Sham Litigation: A Growing Concern for Law Firms in England
In recent months, the legal profession in England has been under increased scrutiny due to the rise of sham litigation. The Solicitors Regulation Authority (SRA) has issued warnings to law firms about the dangers of fabricated legal disputes being used as a mechanism for fraudulent activity, including money laundering.
What is Sham Litigation?
Sham litigation occurs when legal disputes are fabricated or manipulated to achieve unlawful objectives, such as laundering illicit funds. In these cases, parties may collude to create fictitious claims, using legal proceedings to move money through law firms under the guise of legitimate legal fees or settlements. This practice not only undermines the integrity of the legal system but also exposes firms to regulatory and legal risks.
Recent Warnings from the SRA
In January 2025, the SRA issued new guidance warning law firms about the dangers of sham litigation. The regulator emphasized that legal professionals must conduct thorough due diligence to ensure that their cases are legitimate and not being used for illicit purposes. The SRA’s guidance specifically stated:
"Solicitors must be vigilant to the risk of sham litigation being used as a vehicle for money laundering and other forms of financial crime" (SRA | Sham litigation | Solicitors Regulation Authority)
This warning follows an increasing number of reports indicating that fraudulent claimants are exploiting law firms to facilitate illicit financial activities.
High-Profile Case: The Narinder Kaur Fraud
A notable example of sham litigation in practice is the case of Narinder Kaur, who was found guilty of orchestrating fraudulent claims across multiple law firms. She exploited legal processes to launder money through the legal system, highlighting the need for stricter oversight and enhanced due diligence.
The SRA has made it clear that law firms failing to implement adequate anti-money laundering (AML) controls could face regulatory action, reputational damage, and even criminal liability.
How Law Firms Can Protect Themselves
To mitigate the risks associated with sham litigation, law firms should:
Conduct Thorough Client Due Diligence – Verify the legitimacy of clients and their claims before proceeding with any case.
Monitor Unusual Fee Arrangements – Be cautious of cases where legal fees appear disproportionately high or structured in an unusual way.
Identify Red Flags – Be alert to signs of collusion between opposing parties, particularly when settlements are reached too quickly or without genuine dispute.
Enhance AML Policies – Ensure compliance with anti-money laundering regulations and maintain clear records of financial transactions.
Report Suspicious Activity – If a case appears fraudulent, law firms should report concerns to the appropriate regulatory bodies.
Final Thoughts
Sham litigation poses a significant risk to the legal profession, damaging trust in the legal system while facilitating financial crime. Law firms must remain proactive in identifying and preventing such practices to uphold their ethical obligations and regulatory responsibilities.
By taking preventive measures, law firms can protect themselves and contribute to maintaining the integrity of the legal system.