Lawyers across North America continue to be targets – and victims – of fraudulent schemes. Many of these schemes are very elaborate, with the fraudsters going to great lengths to make them seem legitimate. There are variations on these schemes but ultimately, the lawyer’s trust account is used to facilitate the fraud.
For tips on avoiding being victimized and to report or seek advice on dealing with fraud and scam attempts, contact Cynthia Nield at [email protected] or 902 423 1300, x346.
Visit 419scam.org to confirm if a phone number provided by a potential “client” had been reported in a scam.
Resources from the Financial Consumer Agency of Canada (FCAC): Protect Yourself From Credit Card Fraud; Protect Yourself From Debit Card Fraud; Protect Yourself From E-Mail and Telephone Fraud: Phishing and Vishing; Protect Yourself From Identity Fraud; and Protect Yourself From Real Estate Fraud
Protecting Yourself and Your Practice
It is important for you and your staff to remain vigilant and alert to the possibility of fraud, particularly when you receive a request to provide services to a client previously unknown to you (international or not), and when those services require the use of your trust account to receive and disburse funds.
Establish a team approach to fraud prevention so that everyone in your office is aware of what we are seeing and what they should watch for. In any fraud, there isn’t usually one red flag or indicator. It’s a combination of things – when you add it all up, it just doesn’t fit. Listen to your gut instinct. Don’t let yourself be pressured into something that just doesn’t feel right.
Fraud Fighting Tips
Be Alert To:
- Situations where little or no legal work is required, but a large sum of money is expected to flow into and out of your trust account
- A client who is prepared to pay higher than normal legal fees for what seems to be very little work; or a client who is not concerned about interest rates or what appears to be high brokerage fees
- Spelling and/or grammar mistakes in emails sent to you by the companies or individuals asking that you represent them
- A client with no apparent connection to you, who compliments you on your “special expertise or qualifications”. Ask yourself why this client would want you to act for them; is it you, or your trust account they want? Don’t let flattery from the client go to your head. Investigate closely the identity of the client and the authenticity of funds provided to you
- Rushed closings or transactions and a client who is pressuring you to do something that just doesn’t feel right. Don’t pay out funds too quickly and without doing all necessary investigations on your client and on the authenticity of funds provided to you
- Periods of time when there are banking holidays and when you are short staffed, e.g., between the holidays and New Years, or before a long weekend. These are times when you may not check details as closely, and also times when banks are closed, resulting in delays in the return of counterfeit bank drafts and cheques
- Using Canada 411 or a similar directory to do independent verification of phone numbers, company name and address, as well as bank address and phone numbers shown on cheques or bank drafts. Do not rely on contact information indicated on a cheque or bank draft as these numbers could, in fact, be ringing through to the fraudster
- Being asked to accept more money into your trust account than is needed for the transaction. Don’t do it. If more funds than are necessary are wired or otherwise deposited into your account without your authorization, don’t be pressured to accept the deposit. Have your bank return the entire deposit immediately
- Requests that sale proceeds be made payable from your trust account to a third party who is not connected to the transaction. Resist such requests. There should be no need for this to be done
- Typos on bank drafts/cheques
- Bank drafts/cheques drawn on poor quality paper
- Call display that doesn’t match the name of the person who is calling
- Requests that documentation you have prepared be taken outside your office for execution
- Envelopes in which funds are delivered to you; check and keep envelopes when bank drafts and cheques are received; in one BC case a bank draft received from a Canadian company in an attempted debt collection scam came in an envelope from Romania
- Middleman who makes all the appointments because you don’t have a number to contact the client directly. When possible, work with clients you can meet in person. Have your office deal directly with clients to set up appointments and receive documents and money from them rather than dealing with a third party spokesperson
- Take steps to verify the client’s identity using what you consider to be reliable, independent documents, data or information. Look for at least two pieces of ID such as an original permanent drivers licence issued in Canada, as well as another piece of signed original ID, such as a passport, provincial health insurance card, Canadian Firearms License or an employee photo ID card issued by an employer that is well known in the community.
- Obtain and record the following information on your client at the intake stage: (a) the client’s full name, (b) the client’s business address and business telephone number, if applicable, (c) if the client is an individual, the client’s home address and home telephone number, and occupation (d) if the client is an organization, the organization’s incorporation or business identification number and the place of issue of its incorporation or business identification number, if applicable, as well as a copy of incorporating documents (e) if the client is acting for or representing a third party beneficiary or a principal, obtain information about the beneficiary and principal
- Compare the address on the identification provided to you with the address that the client says his or her address. Also compare spellings of names. Where there are differences in spelling and address ask why; be satisfied with the answers and document the explanations.
- Cross-reference phone numbers provided to you by clients on Canada 411 or a similar directory. Request and verify contact information for next of kin. Keep this information on file. This will also be of help to you in the future should your client move, leaving no forwarding address.
