first_imgDishonesty among partners has recently hit the headlines for all the wrong reasons. While such dishonesty is by no means rife, it is important to acknowledge that it can happen, ­especially as practices are increasingly coming under financial pressure. That means firms need to be prepared for the worst. In the press, there has been much talk about partners not wishing to report their colleagues as part of some ‘gentleman’s code’. That may be far from the truth, but the decision to report a matter, especially to the police, is a complicated one. As a managing or senior partner, imagine the following scenario. Late on a Friday afternoon, the finance director asks to see you urgently. He tells you that a member of his team has found a discrepancy concerning one of your equity partners. You ask to see the FD immediately, and he outlines the problem. You now have to react, but what do you do? More generally, the partnership must consider how best to manage the firm’s reputation. What will you do if word spills out that you have a ‘problem’. It is too late to think about it then. At every stage you must be prepared to send to the appropriate person any enquiry. You should also be ready to provide an explanation in terms you are happy with, such being consistent with the enquiries that are currently being made, and the rights of the partner involved, bearing in mind the interests and concerns of your clients and others with whom you engage. There may, or may not, by this stage have been admissions of wrongdoing. Therefore, you may want to take advice in relation to how you should best deal with the media. It is also going to be necessary to consider the position of the partner in the partnership moving forward. There will almost certainly have been significant breaches of the Partnership Agreement. Typically, there will be provision entitling you to expel (subject to the appropriate resolution being passed) for: committing a criminal offence; conduct likely to damage the reputation of the partnership; not acting in good faith; and committing any material breach of the provisions of the agreement. If there is no such provision, and the partner will not agree to retire from the partnership, you may have no choice but to dissolve the partnership. There may be particular financial consequences on leaving the partnership, dependent on the reason given or agreed, which may come to be in issue at the point of departure. The reality, of course, is that if there has been financial impropriety of a sort to have caused clients or the firm financial loss, it is extremely unlikely that the partner is going to have a continuing relationship with the practice. In fact, that partner may have been advised at an early stage to pay the money that has been taken straight back, so as to lessen the severity of the potential consequences, but as far as the other partners are concerned, in terms of culpability the damage may already have been done. No one is doubting the traumatic consequences for everyone involved in a partnership when dishonesty hits. Sometimes, preparing for the worst and managing the crisis effectively is the best one can do. That can be of great value to the practice in terms of minimising potential loss and exposure, and in safeguarding the firm’s reputation. Early action points Reputation matters Now come some of the hardest questions. Should you inform the Solicitors Regulations Authority? Rule 20.06 of the Solicitors Code of Conduct 2007 is clear. You must report when you become aware of serious misconduct by a solicitor; when you have reason to doubt the integrity of a solicitor; or when you believe a solicitor is in serious financial difficulty which could put the public at risk. In its guidance, the SRA says that in general any conduct involving dishonesty or deception or a serious criminal offence amounts to ‘serious misconduct’ for these purposes. No one likes reporting a fellow partner to the SRA, but there is the professional obligation to do so. However, it is nonetheless possible for the partner concerned to ‘self-report’, and the SRA guidance makes clear that you will not be in breach of rule 20.06 if you take no action because you know that ‘someone else’ has already reported the matter in question. Particular care may need to be taken if there is evidence of money laundering activities. And should you report to the police or risk criticism for not doing so promptly? This is sometimes a very difficult question. As already noted, the authors do not know of any so-called ‘gentleman’s code’ that applies here that prevents reporting to the police, but there can be reasons not to do so. Chief among these is that you want to be in charge of the pace and depth of the investigation. Once the matter is handed over to the police, they will be in control, evidence may be seized, staff may need to be interviewed, communications may be revealed to third parties and (if this is a concern) the enquiry may be widened. Any ­information you give to them, including by email for example, is potentially ­disclosable should there be criminal proceedings. While it is always possible for the partner concerned to claim privilege against self-incrimination and refuse to answer questions, that risk may be heightened by reference to the police, and may make it more difficult for you to establish the full extent of the problem. Remember, though, that if you do not administer a caution (the Police and Criminal Evidence Act 1984) when interviewing the partner concerned, you may find that any damaging admission will not be admissible in any subsequent criminal trial. If the police become involved, there may be reputational risks to the practice, which may compound the damage that has been caused. And once this has become a ‘police matter’, ­anything you say will have to be controlled. You cannot afford it ever to be suggested that you have put at risk a criminal trial, should there be one. While there may be no ‘gentleman’s code’ preventing a report (as some members of the press are suggesting), there is the human factor. Partners may have been in business together for many