Judges and lawyers ethics: system failure?

Joshua Rozenberg’s got a very interesting miscellany of stories published in the Guardian today featuring:

I was also re-reading part of Rick Abel’s book Lawyers on Trial: Understanding Ethical Misconduct. Having read hundreds of Californian and New York conduct prosecutions, and interviewed some of the protagonists for 12 case studies he sets out a series of general findings about common causes of ethical misconduct. These include:

  • the lawyers believed themselves innocent and simply engaged in things that everybody else was doing;
  • inexperience was not generally a cause: “ethical misconduct is learned behaviour; it is not the product of ignorance.”; and,
  • misconduct by these people was chronic not aberrational.

It was against that background that I read Rozenbergs’ comments on a perverting the course of justice appeal where a QC (and presumably the CPS and junior Counsel) failed to deal properly with disclosure obligations (see especially para 32, and feel your jaw sag slightly):

We can only regard the failure to make the disclosure in early 2007 that was subsequently made in June 2013 as a lamentable failure of the prosecutor’s obligations … [Another judge had said that courts] must assume that the prosecution had performed its duty to make appropriate disclosure of relevant material. That, of course, is the case unless the court has reason to doubt the proper performance of the prosecutor’s obligations. Unhappily, it was an assumption that proved to be inaccurate.

I do not know if the judges took the matter further. Whether the barrister has been referred to the BSB, or the CPS workers referred to the DPP and their professional regulators, I do not know. My impression is that judges tend not to make such referrals. If I’m right, it would be interesting to know why. We cannot ask the regulator about this case because they will not tell us. Barristers subject to investigation have anonymity: a practice of understandable origin but questionable benefit.

Abel’s findings about lawyers punished (in US cases) does not prove that those found to have breached professional standards here are likely to be serial offenders; but it should give us pause for thought, particularly given historic and current anxieties about prosecution disclosure of evidence that might help the defence. One of Abel’s other observations also caught my attention. Judges instigate only 1% of complaints to the US Bars studied (and there it is the judges who are ultimately responsible for professional conduct). Regulators need to have good information about potential risks. Not all cases may need investigating, but more cases probably do need investigating, and some will require further action. It is vital that where misconduct is detected it is dealt with. It is simple part of establishing an ethical culture.

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A few thoughts on the Butler Sloss controversy

Lady Butler Sloss, a former and eminent senior judge, with significant experience through a child abuse inquiry (Cleveland) of matters of child protection has been appointed to lead an independent inquiry into historical child abuse. Interestingly, she relinquished the Diana inquest when forced to have a jury trial. The Telegraph story at the time reported:

 “These inquests now require a jury, and I do not have the degree of experience of jury cases that I feel is necessary and appropriate for presiding over inquests of this level of public interest.”

It’s not immediately clear to me what form the Child Abuse Inquiry will take or whether it would prove as challenging forensically and managerially as a jury inquest of that import. My immediate concern is with the issue of whether Lady Butler Sloss should conduct the inquiry given the possibility that the same inquiry may investigate a matter her deceased brother had some involvement in. According to the Telegraph:

“Baroness Butler-Sloss told the BBC she was unaware of her brother’s link to the controversy and said she will not resign.”

I know absolutely nothing about it,” she said. “If people think I am not suitable, then that’s up to them.”

Now I think this interesting on number of fronts. The first is that she has indicated an unwillingness to resign. This is totally unsurprising. She is batting the issue back to the Prime Minister’s office who appear to have made an unfortunate error in the vetting of their preferred candidate to lead the Inquiry. I don’t think we should read too much into it from the judge’s perspective. She has time to reflect and change her mind and, as the Diana inquest shows us, she is not afraid to respond to new events.

The second element of interest is of more concern. She indicates an intention not to resign even though she knows nothing about the allegations around her brother’s involvement. This is a position which I think will become difficult to defend unless (somehow) a clear line can be drawn – and quickly – around the events that involve the former Attorney General, Sir Michael Havers. To draw that line, one would need to know the facts of the case Mr Havers is said to have looked at and decided not to prosecute, and one might also have to know the extent to which this event was an important example (or not) of the kind of establishment behaviour that the judge is required to investigate as part of her Inquiry. Suggesting a kind of Chinese wall around that issue within the inquiry is, I think, untenable.

