Archive for the ‘Ethics’ Category

When the Australian Minister for Financial Services refers to accountants and tax professionals as “the consiglieri of suburban prosperity”, you know a good argument is brewing.

The argument is over who should be able to claim privilege over communications with clients and third parties. At the moment we recognize legal professional privilege. But for a long time accountants have bristled resentfully at their being outside this charmed circle.

During the negotiations over the Legal Services Act 2007 accountants lobbied for the extension of privilege to cover them. Resistance by the legal profession was far too strong and the accountants were forced into retreat. Yet help may be at hand.

The Australian government has issued a discussion paper which considers whether some form of privilege ought to be extended to cover tax practice–tax advice privilege. The Australian Law Reform Commission (ALRC) has suggested privilege should be so extended.

The paper notes that a very limited form of tax advice privilege exists in the US in relation to non-criminal matters. New Zealand has codified some form of privilege also. The UK appears to be in an anomalous situation. At the moment Prudential is appealing to the Supreme Court claiming that tax advice it received from PwC was privileged. The Court of Appeal rejected Prudential’s claim after hearing arguments for and against by the Institute of Chartered Accountants for England & Wales and the Law Society.

Arguments for and against seem to take place on multiple levels. There is the security of the tax system which is essential to the mature functioning of the developed state. Tax authorities will have to go beyond the taxpayer’s willingness to cooperate. But ideally compliance should be voluntary.

Professions are discriminated against if tax lawyers appear to have an unfair advantage over tax accountants. It can be seen to stifle competition and give monopoly powers unfairly. If you want to see something that bears comparison, have a look at Barak Richman’s paper on Rabbinical cartels over the appointments of Rabbis–absolutely fascinating. The arguments adduced by Rabbis are the same as most professions use to claim why there should be no change to their monopolies. It comes down, in large part, to the Rabbis having the expertise which the congregations don’t have.

A strong argument put to counter extension is the position of the lawyer as officer of the court who has undergone ethical training. The ALRC believes this can be dealt with by accountants having heightened sensibilities to ethics. They should be ethically trained and continually trained.

There are many other arguments which are covered in the paper. This is a paper worth reading for those concerned with ethics, professions, and globalization.

We know from experience that much Australian thinking has been exported elsewhere, especially in the forthcoming ethical regime in the UK with outcomes focussed regulation. Moreover, the Legal Services Act introduction of alternative business structures will bring this issue to the foreground as multidisciplinary practices grow.

So, maybe now is the time to pull out those DVD sets of The Godfather so nascent consiglieri can learn how to do that intimate and obsequious murmuring into the ear….

Read Full Post »

New research commissioned by the regulatory arm of the Law Society (which represents Solicitors) has just been published.  The SRA commissioned the study from Pearl Kandola business psychologists to look into over-representation of black and minority ethnic solicitors in professional conduct and regulatory investigations.

It provides some interesting insights into what factors are associated with unethical conduct and the process of professional regulation.  It is, given the available data to the team, a reasonably thorough assessment of potential biases within the system.  The background to this study is prior work, including a critical report by Lord Ouseley suggesting that more complaints than would be expected were being investigated against BME solicitors and that this might be due, in part at least, to problematic decision making in the SRA  and possible bias in the intelligence and information being received by the SRA .

A key finding is that whilst the SRA receives more complaints against BME solicitors (from a range of sources) than would be predicted by the numbers of BME solicitors in the profession, but that the high number is not predicted by the solicitors’ ethnicity.   Nor does working in a BME-owned firm, the jurisdiction where the solicitor first qualified (QLTT), or the number of partners at the firm where the solicitor is employed (as a proxy for firm size) predict the likelihood of investigation.

How common are conduct problems?

The data cannot tell us how common ethical problems are.  It is based on data about complaints and investigations (based on information from clients, other professionals including investigatory authorities).  Those complaints may under estimate the problem (clients will often be unaware or – less often – unconcerned with ethical breaches by their lawyer).  Or they may overestimate the problem (complaints may not be well founded).  The data can can give us an indication of how often solicitors are subject to investigation for conduct and regulatory breaches.  Of more than 50,000 solicitors admitted to the Roll in the past 10 years, 7,035 had cases raised against them (about 1 in 7) (p. 28).  This is a surprisingly high level of investigatory activity and it would be interesting to know how it compares with other professions and jurisdictions.  Over and above that, it should be noted that some solicitors are subject to multiple complaints and investigations.

What clues does the report give as to the origin of such problems?

Whilst for example, and lawyers practicing in small firms are, more likely to be subject to investigation, the research suggests this does not explain the problem.   Rather, the key finding is that the main predictor of SRA investigations is career stage.  There is:

“…a U-shaped relationship in that solicitors are more likely to have cases raised against them at the start of their career and after they have been practising for a long period of time.” (10)

The report also clearly states that a solicitor’s ethnicity therefore does not directly predict whether a case is more likely to be raised against them even though BME solicitors do have a disproportionate number of cases raised against them.  This seems to be principally because BMEs are more often found amongst recently qualified solicitors (30).   Smaller firms and BME managed firms do have higher levels of investigation, but (again) this appears to be explained by the higher proportions of recently qualified solicitors.

