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* THE DIRTY MONEY STRUCTURE
* CO-REGULATION OF LAWYERS BY GOVERNMENTS AND LAW SOCIETIES
* THE DIRTY MONEY STRUCTURE
| By Raymond W. Baker | |
laws in its origin, movement, or use, it merits the label.
There are three forms of dirty money that cross borderscorrupt, criminal, and
commercial. The corrupt component consists of the proceeds of bribery and theft
by foreign government officials. The criminal component is derived from drug
trading, racketeering, terrorist financing, and criminal syndicate activities across
the planet. The commercial component has the characteristic of being almost
always tax evading, even though tax evasion may not be the primary motivation
for its generation.
The cross-border flow of illicit money is estimated at $1 trillion (a thousand billion)
a year. Of this, it is further estimated that half$500 billion a yearcomes out of
developing and transitional economies. The corrupt component is the smallest of
the cross border flows, at only some three percent of the total. The criminal
component constitutes perhaps a third of the global total. The commercial
component, derived from mispricing in arms length transactions and abusive
transfer pricing in related party transactions or falsified in other ways, is by far the
largest part, at close to two-thirds of the global total.
Since the 1960s, we in the West have built and expanded an integrated global
financial structure to facilitate the movement of illicit money across borders.
There were minor elements of this system available before the 1960s, such as a
few tax havens, numbered bank accounts, and transfer pricing techniques. But
the rapid expansion of the dirty money structure took off in the 1960s for two
reasons.
First, this was a decade of decolonization. Between the late 1950s and
the end of the 1960s, 48 countries gained their independence. Some of the
political and economic elites in these countries wanted to take their money out by
any means possible, and western businessmen and bankers serviced their
desire to move the illegal portion of flight capital through the dirty money
structure. Second, the 1960s marked the decade when multinational corporations
accelerated their expansion around the world.
Of course there were international corporations before the 1960s, but typically even a diversified oil company or trading organization had activities in only some 12 or 15 countries. From the 1960s forward, businesses began planting the corporate flag across the planet, a process that has continued up to the present time. Many of these corporations wanted a structure that could enable the movement of profits and capital easily across borders, without being dependent on local exchange control regulations.
The dirty money structure consists of the following major elements:
Tax havens. Entities are created in tax havens and then purchases and
sales are ostensibly made by these entities, with pricing structured in such
a way that much of the profits of the transaction accumulate in the tax
haven entity and are then not taxed or minimally taxed. There are now
some 72 tax havens spread across the globe.
Secrecy jurisdictions. Many of these tax havens also offer secrecy
provisions. Nominee shareholders and directors serve as owners and
managers of entities, shielding the real owners and managers from being
revealed.
Disguised corporations. These are now estimated to number one to three
million around the world.
Flee clauses. These disguised corporations are often equipped with flee
clauses, which allow the nominee directors to shift the locus of the
disguised corporation from one secrecy jurisdiction to another in the event
that anyone seeks to determine who are the real owners or managers of
the company. Thus, the disguised entity can nearly always stay a step
ahead of investigators, tax collectors, or disgruntled associates.
Anonymous trusts. Trust accounts, able to conduct affairs as businesses,
can likewise be created behind layers of nominees and trustees.
Fake foundations. Some countries and enclaves allow the creation of fake
charitable foundations. The creator can donate money to the fake
foundation and at the same time designate himself or herself as the
beneficiary of contributions from the fake foundation. These entities can
also be hidden behind nominees and trustees.
Falsified pricing. This is the most commonly used component of the dirty
money structureintentionally falsifying prices of imports and exports for
the purpose of shifting capital between countries. Usually it involves
overpricing imports or underpricing exports, but under certain conditions
the same end can be accomplished by doing the opposite. Falsified
pricing in the range of 10 to 20 percent can be accomplished on many
types of traded commodities and goods, and this mixture of trade
payments and capital movements is virtually inseparable in measuring
global financial flows.
Weak regulation and poor enforcement. Loopholes are left in the laws of
many western countries to facilitate the movement of money through the
dirty money structure and ultimately into western accounts. Even in
western countries with modest regulatory regimes, enforcement is
generally lax.
