PRACTICE WATCH: Are you an easy target for fraudsters?

by Barbara Buchanan, Practice Advisor

Have you received an electronic trust deposit "by mistake"?
Fictitious lawyers and other twists to the phony debt collection scams
Do your systems protect you from employee fraud?
Banks refusing to accept lawyers' trust cheques for deposit?

Have you received an electronic trust deposit “by mistake”?

The Law Society has learned that an electronic deposit scam has occurred in another jurisdiction. It works something like this. A law firm receives a call from a company’s representative that a large deposit was made electronically to the law firm’s trust account by mistake. The caller asks the law firm to repay the company.

If you receive such a call, immediately contact your financial institution for a full investigation. The sender should deal directly with your financial institution rather than with your firm.

You will want your financial institution to determine who originated the electronic deposit, how and where it was made. Keep in mind that not all electronic transfers are the same; ask whether the transfer occurred via an irrevocable large value transfer system (LVTS) deposit or through a revocable transfer. Ask for your financial institution to keep you informed as to whether the deposit was genuine or a fraud and to follow up with a reporting letter so that you have a clear record for your future reference and for your next Law Society audit.

Fictitious lawyers and other twists to the phony debt collection scams

Editor's note: This fraud alert includes names used by fraudsters in BC. Real people with the same names may be the victims of a fraudster or of coincidence, but are not suspected of wrongdoing.

Be alert for new twists to the prevalent phony debt collection scams against lawyers. A subject of previous Practice Watch articles and Notices to the Profession, the scams started out in the business context and later appeared in the matrimonial context.

What is the object of these scams against lawyers? The fraudster is trying to get money from your trust account before you learn the truth. When a lawyer enters into a dialogue with the scamster, the lawyer may receive a payment through a well-made but fake or forged instrument (e.g. fake bank draft, fake certified cheque or stolen cheque with a forged signature). This often occurs before the lawyer receives a retainer or completes the client identification and verification process. The client pressures the lawyer to deposit the phony instrument into the lawyer’s trust account, take a retainer from the amount deposited and wire the balance. If the lawyer wires the funds without waiting for the instrument to clear, the lawyer is out the money.

Lawyer looking at documentWhat are some new twists to the scams? Some fraudsters enclose a cheque payable to the law firm in the initial correspondence. Also, in an attempt to appear more legitimate, some fraudsters pretend to be lawyers from another jurisdiction making “referrals” that may include an invitation to contact their phony firm for information. If you receive a referral from a lawyer whom you don’t know, check with independent sources such as the lawyer’s regulatory body (a Canadian law society or the equivalent in a foreign jurisdiction) to find out if the lawyer exists and is licensed to practise. If the person doesn’t exist, you won’t accept the referral. If the person does exist and you are interested in the referral, compare the contact information provided by the law society with the contact information from the referring lawyer. Does the information match? If it doesn’t match, use caution. Contact the real lawyer using the contact information provided by that lawyer’s law society to find out if the lawyer actually did make a referral to you. Appreciate that, while the initial contact in any scam is often by email, it sometimes comes in the way of a phone call or even in person.

Beware if you receive an email from the “Law Office of William Sterns” with a Bangor, Maine address. The Board of Overseers of the Bar in Maine has advised the Law Society that William Sterns is a fictional character and that there never was a lawyer by that name licensed to practise in Maine.

Here is an edited version of a phony lawyer referral email:

Good day,

I am an attorney licensed to practice in the state of Maine. I am writing on behalf of a client of mine who is requesting possible representation. I will not be able to represent my client, K.C. Chen, of ASC Steel Company Limited [the scamster actually inserted the name of a real foreign company here] and I must state that he is a very credible client. I will be away from the office as of [today or an earlier date] and would like you to review this case for a possible representation.

We believe this case is within your jurisdiction, which is why we are requesting your services. I will be away from the office, but you may contact my paralegal for further correspondence [includes email address for paralegal]. I have instructed her to provide you with the contact information for my client to enable you to establish direct communication. Do let us know your position in this case as we look forward to a prompt response from you.

Sincerely,

William Sterns

Law Office of William Sterns

96 Harlow St.

Bangor, ME 04401-5529

[includes fake law firm website ]

The July 2008 Practice Watch column contained an edited version of the phony debt collection scam in the business context in which the scamster proposed a contingent fee contract.

Here is an edited version of another type of business debt letter:

Attention Counselor:

I greet you most respectfully. I am Mr. John Yin, a trade representative of the above company. WIC Limited is a heavy machinery company with its head office in Hong Kong. We require legal representation in connection with our delinquent Canadian customers. We are looking for a reputable attorney to represent us in order for us to recover these monies due to our company. In order to achieve these objectives, a good, methodical and reputable attorney and law firm is required to handle this service for us.

