CRIMINALS TARGET TROUBLED UK LEGAL FIRMS

Shock. Horror. Criminal gangs are doing their utmost to hijack UK legal firms!

No, we're not talking about the synopsis to a sequel to The Firm, John Grisham's best-selling novel about a US law practice that was a front for the mafia. We're talking about something much bigger, which has the potential to become a major problem for the legal community and law enforcement bodies - particularly the Solicitors' Regulatory Authority (SRA) whose job it is to police the conduct of lawyers.

It could also become a major bête noire for the under-siege lending community, as well as the scores of totally innocent and unsuspecting victims who always seem to suffer as a result of these indiscriminate activities.

Higher levels of mortgage fraud and money laundering are two of the biggest consequences of such a nightmarish scenario becoming reality. Other fears centre on potential abuses over advance fees, immigration, and staged accidents that could net criminals hundreds of millions of pounds.

But there's another major cause for concern, one that's straight out of the plot of a Grisham bestseller. This is the prospect that any criminal who succeeds in taking over a failing law firm will be able to conceal their true identities behind a respectable legal shield, thereby extending their ability to commit fraudulent and criminal activities.

Ordinarily, I would listen to these claims with interest - but wouldn't take them too seriously.

But when the man who runs the fraud prevention arm of the Solicitors' Regulatory Authority goes on the record and says such things, then it's a different matter: you can't ignore the threat; you have to sit up and take notice.

Right now I am sitting in a very upright position, thinking about the bombshell Steve Wilmott, head of the Solicitors Regulation Authority's fraud bureau, dropped on the fraud prevention community just a few weeks ago!

When speaking to the FT recently, Mr. Wilmott didn't reveal how many firms are under scrutiny, but he claimed the figure was in the "dozens'!

In my mind that is a minimum of at least 24 firms. It could be 36; it could even be 48. Alternatively, I seem to recall twelve times twelve equaling... To be honest, the answer is somewhat irrelevant. Steve Wilmott says we've got a problem. As he's the expert, I think we should listen to him.

"There are lots of practices up for sale at the moment because of the recession. What we are concerned about is criminals buying them up and using them for nefarious means," he warned.

A former head of economic crime at City of London police, Wilmott says the law firms at the heart of his probe have been opening sham offices and often use recently qualified lawyers to front the operations.

Now, if you are someone who works in the compliance and fraud teams of one of the UK's 100, or so, mortgage lending institutions, I would be starting to feel a little bit nervous right now.

After all, 2010 is the year the industry broke the unwelcome £1 billion barrier in terms of the number of mortgage fraud cases that were heard by the crown courts in England and Wales.

My own view is the real figure could be anywhere between £1 billion and £5 billion. I say this because the general rule of thumb is for every case that is detected, as many as four slip through the net.

I know from the conversations I have with lenders that many compliance and monitoring systems simply don't stand up to scrutiny.

They may well tick a number of boxes and have sexy names. But do they detect a crime once it has occurred - or prevent them from happening?

If prevention isn't the key part of a fraud system, then it is doomed to fail. And the gangs now seemingly targeting failing members of the legal community know this.

They're not concerned about being detected. Their goal is to steal as much as they can before being detected. And it is this very real threat that we must all work towards addressing.

The SRA says it will shortly launch revamped vetting rules for the legal profession, with tougher standards on the authorisation of firms and the people who run them. The authority says this is particularly important because of new legislation allowing lawyers to go into business for the first time with other professionals, ranging from accountants to architects.

I suppose I should feel a crumb of comfort that such measures are being introduced - but I don't.

The only thing that will make me feel more confident is seeing lenders act decisively in the way they go about preventing fraud. And that day can't come soon enough!