James Hurley has an interesting story in today’s Times about professional advisers breaching confidentiality during secondments to RBS’s bank Global Restructuring Group. It states some of the allegations relate to ‘lawyers’ and highlights one case involving a solicitor.
Promontory highlighted the case of a solicitor on secondment at GRG acting as a “relationship manager” on a customer’s case while being employed and paid by the law firm. The solicitor used their GRG email account to request a tender from their own firm.
The same solicitor later submitted the tender to GRG using the firm’s email address. The solicitor was “privy to tenders received from other legal firms in relation to the same work for which they submitted a quote”, Promontory found.
Promontory investigated GRG on behalf of the FCA and found 14 cases where the use of seconded staff “clearly led to a potential conflict of interest”. Some involved accountants and surveyors by the look of it. It appears that GRG customers would have been paying for the work done under at least some of these tenders. The wrongdoing included, “ensuring their firm appears on the tender lists through to providing information on the content of other bids to their parent firm.”
Interestingly, too, Promontory’s findings are reported as suggesting it, “did not find any cases where third-party firms “directed customers to take specific actions that were detrimental to them or where the use of third-party firms to conduct specific pieces of work was inappropriate”.” If this is all it says about harm to GRG’s customers, it rather misses the point. Indeed, Promontory also found that “the potential conflicts identified were more likely to impact other third-party firms than the customer”. This is a rather surprising finding. Passing on inside information about bids would have meant GRG customers might pay more, and receive weaker bids through the tender process than they otherwise would have. A professional firm with inside knowledge might know its competitors’ bottom lines and terms of service and so would know what marks to beat. The potential for GRG customers to be harmed seems clear.
Lawyers on secondment to clients who release such information have clearly behaved without integrity, and – unless given permission by the banks – breached confidentiality. Lawyers back at the ranch tendering with the benefit of inside information are similarly tainted, at least if they know about the origin of the information. The case is an interesting footnote in a broader picture of concern about banks’ relations with law firms. Steven Vaughan and Clare Coe did a very interesting study of the problems for the SRA (my blog and the link are here). The study threw up a tension between the firms that thought the SRA needed to act, and the firms that did not. It was my judgment at the time that the firms not inclined to encourage action were more concerned about their competitive position, and their relationships with the banks, than they were with the ethical questions posed by increasing bank power over their lawyers. This kind of story strengthens my concerns. But more importantly, the SRA’s reasons for not acting on the report were that these firms were big enough and ugly enough to take care of themselves. The professional rules were a sufficient basis to say no to the banks if they asked for inappropriate things (secondments was one issue of concern, interestingly). What this line of argument missed was the potential for third parties to be harmed by the ethical problems: GRG’s customers were not the Goliaths of Big Law. This story shows that the potential harm to them was real. Perhaps the SRA should think again.