Grania Langdon-Down peers into the business of the private investigators and heir hunters used by law firms
Lawyers who use private investigators to carry out anything from corporate due diligence to following a straying spouse have welcomed a proposed new licensing scheme intended to root out rogue operators.
The government has just confirmed that, from 2009/10, private investigators will have to undergo training, and pass a competency test and ‘fit and proper’ person check before they can be licensed to practice – at a total cost of more than £1,000 – by the Security Industry Authority (SIA).
There is a world of difference between the corporate sleuths and the Dick Tracys of this world, and finding a ‘one-size-fits-all’ regulatory system that is properly resourced and policed has raised concerns about the plans.
However, specialists in the field say it is important lawyers have a way of assessing an investigator’s competence because the fallout from an inquiry going wrong can be hugely damaging (see case below).
Gary Miller, a partner with Mishcon de Reya, specialises in the law relating to covert investigations and international asset recovery. He has helped build up the firm’s database of several hundred investigators and founded its fraud group, using investigators to unearth details of frauds and trace missing assets.
‘Everyone in the legal profession who uses investigators will welcome a competency-based licensing system so we can have some form of credentials to assess,’ he says. Problems can arise, he adds, because investigative work is now so specialised that agencies subcontract parts of it, such as surveillance, to other investigators who may not have a code of conduct.
There are an estimated 10,000 private investigators in England and Wales. An indication of the scale of the problem is that offences involving private investigators represent a quarter of the total criminal cases being managed by the Information Commission’s Office (ICO).
The Association of British Investigators (ABI), the main trade association, has a disciplinary code, but its membership is only 500.
ABI spokesman Gavin Robertson is a former detective superintendent who set up surveillance, claim validation and fraud investigation specialists Robertson & Co ten years ago. He says ABI members are very enthusiastic about the licensing plan because it will give them a degree of credibility. However, he warns: ‘The SIA is underfunded and it hasn’t any resources to police this. We don’t want it to end up as just a tax on investigators.’
The big players, such as leading risk consultants Kroll, argue that there should be a corporate licence for the bigger firms instead of individual licences.
Tommy Helsby, chairman of Kroll’s Europe, Middle East and Africa region, says: ‘It’s just going to add unnecessary costs to the business. There is a huge difference between our business, and others like us, and the one-man bands to which these regulations apply. It’s like requiring every employee at Eddie Stobart to have an HGV licence – it is simply a fundamental lack of understanding of the business.’
Miller agrees: ‘I can see why corporate investigators with large staff want some form of corporate licensing. But licensing will mean Kroll and other such organisations won’t have to compete with people who don’t know what they are doing but are taken on by unsophisticated consumers.’
Looking at the work from the investigators’ perspective, Robertson says the data protection legislation needs to be amended to stop genuine investigations being blocked.
‘People are running scared of the legislation and throw up a brick wall even when they have the power to give you the information,’ he says. ‘We have been lobbying the three main political parties asking for a change in the law so that we can make an application to a district judge if data is withheld. The judge can make the decision whether or not it should be disclosed, with the losing party paying the costs.’
The ABI has also asked the ICO to raise the issue of national insurance numbers with the Law Society. Robertson says: ‘We want lawyers to stop providing national insurance numbers when they instruct an investigator to inquire into someone’s background. Nothing can be done with the number other than carry out an unlawful trace by going to the Department of Work and Pensions and either paying someone or blagging them to provide information on that person. It is seen by genuine investigators as putting subliminal pressure on them to carry out unlawful checks.’
For Kroll, lawyers are among its most important clients. Helsby says: ‘Our work largely deals with problems and opportunities. The problems are litigation, arbitration, embezzlement, fraud and corruption. It is a question of teamwork. Finding a witness and checking their credibility is our task. We may interview them, or the lawyer may or we both may. In the US, the lawyers usually want to participate because of privilege issues, but those are less significant here.’
On the opportunity side, Kroll gathers information for clients considering an acquisition or a joint venture or hiring a senior employee.
Helsby dismisses any suggestions that the work is either dangerous or glamorous. ‘It’s hard work and involves painstaking research,’ he says. ‘As one colleague said: his biggest risk is from paper cuts. You are more likely to be offered bribes than threats. You can be openly investigating someone and they will say "our company can give you a lot of work... as soon as you tell the bank we should get the finance".’
