Beringer: Accountability and responsible leadership are no longer optional
Law firms should adopt a ‘legitimate provenance of wealth test’ when taking on clients as part of an ethics-based approach that goes beyond legal or regulatory tests, a major report has recommended.
This would require clients to provide “credible explanations” for their money and address gaps in the anti-money laundering (AML) framework.
The taskforce on business ethics and the legal profession said: “We acknowledge that firms have a free hand (outside of AML or sanctions constraints) as to their choice of clients.
“They should nonetheless approach such decisions on a principled basis and should expect to be judged publicly by reference to the way in which they exercise that choice.”
With current laws and rules found insufficient to prevent the flow of illicit capital, it called for a “profession-wide commitment to responsible leadership which demonstrably reflects the profession’s duty to act in the public interest” – putting ethics “at the centre of their decision-making”.
There was, the taskforce asserted, a collective duty on solicitors to consider how their actions “impact the broader legal profession and public confidence”.
Ethical decision-making would help safeguard both firms’ own reputations as well as that of the profession as a whole.
But if profession-led cultural change did not lead to significant improvement within two years, then parliamentarians and other should explore “alternative approaches”.
The taskforce, hosted by the Institute of Business Ethics, was set up in September 2023 and chaired by former Allen & Over senior partner Guy Beringer, with Professor Robert Barrington, professor of anti-corruption practice at Sussex University, his vice-chair.
Members include top City solicitors, former Bar Standards Board vice-chair Patricia Robertson KC, Professor Stephen Mayson, and representatives from Transparency International and Spotlight on Corruption.
The 18-month review – which included consultation with multiple interested parties – focuses on how client and matter acceptance procedures should operate in civil matters to ensure solicitors do not act for enablers of kleptocracy, state capture (where illicit activities are legalised by a ruling elite) and grand corruption.
Mr Beringer spoke last month about how no rules required law firms to take on clients outside of criminal work and so they needed to be willing to justify their choices publicly.
As pointed out in a separate Spotlight on Corruption report we covered last week, the narrow focus of AML rules on criminality means it does not necessarily capture funds resulting from kleptocracy, state capture and grand corruption.
The taskforce report said: “While these clients may comply with legal frameworks, the ethical implications of enabling – and profiting from – unexplained wealth are impossible to ignore.”
It put forward a model six-step process that law firms could adopt or adapt, with the first step being whether the firm cannot act for legal or regulatory reasons.
Assuming no such prohibition, the second is to consider whether acting nonetheless undermines public trust in the rule or law and the profession.
In doing so, step three says the firm should look at whether the work involves providing services to the client of which reasonable people might strong disapprove as being damaging to the public interest, where such disapproval outweighs any public interest in favour of acting.
“Specifically, can you be satisfied that the proposed mandate will not facilitate the activities of kleptocrats or grand corruption?”
Step four is the legitimate provenance of wealth test – being satisfied that the source of wealth and any funds involved are “clean and untainted” beyond AML checks.
The report explained: “[It] may not be possible to establish that such funds are the proceeds of conduct that would amount to a criminal offence in this jurisdiction, whether because the illicit origin of wealth has been successfully obscured, or because conditions of state capture enable kleptocrats to ‘legitimise’ their gains.”
This would be an exercise of professional judgment subject to public accountability and reputational consequences, rather than legal examination.
Step five says that, in assessing any significant public interest in favour of acting, notwithstanding the risk, firms should consider whether representation will be consistent with a recognised public interest benefit and can be justified to staff and existing clients.
Finally, if the provisional decision is to act, step six says a firm should consider whether they have adequate supervision and monitoring processes in place, as well as contractual protections allowing it to cease acting if circumstances change.
In recommending a ‘comply or explain’ approach, the taskforce stressed the need for greater transparency and accountability through publishing information and data, so firms could be measured against their stated values and their peers.
Mr Beringer said: “The taskforce’s recommendations do not aim to dismantle traditions; they mean to strengthen them. As lawyers, we must adapt to a rapidly changing world while upholding our long-standing responsibilities to society.
“Trust, accountability and responsible leadership are no longer optional. They must be placed at the heart of the profession if we wish to restore public trust and ensure a continuation of service. This report lays out a roadmap for change.”
The report did not extend to how other issues, such as climate change, should be addressed when making choices on clients, but suggested the profession “should engage in debate as regards developing proper, principled, and transparent processes for dealing with such decisions”.
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