The third element is the idea that it is first for others, not Lady Butler Sloss, to decide if she is suitable. She plainly did not take that view in the Diana case, and I do not doubt that she does not really take that view in this case. I would suggest it is axiomatic that any judge, particularly a judge of Butler Sloss’ calibre and experience, is the first consider whether to recuse themselves from hearing a case (or an Inquiry).

The normal test for a forced recusal in a court hearing is whether there is a real or apparent bias. As it was put in the Pinochet case:

…if a judge is in fact a party to the litigation or has a financial or proprietary interest in its outcome then he is indeed sitting as a judge in his own cause. In that case, the mere fact that he is a party to the action or has a financial or proprietary interest in its outcome is sufficient to cause his automatic disqualification. The second application of the principle is where a judge is not a party to the suit and does not have a financial interest in its outcome, but in some other way his conduct or behaviour may give rise to a suspicion that he is not impartial, for example because of his friendship with a party. This second type of case is not strictly speaking an application of the principle that a man must not be judge in his own cause, since the judge will not normally be himself benefiting, but providing a benefit for another by failing to be impartial.

I should caution here that bias does not connote some sinister conspiracy. The rather simple question is whether a reasonable and fair minded individual would be likely to perceive that the judge may not be impartial. Reasonable people may differ on the view but I would suggest that, as Lady Butler Sloss reflects on the unfolding situation, she will return to the point that no judge who knew material allegations were to be made concerning a relative of his or hers in a trial – even if that relative were not a defendant – would sit on that trial. She cannot yet know whether or how material her brother’s involvement is in the handling of child abuse allegations within the ‘establishment’. But the risk that she will find herself in an impossible situation is significant enough for her, on reflection, I suspect, to step back.

And nor should anybody criticise her for that, quite the contrary. She will have respected the dignity of her office, the needs of the immediate inquiry, indeed the reputation of her brother as a senior barrister and Attorney General. The seeds of the problem almost certainly lie elsewhere. This passage, again from the Telegraph, are instructively vague. The Government does not appear to have thought through the problems which have been placed in the judges lap:

Asked if the Prime Minister knew that her brother was the former attorney general, the spokesman said: “I’m not sure that piece of information is a particular secret.”

Asked if her brother’s role was discussed, he said the “focus was on finding the right person.”

Asked whether the Prime Minister shared the concerns of lawyers who fear it will create a poor perception among victims of abuse, the spokesman said: “His view is she does command widespread respect and confidence.”

Lady Butler-Sloss may need to investigate her brother’s role in the Peter Hayman affair, the spokesman indicated. The terms of reference will be published shortly.

Asked if she would be recused from that part of the inquiry, he said: “This inquiry will be able to look at every area that is deemed relevant.”

Again, it may be understandable that the Government is working out the details as it goes along. Lady Butler Sloss was in many ways a, perhaps the, commendable choice, but the scope of the investigation almost certainly rules her out of handling the inquiry.

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VHCCs: A secret plan to fight inflation?

So there is a rapprochement in the battle over Very High Cost Cases reported here by Catherine Baksi at the Law Society Gazette.  You can click on the link. Not that you’ll be much the wiser (and that’s not to criticise Catherine – far from it).  The outline of the deal appears to be:

  • the government will not seek to expand the Public Defender Service (PDS) now ‘normal working relationships have been restored’ (i.e. any more industrial action and you know what happens);
  • revised, apparently individually negotiated fixed fees, to be determined on a case-by-case basis will be paid to advocates undertaking the current batch of VHCCs;
  • those fee deals have not been revealed but, “the ministry was keen to stress that the overall payments will not exceed the amount originally budgeted for following the 30% cuts introduced in December”;
  • the Bar Council, Criminal Bar Association (CBA) and circuit leaders to work with the MoJ to design an alternative to the VHCC payment scheme (civil servants drawing lots not to get the job of shepherding that negotiation); and,
  • an agreement around interim payments has been made, so that barristers do not have to wait months or years for payment.

One might speculate that the agreed VHCC fees on existing cases are not very different from the original fee, but that interim payments have been offered to sweeten the pill.  Or it might be that there is a more substantial increase on offer (but then how is the budget figure reached? Perhaps there are fewer cases or defendants in the budget now?).  Who knows? I don’t.