Kroll are mainly instructed by big City law firms. ‘However, it’s about the size of the issue rather than size of the firm,’ Helsby says. ‘Our fees for an average case are probably £25,000. However, the underlying issue is likely to be a million pounds-plus because it doesn’t make sense to spend that amount on us if there is only £100,000 at stake, unless there is something bigger behind it.’
Walking the minefield
When it comes to instructing investigators, privacy, data protection, human rights and confidentiality issues are a ‘minefield for solicitors,’ says Helsby. ‘I have been asked very explicitly and in documents by lawyers to get access to bank accounts in a way that suggested they did not know they were asking for anything wrong. That used to be routine a few years ago but they are now more sensitive to the fact that taking a short cut is not a wise idea.’
Tony Imossi, president of the ABI, is managing consultant with Solicitors Law Services and describes himself as a ‘field agent’ for lawyers. About 60% of his company’s instructions come from law firms. It offers litigation support, from simple process serving to tracing witnesses, to due diligence on firms doing business together, as well as employee verification. ‘We also do "fit-to-sue" financial status inquiries to see if someone is worth going after,’ he says.
‘Law firms are getting more compliance-conscious, though some are still a bit careless or naive about what they ask investigators to do. It is frightening that so many solicitors are still using unscrupulous investigators. There is a degree of arrogance within the legal profession that, because they are tightly controlled, they don’t need to worry about the accountability of the contractors they use.’
He was recently instructed by a large firm of London solicitors in a divorce case. ‘They wanted far too much information,’ he says. ‘They just needed a snapshot of what the absent spouse was up to in his business and lifestyle to see if it justified pursuing him for ancilliary relief. Once disclosure was dealt with, it may then have been necessary to do more work but they needed to calm down.’
Miller says every lawyer that instructs an investigator has to understand the four elements of risk: criminal, civil legal, litigation and reputational.
He says: ‘You have to be able to justify clearly why you are using them. Are you doing it as due diligence? Are you doing it because you are afraid someone is going to run away with your money or has the dirty deed already occurred? Are you detecting crime? If that is the case, you have more protections under the Data Protection Act in the way in which you manage, store, obtain and disclose data.
‘On the civil side, the courts are taking a much keener interest in how information is acquired. If an investigator uses illegal means to obtain information you could face a costs order and evidence may not be admissible. There is also the seminal case of Dubai Aluminium  UKHL 48, which says that if you step over the line and commit a criminal offence, beware. It risks breaching litigation privilege in the investigator’s report and could lay your client bare.’
The ICO has been pressing for tougher sanctions, including up to two years in jail, for obtaining personal data unlawfully in breach of section 55 of the Data Protection Act. The government included the penalties in the Criminal Justice and Immigration Act 2008, but they can only be introduced by an order of the justice secretary.
An ICO spokesman says it is concerned about the illegal trade in personal information in the legal, financial and media sectors and is investigating how widespread it is.
The Solicitors Regulation Authority has no specific guidance on the use of private investigators and the information they provide. However, a spokesman said: ‘We expect solicitors to comply with the law and to collect and use data in a manner that the Information Commissioner would regard as responsible.’
Miller says it is ‘entirely right’ that law firms are on the ICO’s hit list. ‘I can see why they are out looking for an easy scalp because not enough people stop and think about the consequences of getting it wrong. Every sensible law firm should have its own key terms and conditions of business which it gets its investigators to sign up to. However, those conditions don’t always correspond with the reality on the street and there will always be some degree of mismatch.’
It is likely that investigators and fraud lawyers will be at a premium if the credit crunch continues. ‘When times get tough the crooks go shopping,’ says Miller. ‘An economic downturn creates a distortion in the moral compass.’
However, he warns that investigations should still be kept proportionate. ‘Anything is fair game if it is legal and lawful,’ he says. ‘But, while that will reduce your litigation risk, there is still the question of reputational risk. How aggressive does your client want you to be? There are many ways of skinning a cat and you don’t necessarily need to go for the most controversial.’
Family quarrels can prove as bitter as any civil war. When two brothers fought over a woman, one knocked the other out – and immediately emigrated to New Zealand.
When the brother in England died intestate, his estate was advertised by the Treasury Solicitors and ‘heir hunters’ Hoopers, the genealogists and probate researchers, traced his brother as his next of kin.
Hoopers’ chairman Mike Tringham says: ‘When we tracked him down to tell him he was entitled to his dead brother’s fortune he would barely admit the relationship. "I last saw my brother 50 years ago when I knocked him out in a fist fight. I still hate him".’
