Ringfencing of clients' funds beyond conveyancing may not be necessary: lawyers

Singapore

THE unfolding story of Allied Technologies' missing funds has raised the question of whether protections against lawyers making off with clients' money should be extended beyond the conveyancing practice. But legal authorities and lawyers pointed to existing safeguards, in response to queries from The Business Times.

Listed precision engineering firm Allied Tech said on Thursday evening that about S$33 million of its funds had gone missing from an escrow account managed by JLC Advisors, with the latter's managing partner Jeffrey Ong now incommunicado.

Following cases of lawyers absconding with their clients' funds, laws were introduced in 2011, applying to conveyancing lawyers. The laws stopped the earlier practice of banking money from property transactions into law firms' client accounts. Instead, law firms must open conveyancing accounts in banks appointed by the Law Minister, with withdrawals only possible upon signatures from two parties - usually lawyers for the buyers and sellers.

Asked about the possibility of extending this beyond conveyancing, a Ministry of Law spokesman said: "For day-to-day handling of commercial matters, lawyers are allowed to hold clients' monies. These are subject to strict rules and guidelines.

"How much is placed with lawyers is a matter for clients to decide. When large sums are involved, it is possible to have alternate arrangements," said the spokesman. "It is a matter of a client's choice. They can choose to have it with lawyers or with financial institutions, and it is open to clients to make their own arrangements to keep the monies in a secure way."

A Law Society spokesman, pointing to the Legal Profession (Solicitors' Accounts) Rules, said: "These rules set out adequate processes to safeguard client money.['SAR'] The processes will be reviewed from time to time."

Any person who has sustained a loss as a result of the dishonesty on the part of a lawyer or an employee or officer of a lawyer's practice here can apply for a grant from the Law Society's Compensation Fund. This fund "of last resort" is administered by the Council of the Law Society, which has discretion to decide whether to make a grant - and if so, of what amount - to relieve or mitigate the loss.

Lawyers said that extending the ringfence approach beyond conveyancing to corporate transactions was not necessary and could hamper commercial efficiency. Withers KhattarWong partner Ushan Premaratne noted that in other areas of practice, lawyers do not generally hold large sums of clients' money.

Said TSMP Law Corporation joint managing partner Stefanie Yuen: "It's also cumbersome to have to open a fresh bank account or maintain signing instructions that include a third party's signature for one-off transactions." Nor would having such an additional safeguard prevent fraud or acts of deliberate dishonesty, she added.

"First, I think the client should consider the reliability of the law firm," she said. "In the case of Allied Tech, it's not clear why the S$33m in private placement proceeds had to be kept with the law firm - which is highly unusual - and not in the listed company's bank account."

Beyond complying with rules, law firms may want to have more stringent internal controls, she said. At TSMP, all withdrawals from clients' accounts are signed by two partners.

Characterist LLC director Adrian Wee pointed out that in the Allied Tech case, JLC was acting as an escrow agent - a role played not only by lawyers. "If there's going to be an enhancement to safeguards, it should be in the escrow business itself."