Anyways, post Jeffrey and Sir Brian Leveson’s decision in the Operation Cotton case there was a desperate need for both the CBA and the Lord Chancellor to find some agreement which saved face – for both sides – and allowed more normal levels of hostility to resume.  Whether this is good or bad, who can say?  The deal – or something like it – was probably necessary as a matter of practical politics.  But we now have a situation where there appears to be a secret plan to save legal aid/cut the legal aid budget.*

I cannot sensibly comment on the claims of victory now being made, so let me comment insensibly.  I am reminded of this episode of the West Wing. Josh Lyman is tricked into admitting to a playful Press Corps that POTUS has a secret plan to fight inflation, when he does not. Josiah Bartlett (aforementioned President) gives Josh a bit of a talking to where the implications of this are brought to light and ends with this, “Are you telling me that not only did you invent a secret plan to fight inflation, but now you don’t support it?”

* delete depending on whether you are Lord Chancellor or not.

 

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All the gone Pseuds: Debt collection, Chicago style

The Guardian has added to a series of stories alleging, “Britain’s high-street banks are routinely issuing legal demands from what appear to be independent firms of solicitors designed to make struggling borrowers pay up. Yet the firms are not regulated by the legal profession’s watchdog, and are simply names used by banks’ in-house lawyers.” They allege the following:

• Royal Bank of Scotland and its NatWest arm have been using Green & Co Solicitors in Telford;
• Lloyds Bank uses SCM Solicitors in Hove, East Sussex,
• HSBC used DG Solicitors in Edgbaston, Birmingham (until January 2014).
No such firms existed on the SRA’s register, we are told. Other interesting characteristics of the letters are said to be:
• “the letters are signed by a lawyer who is individually regulated by the SRA.”
• Borrowers are often told their case has, “been escalated to a third party, using legal language such as “We are instructed by our client” and “We are likely to be instructed to commence court proceedings”.”
• The letter heading looks like that of an independent firm of solicitors.
• The letter, “typically uses a different address from that of the bank concerned”.
• Small print wording on the letters identifies the ‘firms’ as part of the bank or its litigation department.

The SRA are reported to be about to release guidance to stamp out the practice and the banks appear to be already in retreat, withdrawing or reviewing the practice.  We await hearing whether there will be further action.

The banks appear to be defending themselves by saying these ‘firms’ were/are a practising name of their in-house solicitors or a trading name (not that any actual trading is going on under the name) . Wonga took their approach the furthest by (in the Guardian’s words) sending, “letters from fake lawyers, whereas the individuals signing the letters from the banks are authorised and regulated by the SRA.” Wonga also manage to give their fake firm an Irish American feel which evokes, for me at least, a flavour of 1930s Chicago, “Chainey D’Amato & Shannon”. If we’re going to go for pseudonymous fakery we may as well make our lawyers sound like gangsters, I can imagine their risk function not saying.

Lloyds is quoted as making clear, “that SCM Solicitors forms part of Lloyds Banking Group’s in-house litigation department.” And that that every letter sent out bore the name of a solicitor within the department who took responsibility for that letter. Green & Co (the Pseudonymous law firm of RBS, perhaps intent on pointing out they’re new to this and not very good virtual legal practice), “had only “a handful” of cases open…[and] acknowledged that “we must make it clearer” to customers that it is an in-house RBS team.” A logo might help there, chaps. HSBC appear to have worked this out in January when they abandoned their use of the label DG Solicitors. Lloyds even managed to use the name of a firm that once existed that had subsequently been closed: SCM Solicitors. We await their ABS venture, Enron Law, with baited breath.

To be fair it’s not just the banks who are up to this particular trick. The Guardian report that the Student Loans Company magicked up Smith Lawson & Company Recovery Services as “branded correspondence” and that utility companies may also use the tactic.
But let me return to the banks that have their solicitors bravely put their names to letters under pseudonymous letterheads and the idea that this is okay because they are regulated by the SRA. The letters are clearly intended to convey an escalation in the debt process. In one sense that is quite a clever way of doing so; a nudge, if you like. But in another sense, it looks like a deliberately misleading statement. They appear to be deliberately creating a fiction: seeking to create a belief in some of their customers/debtors that is at variance with their own. Putting the true position in small print somewhere on the letter does not change that intention. Nor will it always change the effect of the letter. Such behaviour may fall below normal standards of honesty. It may also fall below legal standards of honesty (though that is rather different from saying an offence has been committed). Let me turn then, briefly, to whether the solicitors involved in pseudonymous law firms have breached their professional obligations.