Piecing together family trees to find hidden beneficiaries can reveal long-standing estrangements, family feuds and betrayals, but can also heal old wounds when families get back in touch. For solicitors specialising in wills, trusts and probate, specialist tracing agencies provide the vital links in establishing the legitimate heirs to an estate.
There are two elements to the genealogical detective work that characterise this field. Some firms compete in tracking down the hidden beneficiaries of the unclaimed estates listed weekly by the Treasury Solicitors and, generally, signing them up for an agreed percentage of the inheritance. Others provide probate genealogy and asset-research services exclusively under the direct instructions of lawyers and other professionals involved in the administration of estates.
More than half the 500,000 people who die each year in England and Wales die without making a will. While in most cases their estates will go to their next of kin under the intestacy rules, the estates of those who die alone, with no will or known beneficiaries, go to the Treasury Solicitors’ bona vacantia division. Unless beneficiaries can be found, the money eventually passes to the Crown.
Tringham says two-thirds of Hoopers’ work comes from solicitors and foreign tracing agencies. The rest comes from heir hunting. ‘It can be a race to find the beneficiaries,’ he says. ‘The Treasury Solicitors used to give an indication of the approximate value of the estate when they published the details so you could select the ones worth pursuing.’
However, the department stopped including the value at the end of last year as part of their anti-fraud measures. While the minimum estate advertised is £5,000, some may have left a small fortune, others only a modest amount.
‘We have had cases where we thought the deceased had few assets,’ says Tringham. ‘But once we found the beneficiaries and they put in a claim it turned out there was a substantial amount of money. In other cases, the estate has been small and then we have the dilemma of a whole swathe of relatives sharing a modest amount. We will have arranged a commission, but it may not pay our fare into the office. However, we are getting more skilled at selecting cases with potential.’
Stephen Rigden, head of research at Title Research, says most of its clients are small to medium-sized law firms, high street banks and public trustees.
While the internet has opened up a wealth of opportunities for tracing potential beneficiaries, some resources have become harder to access because of data protection and confidentiality issues.
He explains: ‘In 2001, the government passed regulations enabling people to opt out of the publicly available version of the electoral roll. Until then it was fantastic. It was 98% complete and current. But after 2001, a lot of people exercised their right to opt out and, in some areas, 50% of the names just dropped off the register.’
However, it has access to other publicly available databases and to databases for which it has to be specially licensed.
Tringham also says there are difficulties caused by data protection legislation. ‘There are all sorts of restrictions on what we can access,’ he says. ‘A lot of people don’t understand about data protection or about the Freedom of Information Act, which was designed to liberate information, not restrict it.’
This area of work is currently unregulated. Rigden says regulation would be in the interests of the reputable firms as well as estates and their heirs.
For Gary Rycroft, a partner with Lancaster-based Joseph A Jones & Co and a member of the Law Society’s Wills and Equity Committee, probate genealogists such as Finders, Hoopers, Fraser & Fraser, Kin and Title Research play an invaluable role in helping resolve complex cases.
‘We had one elderly client who asked us to be executors of his will in which he was leaving his estate to his three daughters,’ says Rycroft. ‘It seemed straightforward until he told us that he hadn’t seen them for 40 years and didn’t know where they were.
‘We suggested that, rather than us spend money trying to find them after he died, why not spend it now. We instructed Hoopers and they found his daughters. He was reunited with them and moved to live near them for the last year of his life. It turned out that his ex-wife, after a very bitter divorce, had told them he was dead and had even shown them his supposed grave so they had never tried to find him.’
Private eyes public shame
Investigations which go too far can lead to grievous consequences for their initiators:
- Corporate giant Hewlett Packard was flayed for obtaining the private phone records of reporters, board members and employees under false pretences – a practice known as pretexting – in an effort to determine the source of boardroom leaks in 2006;
- US businessman Matthew Mellon was acquitted last year at Southwark Crown Court of paying private detectives to hack into his ex-wife’s computer during their divorce after arguing he had no idea they would do anything illegal;
- The News of the World’s veteran royal correspondent Clive Goodman was jailed last year for illegally intercepting phone messages – and the newspaper’s editor resigned – after Goodman and a private investigator were caught hacking into the voicemail boxes of aides to the Prince of Wales and his two sons looking for ‘stories’; and
- Two years ago, Sharon and Stephen Anderson pleaded guilty to more than 50 offences of obtaining information contrary to the Data Protection Act at Huntingdon Magistrates Court. They were subcontracted to do the work by detective agencies working for law firms.
Grania Langdon-Down is a freelance journalist