The United States has a particularly weak legal structure for curtailing illicit
financial inflows. The United States uses a list approach to determine predicate
offenses for money laundering. The list of domestic crimes that constitute a
specified unlawful activity, i.e., the basis for a money laundering charge,
comprises some 200 classes of offenses. Knowingly handling the money of any
of these is indictable. The list of foreign crimes is much shorter, focused on the
proceeds of drugs, corruption, crimes of violence including terrorism, bank fraud,
and certain treaty violations. Not included are the proceeds of racketeering,
handling stolen property, contraband, counterfeiting, credit fraud, alien
smuggling, slave trading, trafficking in women, environmental crimes, and a host
of other offenses. It is not against U.S. anti-money laundering law to knowingly
handle the proceeds of these types of foreign activities. The fact that the United
States is so open to many forms of foreign criminal money makes it virtually
impossible to effectively curtail the few kinds of incoming illicit money that are
barred.
Many people in corporate, banking, and legal professions regard the dirty money
structure as primarily serving the interests of tax avoidance and tax evasion.
Careful observation and analysis suggests that this is not correct. First, tax
issues are largely irrelevant to the movers of corrupt and criminal dirty money.
These elements generally have little or no intention to pay taxes anyway, and so
for themmajor users of the dirty money structuretax concerns are
unimportant. Second, illicit money streams across borders out of weaker
currencies into stronger currencies even after VAT taxes and customs duties
have been paid, so in these instances tax evasion is not the object. And third, if
tax avoidance or evasion was the driving force of the dirty money structure, the
accompanying secrecy structure would be unnecessary, because tax evading
money can come directly and legally into virtually every western country. Thus,
tax avoidance or evasion does not offer a satisfactory or complete explanation for
the development and expansion of the dirty money structure.
The primary motivation for use of the dirty money structure is to shift resources
from poor to rich, out of poorer countries where 80 percent of the worlds
population lives into richer countries where 20 percent of the worlds population
lives. This is the basic motivation that unites the movers of all three classes of
dirty moneycorrupt, criminal, and commercial. This structure, which has been
created and expanded largely by western interests, is mainly about accumulating
wealth and resources secretly or opaquely and avoiding demands locally from
any source, whether it be tax collectors, local employees, managers,
shareholders, family members, rent seekers, or others. Tax avoidance or evasion
may seem the most logical use of the dirty money structure, but research in
many countries indicates that there is an underlying motivation that decidedly
trumps the question of merely skirting tax payments.
Cross-border illicit financial flows are the most damaging economic condition
hurting developing and transitional economies. These outflows drain hardcurrency reserves, heighten inflation, reduce tax collection, worsen income gaps, cancel investment, hurt competition, and undermine free trade. These outflows produce instability and insecurity in todays world, already racked with terrorist attacks in rich and poor countries alike. These flows undercut the spread of capitalism and, in the process, the entrenchment of the democratic-capitalist
system around the globe. These flows contribute to a world riven with the strains
of vast levels of inequality, likely to be a dominant issue in the 21st century.
Can anything be done? Focusing in this paper on the United States, four
examples serve to illustrate that progress can be dramatic.
Foreign Corrupt Practices Act. In the wake of scandals revealed in the mid
1970s involving bribery abroad by U.S. companies, the Foreign Corrupt Practices
Act was passed in 1977 making it illegal for American companies to bribe foreign
government officials. This act brought the issue of corruption onto the world
stage, resulting in European countries generally following the U.S. example in the
late 1990s. The act did not make it illegal for American banks to handle the
proceeds of corruption. This loophole was closed by the following step.
USA PATRIOT Act. Passed in October 2001 after the horrors of 9/11, the Patriot
Act considerably strengthened U.S. anti-money laundering law and enforcement.
Handling the proceeds of corruption was barred, closing this hole in the earlier
Foreign Corrupt Practices Act. In addition shell banks were taken off the table.
These were banks that, like disguised corporations, could operate behind
nominees and trustees while the real owners and managers remained unknown.
The Patriot Act made it illegal for any U.S. financial institution to receive money
from a foreign shell bank and furthermore made it illegal for any non-U.S.
financial institution to transfer money to a U.S. financial institution that it had
received from a foreign shell bank. With a stroke of the legislative pen, shell
banks were effectively removed from the dirty money structure.
United States v Pasquantino. The problem of intentionally falsified prices has
for years proven difficult to tackle. A significant step was taken in this direction in
2005. The U.S. Supreme Court affirmed a Fourth Circuit Court opinion in a case
that involved smuggling liquor from the United States into Canada for the
purpose of evading Canadian customs duties. The Fourth Circuit ruled that the
United States has a substantial interest in preventing our nations interstate wire
communications systems from being used in furtherance of criminal fraudulent
enterprises. Interestingly, the decision did not hinge on the underpayment of
Canadian customs duties. Instead, the court ruled that a scheme to defraud
breaks U.S. law, largely independent of who or what is defrauded.