Firstly, there is a substantial risk that the solicitors who signed or were involved in the production of the letters have breached their obligation to act with integrity. This depends, in large part, on whether it is accepted that these letters were deliberately misleading. There is also a significant question as to whether the obligation to, “behave in a way that maintains the trust the public places in you and in the provision of legal services” has also been breached. More specifically, there is a question over whether Outcome 11.1 (rule 11.1 in effect) has been breached that is solicitors must not, take unfair advantage of third parties [the debtors] in their professional capacity. Perhaps unsurprisingly, neither the rules nor the guidance (indicative behaviours) take account of the possibility that lawyers might make up law firm names to threaten litigation under, but if, “using your professional status or qualification to take unfair advantage of another person in order to advance your personal interests” is likely to be contrary to O11, then using a fictitious professional organisation to take advantage of unsuspecting debtors to advance a business’s interests is also likely to be a breach of the rules.

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Sleeping is the Enemy: What the BNP case reminds us about lawyers’ ethics

A Litigation Daily piece by Susan Beck in the New York Law Journal takes a look at the role of lawyers in the events leading to BNP Paribas’s $8.9 billion settlement with the US Justice Department. The DOJ’s statement of facts filed with the plea deals discusses law firm opinions: one set from Law Firm 1 (Beck indicates this is probably Cleary, Gottlieb, Steen & Hamilton) and one opinion from Law Firm 2 (identified by Beck as Skadden, Arps, Slate, Meagher & Flom by the NYLJ but Clifford Chance by Bloomberg); neither firm has commented). The case is redolent of Standard Chartered Bank (where it is probably the role of General Counsel not outside counsel which gives rise to most concern).

Beck puts it like this:

In an attempt to evade U.S. enforcement actions, BNP executives avoided using BNP New York to process prohibited payments and used an unaffiliated U.S. bank instead. According to the government, the French bank relied on incorrect advice in an October 2004 legal memo from Law Firm 1. This memo “suggested that BNPP may have been able to protect itself from being penalized by U.S. authorities if it conducted these prohibited transactions through another U.S. bank.”

The nature of the advice in Law Firm 1’s memo cannot be concluded based on a few excerpts selected by the government. The memo warned of other possible problems with this plan: While BNP might not be penalized, the memo said that U.S. law would require the payments to be frozen or blocked by the U.S. bank.

Still, BNP employees latched onto this legal opinion to justify processing banned transactions through an unaffiliated U.S. bank, which is not identified.

This they did for three years or so, clearing large sums from sanctioned entities in Sudan. Beck carefully states, “It’s unclear from the government’s filing if Law Firm 1 knew about that concealment.”

Part way through those three years the picture changed. ABN AMRO Bank was fined $80 million (those were the days, sigh the banks) for violating sanctions laws. Law Firm 2 advised BNP that:

it could face criminal charges if it omitted identifying details from payments sent to the U.S…. Law Firm 1 wrote two more opinions reversing its earlier stance. The firm now stated that BNP could face sanctions even if transactions were routed through the U.S. bank, and that U.S. authorities had become sensitive to the use of “cover payments” that omitted identifying details.

BNP continued to process prohibited payments. Beck also says this:

The government’s filing also notes the complicity of BNP’s senior in-house legal and compliance staff. “[They] repeatedly recognized BNPP’s role in circumventing U.S. sanctions against Sudan, and yet allowed these transactions to continue in part because of their importance to BNPP’s business relationships and ‘goodwill’ in Sudan,” prosecutors asserted. Lawyers who expressed concern about the bank’s actions were rebuffed, according to the Justice Department.

As well as the fine:

The bank is expected to plead guilty in federal court on July 9 for conspiring to violate the International Emergency Economic Powers Act and the Trading With the Enemy Act.

It has also agreed to fire multiple senior executives and will lose for one year its ability to process certain transactions in U.S. dollars. No individual BNP executives were charged.

