Law firm moves into forensics

As the big accounting firms in Australia move to build up their legal practices, law firm Clayton Utz is pushing back, setting up its own forensics and technology services practice.

Paul Fontanot, who joined Clayton Utz in Sydney after 20 years with EY across four continents, is heading the firm’s new team.

He estimates the revenue potential in the Australian forensics market is up to $180 million per year, a sector dominated by the big four accounting firms plus smaller groups such as KordaMentha, McGrathNicol and PPB.

Mr Fontanot said Australian law firms had been slow to pursue this opportunity.

“Our biggest competitors in South Africa were law firms,” he said.

“When I got here 10 years ago, I was surprised that the law firms hadn’t started thinking about having accountants in the law practice.”

Clayton Utz is not the first law firm to branch into new territory, however.

Partners at Perth firm Lavan teamed up with former banker Paul O’Farrell last year to establish Quadrant Advisory.

It’s an independent business banking advisory firm helping Lavan clients and other businesses in their dealings with banks.

Mr Fontanot said three developments in the Australian market had prompted Clayton Utz to make the move into forensics.

One was the push by the big four accounting practices – EY, KPMG, PwC and Deloitte – into the law market.

This included EY buying specialist West Perth-based tax law firm Norton & Smailes.

The push into law is part of the broader diversification strategy of the big four, which have made multiple acquisitions in recent years in areas such as technology, digital media and consulting.

Mr Fontanot said a second factor was that general counsel at many companies were keeping work in-house, which affected the flow of work to the law firms

A third factor was the increased use of technology to undertake tasks such as reviewing contract terms, which previously were handled by junior lawyers.

Mr Fontanot said staff at his forensics practice would include IT professionals, ex-police officers, solicitors and accountants.

“Those four skill sets make up a forensics team, to do both reactive investigative work, whether its HR harassment, fraud or corruption, as well as work for dispute cases,” he said.

Mr Fontanot said forensics practices had been dominated by former police officers 20 years ago, while the number of accountants in the field grew rapidly after scandals such as Enron and the GFC.

“In the past five years, the big growth area has been IT, that’s where most of the people are from,” he said.

Mr Fontanot said Clayton Utz already employed about 40 people in its IT area, which gave him a head start in developing his new team.

Clayton Utz will add some new technology for specialist forensics tasks such as imaging mobile phones and laptops.

Mr Fontanot has added to the national team by recruiting three directors and a senior manager.

He noted Clayton Utz’s forensics practice would not act as an independent expert in court hearings, nor would it handle business valuations.

Clayton’s Utz partner-in-charge Perth, Nick Cooper, believes the move into forensics was a natural fit, and would make his firm more of a one-stop shop.

“We can now do the imaging and interrogate the information and be more seamless in how we give legal advice and prepare for litigation,” Mr Cooper said.

In a similar vein, Mr Fontanot said 80 per cent of the matters he had worked on, historically, had been through law firms.

“Clients have been asking why they need two retainer letters to do forensics investigation work,” he said.

“The other component is legal professional privilege; in most investigations, you don’t always know where it may end up, and so having legal professional privilege assists clients in protecting their legal strategies without exposing them to unnecessary risks.

“As you piece the puzzle together, it could be quite damaging for directors, staff, etc.

“From a strategy perspective, wouldn’t you want to keep that under legal privilege?"