- Do your own search of the Nova Scotia Registry of Joint Stock Companies (or similar registry) for the name and address of the organization, including the name of its directors and officers. Do an internet search to confirm phone number.
- If involved in a non-face-to-face transaction involving a client you will not meet have an agent act on your behalf in the client’s jurisdiction and have him/her obtain and provide to you verification of the client’s identification as noted above.
- Do independent verification on phone numbers, company name and address, as well as bank address and phone numbers shown on cheques or bank drafts. Do not rely on contact information indicated on a cheque or bank draft.
- Don’t accept more money into your trust account than is needed for the transaction. If more funds than are necessary are wired or otherwise deposited into your account without your authorization, don’t be pressured to accept the deposit. Have your bank return the entire deposit immediately.
- Don’t let yourself be pressured into acting on a transaction that doesn’t feel right. Resist rushed transactions and clients who arrive at your door at the last minute.
- When possible work with clients, you can meet in person. Have your office deal directly with clients to set up appointments and receive documents and money from them rather than dealing with a third party spokesperson.
- Resist having documentation that you have prepared taken outside your office for execution.
- Be suspicious when you see many spelling and grammar mistakes in e-mails to you, requesting representation.
- Educate your staff to always be vigilant to suspicious or nervous behaviour from clients, and to make this known to members of the firm
- Listen to your “gut instinct”; if something seems “too good to be true”, or not right it usually is.
- Do not become too reliant on one client or referral source for business.
- Alert LIANS and your colleagues when you become aware of an attempted fraud.
Real Estate Transactions
- Check property ownership history – confirm current owner of the property and be vigilant of property flips. Be extra vigilant when the property is mortgage free and the discharge has only recently been registered; fraudulent schemes involving identity theft often include the registration a false mortgage discharge.
- When representing a vendor or mortgagor ask him or her to provide you with more than his or her deed; ask for survey or plot plans, as well as tax bills and assessment notices. A true owner should be able to provide these. If the client cannot provide such documentation and if the property is vacant or tenanted be even more vigilant.
- Carefully compare the terms of the Purchase and Sale agreement you receive with the mortgage instructions you receive; examine for discrepancies in purchase price. If you cannot comply with the mortgage instructions or if there are any inconsistencies between the Purchase and Sale agreement and the mortgage instructions, advise your client that you will have to advise the mortgagee of these inconsistencies and seek further instructions from the it. If the client refuses to consent to this, advise him/her that you will withdraw from the transaction. This contingency should be discussed at the outset of your retainer.
- Be suspicious when asked to pay funds from your trust account to parties who are not the vendors noted in the purchase and sale agreement, or have no apparent connection to the transaction.
Mortgage Fraud Resources
Steps Lawyers can Take
- Take note of grammar and spelling errors in the emails.
- Take note of the emails and whether the address appears to be a professional, corporate domain name.
- Look for further particulars on the matter and the parties from the “client” before considering representation.
- Search the website for the “client” company. Sometimes the client appears legitimate.
- Search the company or individual that was said to owe the money. Sometimes this party also appears legitimate.
- If there are red flags or your instinct tells you that something is off about the scenario, you can independently searched the company website further. Look for different email address for the company official named as the sender in the emails to you. You can contact the company official directly to determine if the company had, in fact, sent emails and is trying to collect money from the Nova Scotia company.
- Contact [email protected] to advise on the request for services received.
- Have employees bonded.
- Establish a firm policy that everyone takes regular holidays.
- Segregate firm duties so that only one person does not have control over funds; cross train employees.
- Never sign blank cheques.
- Require signed requisitions for all cheques being issued; require an original invoice to accompany the requisition. Stamp the invoice paid when the cheque is issued.
- When the cheque is issued. Do not authorize payment based on a copy.
- Only allow your trust account to be used for a purpose related to the legal services that you are providing. If there is no legal purpose don’t accept money into or disburse funds from your trust account (see Cassels Brock and Blackwell LLP v. Lawpro).
Remember, in any fraud there isn’t usually one red flag or indicator. It’s a combination of things – when you add it all up, it just doesn’t fit. Be alert to possible fraud and listen to your gut instinct. If something seems too good to be true it usually is.
Educate your staff to always be vigilant to suspicious or nervous behaviour from clients, and to make this known to members of the firm. Alert LIANS and your colleagues when you become aware of an attempted fraud.
As well, educate yourself and your staff on the Nova Scotia Barristers’ Society’s Identification and Verification Regulations. These regulations came into effect for Nova Scotia lawyers on November 2, 2008. All Canadian law societies have agreed to adopt similar rules in an effort to fight fraud.
Finally, it is important that you remain vigilant to various types of fraudulent real estate schemes as well as identify theft and fraud involving property sales and mortgages. See R. v Poonai and Lawrence v Wright.