There are some interesting other findings, particularly with relation to the Qualified Lawyer Transfer Test and the Bar:

  • More case than would be expected are raised against those who qualified in Nigeria, India, Pakistan, Bangladesh and the Bar of England and Wales whereas solicitors who first qualified in New York, America (other) and Europe are less likely to have cases raised against them than would normally be expected.  In relation to the Bar, the authors of the report say this:

“Given that there is a larger than expected proportion of white solicitors qualifying from the Bar of England and Wales, the disproportionality associated with QLTT is unlikely to be related to ethnicity alone, and may reflect other issues such as, but not limited to, education and training, different operating standards, and even in some instances cultural differences.” (32-33)

this raises the question of whether the current standard set for this Bar are also sufficiently high. (51)

It should be noted, however, that they do appear to ascertain whether it is the fact that these entrants to the solicitors’ profession entered from the Bar, rather than their relative inexperience and or lack of support as new entrants, that explains the likelihood that they will be subject to investigation.

In terms of how the SRA deals with investigations the picture is more mixed.  A table in the report summarises the findings (46).  What this shows is the extent to which the proportion of cases against BME solicitors is significantly decreased, unchanged or increased as a result of the way in which the SRA processes the cases.  It suggests that:

  • fewer cases are dropped and more referred at the investigation stage;
  • fewer conduct cases referred by the Legal Complaints Service are upheld, but more are referred to the SDT;
  • of all the other conduct cases (which are numerically more significant than LCS referrals) more are withdrawn but fewer are not withheld and more are referred to the SDT;
  • more regulatory breaches result in no action;
  • more are likely to have restrictions on their practicing certificates (PCs); and,
  • applications regarding solicitors accounts and PC restrictions are more likely to fail

As one would expect, there is some indication that types of case impact on outcomes.  So, for example,  allegations relating to money laundering, costs and fees and referrals of clients, financial cases,  professional competency issues, breach of undertaking and character and suitability are some of the case characteristics associated with higher levels of referral on from initial investigation.  These are all high risk cases raising issues of potential criminality and client protection (39).  Nevertheless, multinomial analysis confirmed that BME solicitors were more likely to be referred independent of whether their cases fell into these high risk categories (40).

The same was not generally true beyond that: BME status did not generally have an independent impact on the outcome of an investigation.  Hence, the outcomes of conduct cases for BME solicitors suggest that, “are either consistently more complex, that BME solicitors are consistently demonstrating behaviour which requires stronger intervention, or that the SRA is more cautious in making a decision in these cases.”

Conversely, Practising Certificate Renewals were directly related to ethnicity.

Such findings do not prove bias, but they do raise concerns which require investigation.  The authors suggest that, “Taken together, these findings suggest that the disproportionality experienced by BME solicitors is being compounded by SRA regulatory case processes.” (48) The evidence is stronger for the practicing certificate and initial investigation findings.

How has the SRA responded?

The SRA are to be congratulated on commissioning the research.  It has provided some comfort and some need for action.  The SRA’s response, in accepting the recommendations, is a mixture of suggesting that the problem is being dealt with in existing work streams (an understandable response but we will have to wait to see if genuine changes will be forthcoming) and a series of audits of case decisions.  This latter appear to be designed to meet the issue of discovering whether there is bias or other problems in the SRAs approach.  The research was not designed to do this, but it is of course the acid test of whether there is a problem.  The nature, extent and openness to accountability of these audits is something that will remain of interest.

Are there problems with the research?

The research is thorough, interesting and useful.  Whilst it does not include data explaining the exent to which their regression models explain the variance they saw in levels of investigation, this omission may well relate to the nature of the audiences to which the report is addressed.

Because the SRA has not collected the relevant data historically, the area of law practised by the solicitor was not included in their analysis (30).  Nor were the demographic details of complainants.  The reports recommendations address the latter but not the former.   It is to be hoped that, regardless of this, the SRA develop systems for monitoring the extent to which certain types of work give rise to more investigations.  A risk-based approach to regulation is difficult to imagine without such data and it would also help understand the sorts of issue this work considers (for instance, disproportionality in levels of complainst may be driven by working in certain types of work more than by level of experience, form size, etc.).

The researchers are somewhat uncertain of the significance of the finding in relation to more experienced practitioners:

“…it is unclear whether this latter finding is simply because there is an increased likelihood of having a case raised against a solicitor who has more practising certificates, whether their performance declines as they continue to practise, or whether those raising the cases are more likely to attribute what they perceive as poor performance to the solicitor being older, and therefore make a complaint.” (50)

It is disappointing, and a little surprising, that the authors of the report were not able to account for this in their analysis.  It is not at all clear why they did not do so.  If it were possible to look at samples of complaints by the year that they were lodged (which it looks like was possible for the datasets they had), then the ‘more experience means having handled more cases’ argument would largely be accounted for.  As such it is a finding which largely goes unexplored and the recommendations do not pursue it, although there is some hint that the issue may resurface in debates around compulsory specialisation.  This is a shame: the professions have historically been keener to regulate the younger end of the profession more than the more experienced end.  This research suggests there may be significant problems in that.  It would be useful to have a more definitive answer.

Richard Moorhead

Read Full Post »