Thus, the decision did not penetrate into the revenue rule articulated by Lord Mansfield in 1775 in England, stating that No country ever takes notice of the revenue laws of another. It simply stated that schemes to defraud, including mail and wire fraud, are illegal under U.S. law, including in foreign commerce. United States v Pasquantino has the potential to reshape abusive transfer pricing that is intended to evade VAT taxes, customs duties, income tax laws, and anti-money
laundering statutes.
Grassley, S. 2402. In March 2006, Senator Charles Grassley (R-Iowa), chairman
of the Senate Finance Committee, laid a bill before the chamber that is intended
to make all classes of criminal money transferred from abroad illegal coming into
the United States. The bill effectively does away with the dual list system now in
use. It broadens the definition of specified unlawful activity to include any act or
activity occurring outside of the United States that would constitute an offense ... if the act or activity had occurred within the jurisdiction of the United States or
any State. The wording is similar to law already in force in Canada. If passed,
this bill will be the most dramatic step taken by the United States in its antimoney
laundering efforts and simultaneously the most beneficial step taken in
decades aimed at strengthening the economies of developing and transitional
countries. It will for the first time make it clear that the United States, the worlds
largest economy and chief proponent of capitalism, will not be a safe haven for
dirty money.
* * *
Curtailing cross-border illicit financial flows, reigning in the dirty money structure,
and cleaning up the global financial system is not rocket science. It is a matter of
political will.
Raymond W. Baker is a Guest Scholar at the Brookings Institution and Senior
Fellow at the Center for International Policy, both in Washington, D.C., and
Director of the Centers Global Financial Integrity program. He is the author of
Capitalisms Achilles Heel: Dirty Money and How to Renew the Free-Market
System (John Wiley and Sons 2005).
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* CO-REGULATION OF LAWYERS BY GOVERNMENTS AND LAW SOCIETIES
| IBA PUBLIC AND PROFESSIONAL INTEREST DIVISION Client Protection |  |
- Will client protection be flexible, affordable and constrained?1
Written by NZLS Executive Director Alan Ritchie
INTRODUCTION
As with many other jurisdictions, we in New Zealand have had our share of political intimidation and threats to the role our lawyers have in regulating themselves.
In Amsterdam in 2000, we gave background to a recent history of changing Government
approaches ranging from heavily regulated to highly deregulated, and points between. We also reported on up-to-the-minute Government decisions for our future regulation which included the abolition of our client protection fund (we call it a fidelity fund) which, for more than 70 years, had protected clients against lawyer theft.
In 2002 in Durban, we reported that a new Government had reviewed the plan and reversed the abolition in favour of a fund capped and much reduced in value.
In 2004 in Auckland, we reported progress on the development of a new statutory framework for the future regulation of lawyers and, in consequence, for the protection of clients. We sought then to explain the apparently repetitious nature of our reports by asking readers to note that in 2000 and 2002 we were merely trying to anticipate and mould the legislative measures. By 2004, there was actually a Bill making its way through Parliament.
Finally, in 2006, has come the enactment of the Lawyers and Conveyancers Act. Its all been a tiresomely slow process. And its not over yet. The Act wont come into force until mid 2008, when we expect all the necessary subordinate framework of rules and regulations to be in place and the profession and the public educated and informed.
Its not perfect legislation but we have been able to influence quite a lot of the policy and gain maximum advantage for lawyers in comparison with developments in lawyer regulation in some other jurisdictions. We are particularly pleased to have secured a modern legislative restatement of the professions core values, which the Act sets out in the form of fundamental obligations. We are pleased to be remaining responsible for the setting and maintaining of standards. We will have much more effective powers, not only to regulate conduct but also to ensure lawyers provide good service.
The Act requires the NZ Law Society to have a fidelity fund but its actual cost and coverage are matters left to be determined by rules made by the NZLS and, as part of a co-regulatory approach, approved by the Minister of Justice. This will be referred to again later in this paper.