It is not indicated whether any of those executives were lawyers or almost as interestingly what happened to the lawyers who had previously expressed concern about the transactions (were they managed out at the time, left alone, were their careers affected?).

I have spent a lot of time recently researching how in-house and private practice lawyers think about ethics and their red-lines. The case is an interesting example of several phenomena.

Many lawyers will say they are merely technicians who advise their clients on their options. Clients take responsibility for any moral concerns. This principle of non-accountability has some merit in it, in certain circumstances, but also a great deal of danger. The lawyer’s advice is, “You could try this scheme. It is risky, I would not recommend it.” The client hears (or can say they hear), “You can try this scheme.” Each blames the other in the accountability game. It is particularly dangerous where lawyers give advice that something is probably, or more likely than not, defensible. To quote from Confidence Games on tax lawyers, this can be a ‘Get out of jail free card’ and lawyers have been willing to so advise where they do not believe their own advice. The claim to non-accountability is particularly weak where it is the lawyer who dreams up the scheme in the first place.

Lawyers will also say they have red-lines, where being asked to advise on something uncomfortable shifts into territory that they will not stray. Those red-lines are described in different ways but typically centre on something that is “criminal” or (worryingly) “clearly criminal”. Territory short of criminality often gives them some discomfort but is tolerated. What the advice from Firm One shows is the permeability of that boundary between criminal and civil breaches of the law. Lawyers who are too comfortable with advising on how to breach the law without it being enforceable or being likely to be enforced risk breaching their obligations to the rule of law, to say nothing of actions in fraud or dishonest assistance which might also result if the circumstances are right or they put a foot wrong.

The banking cases suggest that some lawyers need to wake up to the notion of accountability, have a proper discussion about their public interest obligations and formulate some useful guidance to keep their brethren out of trouble. The profession’s reputation depends upon it, but there are also more prosaic concerns. There are already arguments being made that corporations should not have advice privilege (see link for Andrew Higgins’ work) and limitations on privilege for in-house lawyers at the EU/competition law level. Legal professional privilege is granted on the assumption that lawyers counsel their clients towards legality. The more examples of lawyers doing the opposite, the harder it will be to justify that privilege.

Update: this Bloomberg story has a bit more detail on Firm 1’s second legal advice and how the French in-house attorney reacted to the advice.  The story indicates about a year and a half later Cuban payments, which had not been stripped of their identifiers (part of the process of avoiding detection) were stopped by the Bank.  These were unlawful under US sanctions laws and were blocked by the Bank because they had identified as Cuban transactions on the transfers.  They were reportedly then stripped of those Cuban identifiers, re-submitted and accepted.  The story then goes on to say:

a senior BNP Paribas attorney in Paris, wondering whether a U.S. investigation could be triggered, asked Cleary Gottlieb for advice. Cleary Gottlieb answered in a March 6, 2006 memo, saying the transactions violated U.S. sanctions — regardless of whether they were processed by JPMorgan or BNP Paribas’s New York facility. Cleary Gottlieb advised BNP Paribas to “consider discontinuing participation in any such U.S. dollar facility,” the statements of facts said.

A subordinate of the senior BNP Paribas attorney forwarded the Cleary Gottlieb memo to a bank compliance officer, drawing a reprimand from his boss who said “we now no longer have control,” according to the document.

The senior attorney then wrote to Cleary Gottlieb: “please suspend any further work on this file.”

So here’s the first question.  Has the client been informed, at the appropriate level of seniority and responsibility, of the relevant wrongdoing?

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Independence Day? SRA Risk Outlook Sends Signals to the City

The SRA has issued its now annual report on risk in the solicitors’ profession, SRA Risk Outlook 2014/15: The key risks to the regulatory objectives. The report contains a league table of risks:

  • Misuse of money or assets
  • Money laundering: inadequate systems and controls
  • Bogus firms
  • Lack of a diverse and representative profession
  • Failure to provide a proper standard of service (especially quality to vulnerable clients)
  • Breach of confidentiality: information security and cybercrime
  • Lack of independence

Alongside bogus firms in breach of confidentiality, lack of independence are “new entries” into the professions risk outlook. It is the latter which caught my eye. It suggests a renewed interest in regulating the professional obligations to uphold the rule of law and the proper administration of justice and to behave independently.

