More on Fraud Attempts on Lawyers…

♫ So if I’m being honest with you and it seems like I’m being cruel
At least you didn’t get a rip off, a rip off, a rip off…♫

Words and Music by Ryan Adams, Brad Pemberton, Bradley Smith.

With news this week that a BC law firm has been hit by the counterfeit cheque scam that is washing over Canadian law firms, D. Ross McGowan of Borden Ladner Gervais LLP sent me this Fraud Alert, which I am posting to Slaw.ca with his permission:

Fraud Alert: Beware of “New Client” Cheque Scams

Every week the newspaper headlines name yet another well-known local firm or innocent individual recently victimized by the ‘Counterfeit Cheque/Draft” scam. The loss is in the ten’s of thousands and threatens their financial well-being. While the facts change a little each time, these issues highlight the need for businesses and individuals to remain cautious and vigilant with respect to the potential for fraud. These losses can arise whether it is a party purporting to be a real estate client arranging a financing or a creditor seeking your assistance to recover a ‘disputed’ debt. The result is the same, a fraudulent item is proffered to the potential victim to deposit to their account, followed by an excuse or instructions to justify a wire transfer or draft for some or all of the proceeds to an offshore locale. The victim is then left to deal with the fallout of the fraud on discovery.

Fraud losses occur because the fraudsters manipulate the victim’s trust through promise of commissions or fees and by exploiting one’s imperative for ‘good client service’. A few simple steps can reduce that risk in the business context.

Client Intake

1. Develop a thorough checklist for new clients and follow your firm’s client intake policy for all new engagements. Conduct appropriate third party Internet searches on the prospective new client to gain some information about them and their business. This helps to uncover fraud risk and benefits legitimate clients through knowing their business. Cross-reference and make note of any differences in address or contact numbers provided to you relative to third party directories. Investigate any discrepancies.

Obtain a Deposit

2. Very few crooks will provide retainers, or if they do, they will direct that it be taken from a much larger deposit item (which is probably the suspect item at issue). Insist that the deposit/retainer be from a separate cheque and verify whether the drawer of the cheque is the same as the client. If not, investigate the discrepancy. Note: a ‘Google search’ on the drawer name coupled with the word ‘fraud’ or ‘scam’ will frequently identify companies that have recently been victimized by counterfeit items.

Remain Vigilant and Objective: Don’t be flattered into oblivion

3. Ask why and how the client came to your business and you in particular. You want to know: it makes good business sense to thank appropriate referrals. If the information provided in response to your enquiry is vague or unduly flattering to you personally, be skeptical and investigate.

Beware of the Short Fuse

4. We all like to demonstrate substantial results in an efficient manner. However, be extremely cautious about clients as purport to need funds transferred through your accounts quickly. A ‘hold policy’ on deposit items at financial institutions may provide some protection, but even that is not a guarantee. Materially altered or counterfeit items can take many months to be returned through the clearings. If you have a concern about the validity of an item, make enquiry of the drawee directly. Do not just rely on the telephone number printed on the instrument. Recent frauds have printed counterfeit items with bogus telephone numbers and call centers purporting to be reputable Canadian financial institutions as then purport to confirm the validity of the item by phone. Look up a contact number for the drawer’s branch of account independently through an Internet search engine or seek the assistance of your branch to coordinate verification of the item. Consider and require alternative payment methods such as wire transfer, the use of restrictive endorsements (i.e.: ‘Endorsed without recourse to ____”) for short fuse transactions or simply refuse the transaction as proposed and confirm to the ‘client’ that the transaction cannot be completed within the short time frame sought.

I wish to acknowledge the assistance of and thank D. Ross McGowan of Borden Ladner Gervais, LLP’s national Fraud Law Group for this post as well as for his assistance to the profession in investigating and combating fraud.

Hopefully with his and others’ assistance we can avoid yet another law firm being subject to a rip-off.