While the detail of the fidelity fund is not to be found in the statute, there are many provisions having a highly significant bearing on client protection in the broad sense. In outline, they are as follows:
LAWYERS AND CONVEYANCERS ACT 2006 MAIN PROVISIONS BEARING ON CLIENT PROTECTION
Purposes provisions
- To maintain public confidence in the provision of legal services and conveyancing
services
- To protect the consumers of legal services and conveyancing services
- To recognise the status of the legal profession and to establish the new profession of
conveyancing practitioner
Statutory statement of fundamental obligations of lawyers
Lawyers who provide regulated services must, in the course of practice, comply with the
following fundamental obligations:
- The obligation to uphold the Rule of Law and to facilitate the administration of justice in New Zealand
- The obligation to be independent in providing regulated services to their clients
- The obligation to act in accordance with all fiduciary duties and duties of care owed by
lawyers to their clients
- The obligation to protect, subject to their overriding duties as officers of the High Court
and to their duties under any enactment, the interests of their clients.
Areas of work reserved to lawyers
- Giving legal advice to any other person in relation to the direction or management of any proceedings that the other person is considering bringing or has decided to bring before any New Zealand court or New Zealand tribunal and any proceedings before any New Zealand court or tribunal to which the other person is a party or likely to become a party.
- Appearing as an advocate for any other person before any New Zealand court or tribunal.
- Representing any other person involved in any proceedings before any New Zealand
court or tribunal.
- Drafting court documents on behalf of parties to proceedings.
- Giving legal advice or carrying out any other action that by any provision in any
enactment is required to be carried out by a lawyer.
There are some minor statutory exceptions to these provisions.
Conveyancing
Conveyancing is reserved work but it is also to be reserved to the new occupation of
conveyancing practitioners who will be in direct competition with lawyers. It remains to be seen
whether clients will find them an attractive option.
Definition of conveyancing
- Work carried out for the purpose of effecting or documenting any transaction or
prospective transaction that does or would create, vary, transfer or extinguish a legal or
equitable estate, interest or right in any real property.
- Legal work carried out for the purpose of effecting or documenting a sale or purchase of a business, whether or not land is involved.
- Legal work carried out for the purpose of effecting or documenting
ha lease of land
hthe grant of a mortgage or charge over any interest in land
hthe creation of a trust effecting any real property or any interest in land.
- Any legal services that are incidental to or ancillary to any of the work described above.
The preparation of wills will not be reserved work.
Work of a real estate agent
Lawyers will also, in their capacity as lawyers, be able to do the work ordinarily done by real estate agents in New Zealand, though they will not be able to charge on a commission basis. We will have to ensure that practice rules permit adequate remuneration for those wishing to involve themselves in this work.
Business structures/multi-disciplinary practices
Lawyers will be able to incorporate with limited liability. Nobody other than a lawyer actively involved in the provision of the firms services will be able to be a director or a voting shareholder. Relatives of such lawyers will be able to be non-voting shareholders.
Otherwise, with an exception relating to patent attorneys, there will be no sharing of income between lawyers and non-lawyers and, in particular, there will be no multi-disciplinary practices.
The NZLS had devised what it felt to be an excellent MDP model providing client protection by ensuring that the MDPs legal services were delivered through a lawyer-controlled legal division of the MDP, but the profession (shaken by things like Enron) was nervous about the whole MDP idea and the Government has accepted the view that New Zealand should await further overseas developments.
Admission and enrolment of barristers and solicitors
There will be little or no diminution of the current high standards of pre-admission qualification and training or of the requirements of fitness and good character.
Practice rules and the co-regulatory approach
The NZLS will make rules covering all aspects of the practice and regulation of lawyers. They will include standards of conduct and client care and they will be a reference point for discipline.
The standards will focus on lawyers duties to clients and courts. Lawyers will have to provide clients with advance information on the basis on which fees will be charged, what indemnity insurance arrangements are in place, what fidelity cover there may be and what the complaints mechanisms are.
The rules are subject to approval by the Minister of Justice. A few people have said this ultimately puts paid to the professions self-regulation. We dont agree. To the contrary, we look forward to working co-operatively and transparently with Ministers and Governments in the best interests of the public. If we stick to what is best for the public, the approval path will be smooth and the resulting rules stable. Not only that. There is something attractive about the wise counsel which holds that if something is good in the public interest then it will be good for lawyers as well.
It is important to note that, in deciding whether to approve, the Minister must have regard to the underpinning fundamental obligations of lawyers set out earlier in this paper. That, to us, is a highly significant requirement. In addition, the Minister must have regard to:
- the principle that it may be necessary or expedient to impose duties or restrictions on
practitioners in order to protect the interests of consumers.