years and there can be a reluctance to bring upon the fallen ­colleague and his or her family, yet more trauma, as a result of their actions. But there may, nonetheless, be other factors which persuade you immediately to call in the police. Heading that list is the fact that their investigatory powers and resources are greater than yours. True, you may be able to apply for a Civil Search Order (formerly known as an Anton Piller) to obtain evidence that might otherwise become ‘buried’. But this process is expensive and burdensome, not to say embarrassing given the relationships of partners among themselves, as colleagues. Then you may not be confident you have got to the bottom of the extent of the problem. Can you be sure you know who exactly are the ‘losers’? Might this category be wider than just the partners in the practice? Could it involve clients, and possibly other third parties such as suppliers? As a result you may feel it safer to have put the matter in the hands of the police at an early stage. Next, consider that the firm’s insurers may require a police report to be made, and failure to do so could vitiate the insurance policy. It is worth noting that the police are currently actively encouraging the reporting of activities such as these. As the City of London Police has put it on its website: ‘Simply confronting and sacking an individual is only a short-term solution. ‘It is an approach that has come back to haunt many businesses who have released an employee without taking them to task, particularly where that individual’s new employer starts asking questions… We urge businesses to report such concerns to the police as early as possible. ‘Often, when we are brought in at the eleventh hour, so much evidence can have been lost, along with any chance of identifying other collusive employees or the organisers.’ These words apply equally to partners, as well as employees. In their recent press release, CIFAS, the UK’s fraud prevention service with members from the banking, credit and insurance industries, has recently acknowledged that while it can be difficult where fraud has been carried out by a ‘trusted peer’, this has led to only 27% of staff fraudsters being reported to the police in 2010. For those reasons you might think it is right to report. center_img The hardest questions The steps you must take immediately are these. First, assess whether the facts being explained to you present a real problem, as the steps you are about to take may have career-affecting consequences for the partner concerned. What actual evidence do you have and what does it prove? Second, decide immediately who should take charge of any internal investigation. Depending on the size of the practice, the obvious candidates would be the finance director, the managing partner, an employment partner and a criminal partner. The group should be kept small, not simply to be more effective in managing the situation, but because enquiries may be intrusive. If innocent explanations are forthcoming, information that is revealed need not become more widely known throughout the partnership. The partner concerned may also want, or be entitled to, an opportunity to meet with a panel of previously uninvolved partners to persuade them that he should remain part of the fold. If many of the partners have already been involved on a detailed level this may become difficult. Third, the facts must be established as best they can, and as soon as possible, through an audit trail of the appropriate documents. This is likely to require an analysis by your finance director, and possibly also the instruction of forensic and/or computer experts from outside the firm. While this may involve inspection of email accounts, it is important to check the provisions of the firm’s electronic information and communications/data protection policy (if one exists) for authority to do so. Even without specific authority, you are nonetheless entitled to process sensitive data in the other circumstances set out in schedule 3 of the Data Protection Act, which include in connection with legal (or prospective legal) proceedings, to obtain legal advice or to exercise legal rights. Fourth, you have to consider how to deal with the partner’s position. Once the initial information is available, it may be appropriate to meet the partner. There may be a reasonable and prompt explanation that allays any anxiety. If there is not, you will need to consider interim measures to preserve evidence, and to protect the partnership and your clients. This may involve initial suspension. The partnership agreement needs to be checked to determine your powers in that respect. Next, consider whether there are risks to the client account, or is it just the office account that may be exposed? Are monies coming out through irregular bank transfers or through the issue of fraudulent cheques? The bank will need to be informed, so as to stem any losses. They may accept responsibility, but this could be in dispute from the time you are aware of the risk unless you have been in touch with them. This is a big step, for it will be the first time you go outside the firm to reveal there may be a problem. Now you have to consider your insurance position. If what is alleged to have taken place can result in a claim, you will almost certainly have to inform the firm’s insurers as soon as possible (you will need to check your policy documents in that respect). At this point it is not possible to be able to be specific about the extent of the problem, but this can be explained initially on the telephone. Doubtless it will have to be confirmed in writing thereafter. This, like the previous communication to the bank, will need to be fully confidential. There may yet be an innocent explanation for what has happened. You will probably want to call a meeting of your partners to explain where you have got to, and to confirm that enquiries are continuing. There are some big decisions for you all to take very soon. Richard Fox and Michael Caplan QC are senior partners in the employment and ­criminal departments respectively at Kingsley Napleylast_img read more