Between a rock and a hard place

Ministers and regulators are under increasing pressure
to launch an investigation into the extent of entities engaging in the unethical and deceptive activity of sending recovery letters purporting to be sent
by independent law firms.
This comes as a result of the discovery that high-profile companies in several sectors have recently been engaging
in the practice of sending letters claiming to be from third party law firms.

Given the severity of the allegations, what are the implications for lawyers from independent law firms who act for those companies and those working for such companies
in-house?

Compensation claims

The revelations come after payday lender Wonga was ordered to pay £2.6m in compensation after it sent
letters from bogus law firms to customers who were in arrears. The letters led them to believe their debts had been passed
on to a third party and that
often they had incurred a fee
as a result.

Since the Financial Conduct Authority’s (FCA) investigation into the aforementioned lender,
it has become apparent that
this activity has been more widespread than first thought. Indeed, three of the UK’s biggest banks were alleged to have regularly sent letters to their clients on headed paper so that
it appeared the correspondence was from external law firms rather than from the banks themselves.

The implications for external solicitors acting for these entities and in-house solicitors involved in this practice are very serious. Any lawyers with knowledge that this activity
was being committed may be found to be complicit in the deception and, as such, may
face prosecution and/or regulatory sanctions.

Solicitors must also juggle
the issues of confidentiality
and privilege with their own professional and ethical duties.
In that regard, it is easier for external law firms to deal with this balance than those working in-house as they do not face added commercial pressures.

In response to the news reports, some in-house lawyers have raised the point that in the current, more difficult, climate, there can be considerable pressure to choose the interests of their employer over their very clear professional duties, such that they are compromising their duties as solicitors for fear of losing their jobs.

However, conversely, those solicitors in-house who might
be aware and/or have evidence that their business is involved in potentially illegal or unethical activity, such as sending letters purporting to be from fabricated law firms, even if not directly involved, could be found to be complicit in a very serious deception if they did not blow
the whistle.

Unethical practice

Best practice in this situation
for external law firms is to stop acting if there is evidence that such actions are still going on. In-house lawyers should consider their position very carefully: writing a memorandum to senior management highlighting concerns about any unethical practices may suggest that
any in-house lawyers were
not complicit in any corporate decision made. They will also need to consider their post
in view of the professional duties as solicitors if such behaviour continues.

Any new in-house solicitors ought to consider whether the activity has stopped and that appropriate steps have been taken to remedy the situation.

In light of the FCA’s investigation, we expect that the Solicitors Regulation Authority (SRA) will give guidance for in-house solicitors. It may be that, going forward, there needs to be an additional but very clear code of conduct to deal with exactly this kind
of situation.

Now, after the City of London police confirmed they will reconsider opening a criminal investigation into Wonga and, since the SRA issued a warning notice aimed at in-house solicitors, we await confirmation of whether solicitors involved in the various entities will face any action from the police and
the SRA. SJ

Eleanor Kilner is a solicitor at Weightmans