The SRA reports that, “we have seen cases where pressure from influential clients has compromised firms’ prioritisation of the public interest.” The report goes into greater detail:

 Lack of independence

Promotion of a client’s interests, or a desire to maximise commercial return, should not override wider obligations to the public interest and the proper administration of justice We acknowledge that the professional principles can, and do, come into conflict with each other However, when professional principles come into conflict, the one that best serves the public interest, in the particular circumstances, prevails There is an increasing trend towards corporate buyers of legal services, such as financial institutions and large multinational businesses, having sophisticated in-house legal departments This can change the balance of power between the client and their legal advisor Those we regulate must ensure they prioritise their obligations to act in the public interest, in accordance with their duties to court, and must resist client pressure which may adversely compromise their professional independence

Failure to act with integrity or ethics: improper or abusive litigation

Improper or abusive litigation is the misuse of legal proceedings (or the threat to bring proceedings) for unethical gains, either for the law firm, its clients or both. This is done by exploiting a client or third party’s lack of knowledge of the law or the lack of resources available to them. We have seen several cases where the justice system has been manipulated so that a firm can increase its financial return. This type of litigation is contrary to a solicitor’s duty to act in the public interest and has a significant negative effect on the public’s perception of the profession

The report argues that:

This risk is widespread, but is most relevant to firms engaged in corporate or city-based legal work. It may also be significant when a firm is reliant on a single or limited number of clients. Maintaining independence is also relevant to in-house solicitors, who may come under pressure from their employers.

It warns that, “sophisticated in-house legal departments,” exert greater scrutiny of, and pressure on, external law firms. “This can lead to law firms being presented with ‘take it or leave it’ contracts or prescriptive or onerous terms of engagement.”

Pressures law firms must manage include:

  • pressure to breach ethical or professional obligations – for example, to use a firm client account to provide a personal banking facility, or to mislead the court, or to breach duties of confidentiality to other clients
  • control over which clients the firm can and cannot act for – this could erode access to justice, particularly if the firm is one of few specialists in the area
  • being clear about who constitutes ‘the client’ – for example, when acting for a corporate client this may mean distinguishing between the interests of the client’s shareholders, its management and the individual who commissioned the legal advice These interests are not always aligned

The proposal appears to be to mainly pursue this through supervision relationships (the report is silent on enforcement in relation to the cases it has seen):

Through our supervision of firms we will explore how these risk are managed by law firms and aim to understand better the challenges firms face. We will share best practice on how firms manage these issues and balance their ethical responsibilities with commercial success

On abusive litigation the report emphasises:

  • firms being criticised by judges for aggressive correspondence in corporate litigation or accused of unethical conduct towards witnesses or their statements
  • judges highlighting serious concerns that ‘frivolous’ litigation was being brought forward by lawyers
  • he High Court warning that immigration solicitors face referral to the SRA if they make ‘abusive’ judicial review applications which fail to follow proper procedure
  • a number of cases where judges have dramatically reduced excessive costs claimed in litigation by over 90%

The SRA does not name names but it is not difficult to think of examples of the kinds of thing they might mean. I have expressed concerns or raised questions about cases involving Standard Chartered Bank, the Times, Clifford Chance, News International/NOTW, Harbottle and Lewis, Farrers, Allen & Overy, Stewart Law and Jeffrey Green Russell. Some of these cases have been investigated. Some may yet. Evidence given in the recent trial of News of the World employees suggests further concerns may yet be revealed.

On the cybercrime front of the following alarming case study is offered:

Large law firm loses data to hackers

A solicitor at a large law firm received an email which looked like a message from the firm’s answering machine service He opened it, and this activated software to install a program called CryptoLocker

Once CryptoLocker had downloaded, it encrypted all the client and office files held by the firm, and a message came through that if the firm wanted the files decrypted, they would have to pay a £1000 ransom within 40 hours If they did not pay the ransom by the stated deadline, the encryption would become permanent and the firm would never be able to retrieve their files.

