Beware of sharp practices, warns fraud squad chief

ASSETS: banking lawyers most at risk in economic downturn

City law firms should be extra vigilant in the economic downturn to avoid fraudulent company clients trying to obtain loans in bad faith, and directors seeking to siphon off assets from companies faced with insolvency or administration, the head of the City of London police fraud squad told the Gazette this week.

Detective Superintendent Ken Farrow said companies trying to maintain cash flow in difficult times often follow predictable fraudulent patterns.

He said: 'Suddenly, when money supplies dry up, in order to keep the business going, some directors think the business is everything and

disregard the fact that they are involved in criminal activity.

They will often seek to borrow against assets more than once.'

Banking lawyers are most likely to become embroiled, Mr Farrow warned.

He said most firms become involved unwittingly, because different advisers are used by such companies for different transactions.

He said it was more likely to affect second-tier law firms because the largest practices act for more well-established clients.

Another fraud which could affect law firms involves directors siphoning off assets.

Mr Farrow said: 'Firms involved in settling large amounts in offshore centres should be raising a very large eyebrow, especially if there is no apparent reason for these transactions.'

He continued: 'This is the endgame, when the chips are down and directors are trying to slice off some of the bacon before the end.'

Mr Farrow said the fraud squad is not currently probing any law firms.

He said: 'The problem is that we get involved only when the whole scandal has usually already hit the press.'

Jeremy Fleming