The regulators leave Dutch big law firms untouched whilst its member law firms struggle with money laundering rules

Six months after his death, it is an oft-repeated anecdote: Dutch public notary and senior partner with law firm Pels Rijcken, Frank Oranje, showing a picture of The Glass House at a congress on 'ethical business practice' of his law firm. That house of the American architect Philip Johnson is in fact a glass box. Wherever you stand, you can see outside. But others can also look inside', said Oranje. We are very much in the public sector. Everyone is watching.

But who was watching when Frank Oranje embezzled over €10 million from clients of his firm? The disconcerting answer: no one. The scandal at Pels Rijcken raises pressing questions about the supervision of law firms. Are the big firms really glass houses, as Oranje suggested four years ago? And who is actually keeping an eye on them?

The supervision of the Dutch legal profession is discussed in three sections:

1. The Dean's different hats

Traditionally, deans have functioned as a source of information and as advisers to lawyers. But they also wear the hat of complaints handler and supervisor of the legal profession. The latter role is weighing more and more heavily on the dean, simply because more and more supervisory tasks are being added.

There are eleven district attorneys' offices in the Netherlands, which together are responsible for keeping an eye on almost 18.000 lawyers. They are assisted in this task by some seventy staff members spread across eleven Bar Associations. The largest office is in the Amsterdam district, which has twenty employees. The smallest is in Overijssel, where the Dean relies on a team of three employees. In short, it is not much to look forward to. Take Evert-Jan Henrichs, attorney at De Brauw and dean in Amsterdam, by far the largest district. Almost six thousand lawyers are based in the capital. They work for over a thousand firms, including one-man businesses, criminal law firms and boutique firms, but also for the big Zuidas firms with hundreds of employees and millions in turnover. Of the twenty largest firms (employing more than 65 lawyers, ed.) fourteen are in Amsterdam. Henrichs and his twenty staff members have to keep an eye on all of that.

In 2020, the Amsterdam Dean had to deal with 585 complaints against Amsterdam lawyers. This is apart from regular supervisory tasks that have to do with the financial housekeeping of more than one thousand Amsterdam offices, such as compliance with the Anti-Money Laundering Act - the Prevention of Financing of Money Laundering and Terrorism Act (Wwft).
And then the deans also have to deal with notorious incidents and affairs. In Amsterdam, the Marengo trial stands out: a major criminal case involving a Dutch-Moroccan drugs gang in which a key witness plays a prominent role. His lawyer, Derk Wiersum, was liquidated in broad daylight in 2019. In the same case, Henrichs, not a criminal lawyer by trade, had to investigate a year later lawyers who allegedly passed on secret information to suspects in the Marengo trial.

In the financial world, too, there are disciplinary cases and affairs. Large firms are involved. The Amsterdam and Rotterdam deans, for example, are jointly investigating the money laundering suspicion against NautaDutilh in Belgium. The dean of The Hague, for its part, is investigating the Pels Rijcken fraud case.

2. The embedded conflict of interest

The aftermath of the Pels Rijcken scandal immediately exposes an Achilles' heel of the supervision of the legal profession: the independence of the dean. Dean Arjen van Rijn of The Hague was the first to announce the investigation into the lawyers' branch at Pels Rijcken. Orange was a civil-law notary and had to deal primarily with the Financial Supervision Office. But Van Rijn, as supervisor of the legal profession, wanted an answer to the question of whether lawyers were involved in the millions in fraud: 'Although there is no evidence of this at the moment, I will have to check it out myself,' he said. But things were slightly different. Van Rijn worked for Pels Rijcken for over sixteen years and was even a partner there. And although he had switched to another law firm by the end of 2011, trouble arose: Van Rijn was placed under guardianship by the dean of another district, the one in Rotterdam.

And if that is not enough, the Supervisory Committee (SC) of the Netherlands Bar Association is also keeping an eye on things: 'After completing the investigation, the Committee (...) will make its own assessment of how the supervision in the district concerned has functioned following this serious incident at Pels Rijcken'.