The firm’s IT department tried unsuccessfully for 2 days to break the encryption At this point, the firm tried to pay the ransom. However, the deadline had expired and so the files could not be recovered. The firm had to explain what had happened to all their clients A number of clients’ cases were severely affected, with court deadlines being missed

This could have been prevented relatively easily CryptoLocker does not spread across networks, and the only files it can encrypt are those that the user who opens the email can access Therefore, the only reason it affected all of the firm’s files was because the member of staff who opened the email had access to them all. In addition, the firm did not have remote backup of any of their files. If they had done, they would have been able to access the files from the backup and the attack would have failed

The report is silent on the identity of the firm. I do not know if it is emerged elsewhere. One can understand the SRA’s reticence, but also note in passing the broader regulatory emphasis on disclosing quality and ethics relevant material to clients (such as consumer complaints). Whether the SRA should disclose the name of the firm or not, I imagine this sort of information is being sought by sophisticated clients as part of their due diligence and taking firms on. I certainly hope so. What will happen where such breaches occur in firms serving less sophisticated clients? Will the SRA act? Would that be fair if they have allowed City firms anonymity?

There is perhaps less an emphasis in the report on changes in the market which are now seen as drivers of risks in and of themselves. Some hints of the extent of market change are indicated by the following statistical nuggets from the report:

  • the market share of the top ten conveyancing firms increased from five percent in 2010 to ten percent in 2012 17
  • in 2006 sole practitioners made up 41 percent of the profession; in 2013 this had reduced to 29 percent
  • there were 60 percent more law firm mergers in 2012 than in 2008
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Snake Hall II (or) Tax Avoidance and the Sex Lives of the Potato Men

Ok, so you all seemed to like the Snake Hall post and several of you wondered out loud whether there was something similar going on in the UK (I issue here the obligatory *innocent face*).  I am not qualified to comment, but a very interesting tax barrister Jolyon Maugham (follow him on twitter folks) has written this blog post which suggests that the role of some at the tax bar (and, although he does not seem to say this, he may mean also solicitors’ firms) may bear scrutiny as not as independent or professional as others.  He points to some of the same issues that the Confidence Games book points to, and he neatly identifies the importance of the role of advisor as gatekeeper in such circumstances – he refers to it as policing.

He cautions too about being too simplistic about labelling tax avoidance good or bad: it can be either, or it can be ambiguous.  See here and here.  As he notes, and this is clear too from the Confidence Games book, the devil is in the detail, along with lots of numbers and the sex lives of the potato men.  One might be tempted to say here as someone called Dave apparently does in aforementioned film, “I think you’re focusing too much on the crazy aspect, and not enough on the paving side of it.”* but Jolyon moves on from the little pictures to the bigger one with something important to say.

The kinds of problems he canvasses are similar too, but less egregious than the US examples: high fees, relationships of *ahem* mutual advantage.  The US examples are strengthened by a great deal of evidence about how and why schemes were developed and the way in which they were executed which rendered ambiguous tax arrangements clearly abusive. These were prompted by prosecutions and investigative journalists looking hard at the professionals.  I’ve not seen similar evidence here, but that may just be my failing.

He indicates too – particularly interestingly – that there are ‘powerful structural forces’ at work.  He is not generally talking of the kinds of specific collusion that make Rostain and Regan’s book so interesting, though there may well be a bit of that lurking in the background, but he does provide an important indication that regulators may need to pay greater attention to the incentives which help structure ethical decision making in tax and elsewhere.  Both Maugham, Rostain and Regan would agree, I think, that bad tax avoidance is not all about a few bad apples. There are ways in which the barrels may be, or are, bad. He puts it like this:

So there are ‘powerful forces’ – to put the matter politely – operating in favour of saying ‘yes’. There are also powerful internal and external controls on saying ‘yes’: not least, your reputation and the inclination of insurers to indemnify you against the consequences of giving poor advice. I think most barristers at the tax bar get the balance right. But several do not.

This aspect of the tax industry has, rightly, exercised Margaret Hodge (although you should not rely on as accurate the particular individuals she has named as offenders under cover of parliamentary privilege). But, more importantly, the account given above should spark further ideas as to how one might tackle tax avoidance. In a quiet, but effective, and pro-growth sort of way. I’ll come on to those another day.

I am looking forward to it.

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* I should point out that I just googled the quote.  I have not seen the film.  I don’t like the Inbetweeners either.

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