit balances on client account. An investigation was launched and Mr Burke was referred to the tribunal last autumn.

The tribunal said Mr Burke was not a “credible witness”, and was “evasive” in his oral testimony, often failing to answer the questions he had been asked.

There were “stark inconsistencies” in his evidence, which the tribunal described as “wholly unconvincing”.

Mr Burke was found to have acted dishonestly and with a lack of integrity when he “cleared off residual balances on client accounts to a total value of £3,826 by issuing bills of costs and paying them from client funds when there was no proper justification to do so and without first sending those bills or other written notifications of the costs to the relevant clients”.

The tribunal said a “solicitor of integrity did not clear off residual balances, however small, without first taking steps to be absolutely certain he was entitled to the money”.

If there was no evidence on the files, he would “simply rely on his memory as to the work he thought he had done for each client”.

The SDT said that Mr Burke had argued that 17 bills were sent as part of a “tidying-up” exercise, but it found that the evidence did not support this – all the bills were for precisely the amount on client account and marked as paid the day after they were raised.

Everything pointed to the raising of the invoices as being a “paper exercise”, it found.

“Had this been a genuine ‘tidying-up exercise’, then an honest solicitor looking at his residual client balances and determining what could be billed would take steps to assure himself that the monies were due and would also have ensured that the bills were sent to the clients.”

The invoices were all reversed during the SRA’s investigation, but Mr Burke argued that this was about returning to a “state of compliance” rather than an admission of dishonesty,

Mr Burke admitted the other three charges against him, primarily improperly withdrawing a total of £47,205 from client account mainly as a result of transfers being made by the firm in excess of funds held by the client, although the withdrawals were all eventually rectified.

He also admitted failing to carry out reconciliations and operating two suspense ledgers in breach of the accounts rules.

On sanction, the tribunal said the mitigating factors were that once the SRA investigation had started, the “loss to the clients was made good”, and the misconduct was a “single episode in a previously unblemished career”.

However, an allegation of dishonesty had been proved against Mr Burke and there were no exceptional circumstances. It ordered that he should be struck off and pay £21,000 in costs.

Lawyers face prosecution over financial sanctions compliance

Passmore: Risks exist for every single solicitor and law firm

Lawyers are among those who could face prosecution if they fail to report information that could undermine UK financial sanctions, after a change to the law [1] that came into force this week.

“Independent legal professionals”, along with trust or company service providers, accountants and others are now captured by the European Union Financial Sanctions Regulations 2017.

The existing regulations already placed an obligation on businesses to report to the Treasury if they were acting for anyone subject to financial sanctions, but until Tuesday enforcement action could only be taken against financial services firms.

Those caught by the new regulations will commit an offence if they fail to inform HM Treasury if they know or have reasonable cause to suspect that a person has committed an offence under the relevant regulations – such as dealing with funds that must be frozen or activities that circumvent an asset freeze – or is a person who is the subject of an asset freeze.

There are sanctions placed on people and entities from 25 countries around the world – from Afghanistan to Zimbabwe – plus ISIS and al-Qaeda.

Crispin Passmore, the SRA executive director for policy, said: “The new financial sanctions regulations mean legal firms are obliged to comply with the reporting regime. These regulations, and the approaching Financial Action Task Force inspection, are further reminders of the importance the UK and global community places on tackling terrorist financing.

“Risks exist for every single solicitor and law firm whether conveyancing on the high street or handling global transactions, and each should be thinking about their responsibilities for tackling these issues.”

Guidance [2] from the Office of Financial Sanctions Implementation (OFSI) said lawyers are not required to provide information that is subject to legal professional privilege.

But it continued: “OFSI expects legal professionals to approach their disclosure obligations with rigour and carefully consider where legal professional privilege applies, and to what information.

“OFSI will challenge any blanket claims of privilege where we are not satisfied that such careful consideration has been made.”

Draft SRA Accounts Rules 2018 Published

Draft SRA Accounts Rules 2018 Published

The draft SRA Accounts Rules 2018 were published by the SRA on Wednesday 14 June 2017 and have been reduced to just seven pages containing twelve rules.

As expected, the Solicitors Regulation Authority (SRA) has, as a result of feedback received during their consultation on proposed changes to the SRA Accounts Rules, backed down on their controversial plan to change the definition of client money.

Whilst the majority of the consultation responses received by the SRA were supportive of the aim of simplifying the SRA Accounts Rules, there was widespread criticism of their proposal to amend the definition of client money so as to exclude payments on account of costs and certain disbursements as having to be treated as client money, as it is under the SRA Accounts Rules 2011 which are currently in force.