- the principle that the burden of a duty or restriction should be proportionate to the benefits that are expected to result from the imposition of the duty or restriction.
- the consistency of the rules with New Zealands international obligations.
- the provisions of the statute and all rights and obligations of practitioners under the law.
Financial assurance
We will be retaining our system of financial assurance introduced in 1998 in place of the
traditional but hopelessly ineffective system of audit of lawyers trust accounts. Some readers may remember what our investigating consultant economist said:
Instead of paying auditors, solicitors would have been better off to pay the audit fees
directly to the fidelity fund.
The schemes four objectives compliance, detection, deterrence and demonstration are included in the appendix to this paper.
Decisions will also have to be made on the scope of indemnity rules and the question of whether there should be compulsory indemnity insurance.
Complaints and discipline
The new Act will see the end of an adversarially based system with a primary focus on discipline, whether for inadequate service or serious misconduct. Instead, there will be a much greater emphasis on prompt remedies for clients suffering through shoddy work.
Local standards
committees comprising lawyers and lay people will have wide powers, without being required to have hearings (other than on the papers), to make determinations and apply sanctions from censure to fines (up to $15,000) and costs, to orders for the rectification of errors or omissions, the reduction of costs, opening practices for inspection, making refunds to clients or undertaking training. Standards committees will be able to promote the use of negotiation, conciliation or mediation. The aim will be speedy solutions to clients problems.
A practitioner or complainant dissatisfied with a standards committees determination will have recourse to a legal complaints review office headed by a non-lawyer and administered separately from the law society. This office will have the same powers as standards committees but there will be no appeal from its determinations.
Both standards committees and the legal complaints review office will have the power to lay charges involving serious matters before a lawyers and conveyancers disciplinary tribunal, which will also be administered separately from the law society. The tribunal will be able to impose fines (up to $30,000) and costs, and make orders for striking off or other restrictions on practice.
Fidelity fund
The NZLS will be required to establish and maintain a new fidelity fund. The existing fund will be wound up over time.
The new funds purpose will be to compensate, in whole or in part, people who suffer pecuniary loss by reason of the theft by a lawyer or the lawyers agent of money or other valuable property entrusted to the lawyer or agent in the course of practice. There will be no compensation where money is entrusted to a lawyer with an instruction to invest.
There will be provision for an extraordinary levy if the NZLS thinks the fund is insufficient but, in addition, there will be provision for the fund to be ruled off by the Minister of Justice where it is not sufficient to meet all claims against it. If the fund is ruled off, any residue, after liabilities and administrative costs have been paid, would be distributed pro-rata to claimants.
Otherwise, the legislation gives little detail about the new fund. That is left for the NZLS to develop in its practice rules. The NZLS will be able to set a cap on the claims. It will be able to prescribe in the rules circumstances in which a claimants right to compensation may be excluded or modified.
We have yet to embark on the rule-making process but we are placing considerable store by the Governments announced view that the fund should be flexible, affordable and constrained. To this end, we certainly wish to see a change from the present funds open-ended, uncapped nature providing full rescue services to the greedy, wealthy and commercially aware, to a much more limited fund which will nevertheless try to make sure (to use the words of the 1920s press) that widows and orphans are not left penniless. We have in mind that the capped sum should initially be calculated by reference to the current median house price (simply for the want of some
starting figure) but with that figure subsequently inflation adjusted on an annual basis.
The current median house price in New Zealand is around $300,000.
The New Zealand Law Society
The NZLS will continue as a statutory body and will be the primary regulator for lawyers. It will be required to have a registered constitution and to report annually to Parliament. All people wishing to practise as lawyers will require a practising certificate issued by the NZLS and will have to submit to the minimum levels of regulation for which the statute provides. Costs of the regulation will be met by practising fees payable to the NZLS by all holders of practicing certificates.
However, membership of the NZLS will be voluntary. The NZLS will be empowered to provide representative services in accordance with the wishes of its membership but it must account separately for its regulatory and representative services and must not use practising fee income for representative purposes.
District law societies
The current 14 district law societies will no longer have statutory status but will be able to incorporate, retain their assets and provide representative services. Membership will be
voluntary. If they incorporate they will be able to deliver regulatory services locally for the NZLS, including local complaints and disciplinary procedures. There will be a six month transitional phase for district law societies, during which they can choose to incorporate or dissolve. If they do not incorporate, their net assets will transfer to the NZLS.
