Law: Invasion of the bean-counters

Are the ethics of accountancy and law too at odds for a shared practice?
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The Independent Culture
THE ADVANCE of the world's top five accountancy giants into the legal marketplace seemed unstoppable - until this year. But the record pounds 3.5m fines and costs imposed on Coopers & Lybrand over failings in its audit work on the late Robert Maxwell's business empire, and the recent ruling of the House of Lords on "Chinese Walls" in the Prince Jefri case, have given the world's largest professional service conglomerates pause for thought. They have also given worried commercial solicitors a little breathing space from what they saw as the relentless onslaught of the bean-counters.

The Big Five - KPMG, Deloitte & Touche, Arthur Andersen, Ernst & Young and PricewaterhouseCoopers - were all originally pure audit firms. But in the last 10 years, all have moved into practically every field of commercial advice - management consultancy, investigative accounting, tax avoidance, information technology and corporate finance. The legal marketplace is the only area where they have failed so far to make a significant mark.

But they are determined to change that. In December last year, Edward Kangas, global chairman of Deloitte & Touche, told the press that he intended to build a global legal practice to rival some of the biggest commercial law firms within two years. Shortly afterwards, Gerard Nicolay, global legal head of PricewaterhouseCoopers, said his firm aimed to become a top international law firm within a year.

But the full implications of the judgment of five law lords delivered in the same month are still being absorbed. The legal battle that led to the ruling began when the Sultan of Brunei fell out with his younger brother, Prince Jefri Bolkiah. The Sultan removed the Prince from his government post and the finance ministry instructed KPMG to investigate a series of transfers of capital made when Prince Jefri was chairman. The problem for KPMG was that its forensic accountants had for 18 months been advising the Prince in long-running litigation, which had been settled only a few months earlier. There was a danger of a serious conflict of interest.

The team had been given access to documents detailing the Prince's assets and finances, and were acting as pseudo-solicitors, interviewing witnesses, searching for documents, drafting subpoenas and suggesting how the Prince's counsel should cross-examine witnesses in court. Now the same department was being asked to investigate missing funds for the government - and the Prince was the chief suspect.

Although systems were put in place to ensure that no one who had worked for the Prince would work on this new project, the Prince found out and objected. The case went all the way to the House of Lords, and the judges ruled that the accountants had not eliminated the risk of leaks. The decision followed the old City adage: there is no Chinese wall over which a grapevine cannot grow. The case has sent solicitors and accountants scurrying to look at their own procedures to prevent conflicts of interest.

More generally, the Prince Jefri case and the Coopers & Lybrand fine have given the solicitors ammunition in their arguments that the rules which prevent multi-disciplinary practices or "one-stop shops" - where clients can get advice on law, accountancy, management and tax - should be kept in place. The more cynical of solicitors have always argued that the "ethics" of lawyers and accountants are too different.

Current Law Society rules force accountancy practices to hive off their lawyers into separate firms. And these firms already discourage their lawyers from advising clients preparing for litigation, precisely because of the danger of conflicts with audit clients.

One solicitor, a partner at Kingsley Napley, Tony Sacker, says: "This is telling the Big Five accountancy firms that setting up a true multi- disciplinary is rather more complicated than they might think." Another partnership specialist, Ronnie Fox at Fox Williams, describes it as a "red light" to the expansion plans of the Big Five. But for most consumers of legal services, multi-disciplinary practices are seen as the way of the future, with, for example, high street law firms setting up with estate agents and accountants to provide advice on all aspects of property and investment - and at competitive rates. The Law Society is currently considering the rules, and is expected to make its decision later this year.

What these recent events do is warn clients that even if the Law Society does relax its rules, the rule of law will force them to keep the solicitors apart. It is a hiccup rather than an insurmountable hurdle to the one- stop shop.

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