The revised definition of client money now includes money held or received by a firm in respect of fees and any unpaid disbursements if held or received prior to the delivery of a bill for the same. In our view, the whole issue of the treatment of a firm‘s fees and the billing process is likely to require further consideration by the SRA. Rule 4 of the draft SRA Accounts Rules 2018, states that, “where you are holding client money and some or all of that money will be used to pay your costs, you must give a bill of costs, or other written notification, to the client or the paying party and this must be done before you transfer any client money from a client”. Significantly, the phrase ’properly require‘ which features in the equivalent provision in the current SRA Accounts Rules is no longer in use. It is the presence of the words ’properly require‘ that prevents a firm from transferring funds from client to office bank account where a bill has been sent to the client but the work covered by the bill has not yet been completed. This important point is not covered under the draft SRA Accounts Rules 2018 which, at face value, seem to permit monies to be transferred from client to office bank account if a bill has been given to the client for ’work to be undertaken’, i.e. a payment on account of costs.

Another significant change, perhaps inadvertent on the part of the SRA, is that the obligation to send or give a bill to the client prior to transferring costs from client to office account now applies to the firm‘s ’costs‘ rather than the firm’s ‘fees’. Critically, the definition of ‘costs’ comprises the firm‘s profit costs and disbursements whereas the definition of ’fees’, which is used in the equivalent provision within the current SRA Accounts Rules, is purely the profit cost element of the bill. Therefore, it would appear, that under the draft SRA Accounts Rules 2018, a firm will not be able to transfer funds held in client bank account, to cover disbursements paid out of office monies on behalf of the client, prior to giving a bill to the client.

The rules relating to the handling of monies from the Legal Aid Agency have changed significantly as well. Under the draft SRA Accounts Rules 2018, monies received from the Legal Aid Agency can, as is currently the case, be paid into the firm‘s office account. However, the obligation to either pay any unpaid disbursements, or transfer the corresponding funds from office to client account, has been removed. The SRA consider that removing the provision for disbursements to be held in a client account if they are not paid within either 14 days (payments received where a funding certificate is in force) or 28 days (payments received under a civil or criminal contract) does not mean that firms will be able to hold payments from the Legal Aid Agency in their business account indefinitely. If, for example, a firm does not pay an expert’s fee and thereby delays a client‘s matter, this would constitute a breach of the SRA’s rule to make payments promptly and is also likely to be a breach of the SRA Code of Conduct.

It is important to realise that we have only seen part of the story so far. Whilst the SRA have simplified and shortened the SRA Accounts Rules, they have indicated their intention to publish additional guidance on the correct interpretation and application of the proposed new SRA Accounts Rules to be read in conjunction with the new rules. So, whilst we have a streamlined version of the SRA Accounts Rules, it is evident from the list of the areas where the SRA intend to issue further guidance, that we will be gaining a substantial amount of new material which will, inevitably, end up being treated as if they were rules rather than simply guidance! The SRA have identified the following areas where additional guidance will, most likely, be issued:

  • Acting as a trustee and client money
  • What is client money
  • Name of client account
  • Withdrawals to make payments to Charity
  • Who can make withdrawals from client account?
  • Residual balances due to a client
  • Requirements to pay interest
  • Accounting records and systems
  • Accountant’s Reports
  • Record keeping around operation of joint accounts
  • Operation of a client’s own account
  • Treatment of legal aid money/monies received relating to formal appointments (insolvency)
  • Use of Third Party Managed Accounts
  • Client account as a banking facility
  • Waiver provisions
  • Out of scope monies in an MDP

The SRA have stated that the draft SRA Accounts Rules 2018 will not come into effect before the Autumn of 2018. Before then, there will be a further consultation process with the scope for additional amendments to be made before the final version of the SRA Accounts Rules 2018 are presented to the SRA Board for approval.

Download the draft SRA Accounts Rules 2018 below:

Draft_sra_accounts_rules_2018

New SRA Handbook will not be implemented before Autumn 2018

Following consultations last year, SRA are today publishing their decisions and consultation response documents.
The SRA Board has agreed:
·         New SRA Principles
Our new Principles clearly and concisely state the high ethical standards we expect of those we regulate.
·         Two new Codes of Conduct
The code for individuals sets out the professional standards and behaviours we expect of solicitors in practice. Our code for firms provides clarity on what their responsibilities are as regulated businesses.
·         Solicitors offering services outside SRA regulated firms 
Solicitors will be able to offer non-reserved legal services outside of firms overseen by the SRA or another approved legal services regulator. This will let them take the high standards, training and consumer protections that attach to their role to a greater number of consumers through new, innovative business models.
·         Revised and streamlined Account Rules
The new rules strip out unnecessary bureaucracy and focus on what matters: keeping clients’ money safe.
Extensive engagement around 11,000 people
These decisions were reached after extensive engagement with a wide range of our people and organisations, both before and during the consultation. We have listened to and responded to feedback from solicitors, law firms, the general public and representative bodies. We will continue to involve and update everyone as we move forward.
New Handbook will not be implemented before Autumn 2018
We will be consulting on phase 2 of Looking to the Future, which includes the rest of our rules and our approach to enforcement, later on this year. All of the Handbook changes will be implemented together.
We encourage you to stay involved as we work on phase 2. If you would like to discuss any of these issues, you can contact me at crispin.passmore@sra.org.uk