Alan Ritchie
Executive Director
NZLS
Wellington
8.8.06
APPENDIX
THE OBJECTIVES OF THE NZLS FINANCIAL ASSURANCE SCHEME
The compliance objective
Regulations and rules were rewritten in a short, objective, results-oriented form. The
excessively prescriptive format of the former requirements had led to inefficiencies of
operation and non-compliance by firms to overcome the inefficiencies. Guidelines
written for the operation of an NZLS model system are detailed and helpful to solicitors
and staff, but not mandatory. Firms are free to employ any trust accounting system which
meets the requirements of the rules and regulations but, if they wish to follow the
guidelines, they will know there will, in consequence, be compliance with the rules and
regulations.
To enable the better definition of responsibility for the trust account within law firms,
each firm must designate a trust account partner for whom training by the NZLS is
compulsory. The training provides the ability to identify and handle financial risks within
law practices as well as the mechanics of trust accounting.
Each firm reports monthly to the NZLS to certify that specified trust accounting
requirement standards have been met. This is, in part, to replace the existing arrangement
whereby firms forwarded month end balance information to their auditors.
Firms also report quarterly to the NZLS on the status of loans administered by the
practice, identifying non-performing loans and giving information on amounts and
arrears. The NZLS is thus able to monitor firms with non-performing loans with the
object of providing guidance on minimising losses.
The Societys 8 inspectors, based in five locations around the country, continue with the
programme of visiting each new law practice within its first few months to review its
financial and trust account system.
The inspectors chief role is to undertake routine inspections of law firms the idea
being that irrespective of any specifically identified risk they will visit all firms within a 6
year timeframe to confirm that each practice is complying with the relevant rules and
regulations and that their internal controls are adequate to safeguard client funds. The
interval between inspections is determined by the risk profile of the firm, including such
factors as size of firm, type of practice, competence of staff, whether the firm administers
loans etc. Where specific risks are identified, either during a routine inspection or as a
result of a complaint or other information coming to the inspectorate the inspectors work
may expand to a full investigation of the firms affairs. In such cases the costs of the
investigatory work carried out are chargeable to the firm involved.
To ensure that all firms are covered in a timely manner the financial insurance scheme
provides also for compliance reviews undertaken by external contractors. Their visits
complement those of the inspectors and have the effect of reducing the interval between
visits to about three years. Firms pay the actual cost of the reviewers time. The
compliance reviews are of limited scope and chiefly concern the adequacy of the law
firms systems, whereas the inspectors cover the full range from checks of reconciliation
procedures to full investigations.
The detection objective
A solicitor database records information about solicitors and trust accounts to assist the
inspectorate in the assessment of the risk, if any, attaching to every solicitor and firm of
solicitors in the country. Collection and retention of the information is subject to privacy
legislation, that is, it needs to be validly linked to the financial assurance function and
second-hand material is generally not collected. Information comes from law firms
monthly and quarterly reports, district law societies, other solicitors, complaining clients
and outside organisations such as banks. Each piece of information is weighted as to
importance, severity and credibility of the source, so that the computer can produce an
overall assessment of which firms warrant further investigation. Reaction to information
received is based on its nature and quality. Rather than waiting until the accumulation of
information amounts to a certainty, investigation is triggered by reasonable suspicion.
The NZLS inspectorate has become cause-driven rather than routine-based so that those
practices seeming to be most at risk receive priority attention.
A confidential free telephone line is operated by the inspectorate and its existence is made known to the profession, the public and to support agencies such as citizens advice
bureaux and Members of Parliament.
An intelligence officer (presently a former police officer with considerable investigative
experience in intelligence analysis) manages both the database and the telephone line.
The deterrence objective
Deterrence is promoted by communication to solicitors of information on compliance,
detection and penalty. The monthly and quarterly certificates and detection programmes
for solicitors form part of the communication process. Key elements are communication
to solicitors of the existence and purpose of the confidential free telephone line and open
communication of news on detections and penalties as they occur. The message
communicated is that compared with the old audit system, under the new arrangements
there is a high probability of early detection should a solicitor be tempted to defraud a
client.
The demonstration objective
These measures, with appropriate publicity, have been effective in re-establishing public
confidence in the handling of client funds by solicitors.
Costs to solicitors of the new scheme are less than half the costs of the old scheme of audit, while detection rates are significantly improved.
8.8.06
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