In retrospect it was obvious that Dean Van Rijn ended up in this predicament. Whereas bankers have to deal with independent supervisors from the Dutch Central Bank (DNB), accountants with the Financial Markets Authority (AFM) and civil-law notaries with the Financial Supervision Office (Bft), the lawyers prefer to keep the supervision in their own hands. The lawyers from the eleven local bar associations choose a dean from their ranks. A lawyer, therefore, who works in the same region as the professional colleagues he or she supervises: the fact that conflicts of interest may arise is therefore inherent in the supervision system.

How this is to be handled is not laid down. There are no "verifiable agreements", according to the Supervisory Board. There are, however, unwritten rules: it is said that deans will never handle cases that are related to their own office. The national dean's council has not responded to questions about this.

Dean Van Rijn has not yet reported on Pels Rijcken. But the fact that the firm has now engaged compliance expert Susi Zijderveld (former NS board member) suggests that there is work to be done.

3. The big offices remain unaffected

No one disputes that the deans are busy. But are they also effective? In any case, their supervision could be more professional and stricter, says Heinrich Winter, Professor of Public Administration at the University of Groningen. Commissioned by the Ministry of Justice, he published a critical report last year on the supervision of the legal profession. Winter concluded that the supervision is still immature in parts. Deans can submit complaints to the disciplinary court, but they can also tackle a lawyer or his or her office by means of administrative law, for example with a fine. The latter hardly ever happens: in five years' time the dean has only once imposed one fine. And that is a shame, thinks Winter. By opting for administrative enforcement more often, the deans could relieve the disciplinary judges, who are struggling with waiting lists.

But the work pressure is also growing among the deans themselves. This has to do with their changing role, observes Germ Kemper. He was a dean in Amsterdam from 2007 to 2013. Traditionally, the dean was mainly an advisor who assisted lawyers in precarious legal and financial matters, he says. But that work has been 'snowed under' in recent years by all the new supervisory tasks. That's worrisome,' says Kemper.

The big offices, meanwhile, remain relatively untouched. The deans visited 417 firms in 2020 for a closer inspection, despite the corona crisis: not one of them had more than 65 lawyers. Former dean Kemper wonders whether deans are sufficiently equipped to supervise the Zuidas offices with their hundreds of employees and millions in turnover: “In all honesty, what are deans doing? The large offices have meanwhile subscribed to the importance of good supervision. But they do not need an external stimulus to set the bar high when it comes to compliance, say directors of offices such as Houthoff, De Brauw and Allen&Overy to the FD. That is the discipline of the market: they live off their good reputation. You can only lose it once. At Pels Rijcken they know all about it. Deans should pay more attention to big offices”.

In response to the Pels Rijcken scandal, the deans should 'focus more on the large offices'. Currently, a disproportionate amount of time is spent on small and one-person offices, says Andrée van Es of the SC of the Netherlands Bar Association. Lawyers have always fought tooth and nail against (more) government supervision. The supervision of the profession is therefore still in the hands of the deans, who are themselves lawyers. To better underpin the independence of the supervision of the legal profession, the SC was established in 2015 as a 'system supervisor'. In fact, the SC itself is also a compromise: of its three members, only two come from outside the legal profession. The third member is the most senior member of the Netherlands Bar Association, general dean and lawyer Frans Knüppe. The SC informs the FD that it is 'intensively involved' in the strengthening of 'deanal supervision'. Van Es: 'The independence of the supervision is indeed anchored in the consciousness of the supervisors involved, but so far this is hardly reflected in verifiable agreements. This has to change, and that is what the SC is focusing on.

Read further at: https://fd.nl/achtergrond/1388968/ook-na-pels-rijcken-blijven-de-grote-advocatenkantoren-ongemoeid-sbg1cavpIQZo