SDT: Solicitor believed he was entitled to make payments
A retired solicitor has been fined £7,500 for using client accounts as banking facilities over decades to handle property management work for Arab clients.
Peter John Smith, who retired in April 2021 and is now 78, said he had at the time considered the service provided to Kuwaiti clients he had known for up to 52 years flowed from his legal work for them.
The Solicitors Disciplinary Tribunal (SDT) said: “He had fully recorded all of the transactions on the client ledgers and believed, at the material times, that he was entitled to make the payments on behalf of his clients.
“Mr Smith now accepted that using the client account in the way that he had was contrary to his regulatory obligations.”
In an agreed statement of facts and outcome with Mr Smith, approved by the SDT, the Solicitors Regulation Authority (SRA) said the payments of up to £280,000 a year were not related to an “underlying transaction which is part of the accepted professional services of solicitors”.
It continued: “To put it another way, the service that the respondent was providing to these clients could have been provided by either a property management company or a letting agent; nothing in the nature of these payments required the input of a regulated legal professional.”
The SRA said that while “there may been uncertainty to the appropriateness of a solicitor providing such a service to international clients at the time of some of the original conveyancing transactions in this case, that uncertainty no longer existed by 2010”.
It said the misconduct covered a “much greater timeframe” than 10 years but it was only from 2010 to 2020 that there was evidence of the frequency and size of the payments.
Mr Smith, admitted as a solicitor in 1968, was the principal of E Smith & Co in Herefordshire until August 2017, when the firm was bought by Margraves. He worked there as a solicitor until the end of July 2020, and from then to his retirement as a consultant solicitor.
The SRA said Mr Smith emailed the SRA’s professional ethics advice service in December 2019, having been encouraged to get in touch by Margraves’ reporting accountant over money received from abroad to pay outgoings on properties.
“The clients mainly live abroad and have always relied on me to deal with everything for them because they are unfamiliar with procedures here,” he said.
The SRA found that Mr Smith had been introduced to the first of his Kuwaiti clients in October 1968 when they needed a solicitor to purchase a flat in London. He was then introduced to their family and friends.
Describing the situation at the time, Mr Smith said: “This was 50 years ago, when the concepts of client-care letters and concern about ID did not exist and one depended on introductions and common sense.”
Over the years, more properties were bought by the Kuwaiti clients, particularly following the Gulf War.
He had ledgers for six Kuwaiti clients from 1991, and provided the SRA with handwritten notes about them, which made it clear that he “continued to receive funds from these clients following completion of the property purchase”, using them to pay utility bills and other costs associated with maintaining the properties.
He had argued that the definition of regulated services as “legal and professional services” encompassed the property management work that followed on from handling the conveyancing.
Mr Smith said he did not believe the accounts rules were “100% clear” as there was no clear definition of “underlying transaction” and his own reporting accountant had never questioned the payments.
The SRA said: “The simple fact that [Mr Smith] was positioned to provide these services to his clients as a result of an initial legal transaction, does not change the nature of the administrative services he went on to provide.” He was not acting as a solicitor when he made the payments.
Following an interview involving the SRA and two lawyers from Margraves in May 2021, it emerged that Mr Smith had been suspended on 1 April 2021 and resigned the same day.
Margraves acknowledged that it should have questioned Mr Smith about the payments when it acquired his practice, but as he owned his own business and had been practising for so long, it had had “the utmost faith that he would have been doing things correctly”.
In non-agreed mitigation, Mr Smith said he had “enjoyed an unblemished professional career lasting 52 years” and the disciplinary proceedings had been a “source of great sadness, stress and anxiety” to him.
“He did not consider at any time that he was providing and charging for a banking facility. He saw it as a natural extension of his legal work for which he charged.” There were “no questionable or nefarious transactions”.
However, he admitted breaching both the accounts rules and SRA principles by using client accounts as banking facilities. He was fined £7,500 and ordered to pay costs of £21,650.
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