Fraud Squad called in on law firm's missing 20m pounds

Fraud squad detectives have been called in to investigate the disappearance of millions of pounds of clients' cash from the London office of an international firm of lawyers.

Detectives in Australia have asked City of London police to investigate allegations of unauthorised financial dealings involving up to pounds 20m. The investigation centres on the City office of Allen, Allen and Hemsley, one of Australia's biggest and oldest law firms.

One client is understood to be the Republic of Nauru, a coral island whose population of 8,000 people is among the wealthiest in the south Pacific. The island is made entirely of phosphates, sales of which earn pounds 60m a year.

A senior legal partner, Ronald Adrian Powles was forced to resign after it was discovered that pounds 5m belonging to clients could not be accounted for. The company said Mr Powles, 55, had returned to Australia where he had been receiving treatment for a medical condition in the psychiatric unit of a Sydney hospital.

The accountants KMPG Peat Marwick have been called in to audit Mr Powles's transactions. It is understood that money belonging to the firm's clients was being transferred to accounts controlled by Mr Powles in Bermuda and Switzerland. Many of the accounts used by Mr Powles have been frozen.

Fraud squad officers from New South Wales police conducting inquiries in Sydney are understood to have requested help through Interpol. A spokesman for the City of London police confirmed the City Fraud Squad was carrying out the investigation in liaison with the Australians.

The London office of the law firm was unavailable for comment but a statement released in Sidney on behalf of the company said: 'Allen, Allen and Hemsley has recently discovered certain transactions in which its former London partner Mr R A Powles has been involved.

'The firm took immediate action. Mr John Lehane, the managing partner, visited London to investigate the transactions. A full investigation is continuing and to this end has engaged KPMG Peat Marwick to carry out a thorough audit of matters handled by Mr Powle in London and Sydney.'

Mr Powles, a former managing partner of the firm, joined the London office in 1989. A spokesman for the company said the situation had been reported to the New South Wales Law Society.