We understand that a property attorney client agreement must be entered into by both parties in a business matter of this nature. You consideration of our request is highly anticipated and we look forward to your prompt response. .

Yours faithfully,

Mr. John Yin,

Trade Representative, WIC Limited

Email: info@wiccolimited.com

Here is an edited version of a phony debt collection scam in the matrimonial context:

Dear Counsel: [may or may not address you by name]

My name is Junko Sakihito. I am contacting your firm in regard to a divorce settlement with my ex-husband, Glen Williams, who resides in your jurisdiction. I have a two-year teaching contract in Asia so I am out of the country for now.

Glen and I had an out of court agreement (Collaborative Law Agreement) for him to pay $448,450 plus legal fees. A copy of the agreement is attached. He has only paid me $44,000. I have tried with several failed attempts to collect the balance from him and he seems not to be coming through. My former attorney recently retired so I am seeking your firm’s assistance in collecting the balance from him.

He has agreed already to pay me the balance, but it is my belief that a law firm like yours is needed to help me collect the payment from my ex-husband or litigate this matter if he fails to pay as promised. Here is an email address at which you can reach me: [typically a free web-based email address such as Hotmail, Yahoo, or Gmail].

Thank you.

Sincerely,

Junko Sakihito

What else can you do to protect yourself from these phony debt collection scams? Here are some steps you can take:

1. Abide by the client identification and verification rules (Rules 3-91 to 3-102). Assuming there is a “financial transaction,” you must take steps to verify the client’s identity in person using reliable, independent source documents, data or information. It is not sufficient for the client to send you a fax or email scan of what the client claims is his or her -passport, driver’s licence, birth certificate, Nexus card or other form of identification.

2. Be cautious about anyone who contacts you via the Internet. Use telephone books, the Internet and other resources to cross-check names, addresses and telephone numbers to see if they correspond to the information provided. For example, you can use a reverse telephone directory to see if the -number provided to you corresponds to the client’s name.

3. Keep in mind that it’s easy to make calls look like they are being made from -inside or outside of British Columbia. The caller could be phoning you from two blocks away or from another -country.

4. Be cautious about emails that do not refer to you by name and use salutations such as “Dear Counsel,” “Good day” and “Dear Attorney.” However, don’t be fooled if a letter does address you by own name. Your name and the fact that you are a lawyer is widely available information.

5. The fraudster may enclose a “collaborative law agreement” purportedly signed by the client and the opposing party and witnessed by lawyers. Collaborative law agreements are easily obtained from websites. Ask the client for permission to contact the lawyers who witnessed the agreement. Also, if the opposing party has counsel, you shouldn’t contact the opposing party directly anyway.

6. Be suspicious. Why did the client ask you to act? Does it make sense that a stranger from England, Italy, Hong Kong, Japan, the US or China would ask you to collect their money?

7. Ask yourself whether the client is willing to pay you too much money for little or no work.

8. If the client says that they were referred by a lawyer, accountant or someone else, ask if you can contact that person. You will want to thank the person for the referral if it’s true. If a lawyer actually did make the referral, you may find that lawyer does not actually know the client but referred the client to you -because the lawyer doesn’t practise family law or civil litigation.

9. Get to know your financial institution’s representatives before you have problems so that they know you. Discuss the differences in receiving payments by wire transfer, certified cheque or bank draft. Be familiar with your institution’s policies and your banking agreements, especially with respect to the security measures that protect your firm’s accounts.

10. If you receive a certified cheque or bank draft, take it to your financial institution and ask your representative to verify that it’s legitimate. They can contact the financial institution on which the instrument was drawn and ask probing questions. If you deposit the -instrument, wait for the funds to clear before paying out. Ask your financial institution to confirm with the institution that issued the instrument that the funds have cleared. This reduces the risk, but may not eliminate it completely.

11. If the new client is a business that provides a link to its website, check that the business name is an exact match with the name used in the website. Sometimes a fraudster provides a website address that belongs to a business with a similar, but not identical name.

12. Don’t respond to obvious scam emails, even to say that you know it’s a scam. Sometimes fraudsters send you a follow-up email if you don’t respond the first time. If you respond, you alert the sender that he or she has found a viable address. That can lead to other problems.

13. Make sure that the lawyers and staff in your firm are familiar with the common types of scams that target lawyers.

14. Two Canadian websites that you can view to inform yourself generally about scams and new trends are fraudcast.ca and phonebusters.com. PhoneBusters is the Canadian Anti-fraud Call Centre, an organization jointly managed by the Ontario Provincial Police, the RCMP and the Competition Bureau of Canada. The Criminal Intelligence Analysis Unit analyzes scams and, if appropriate, may disseminate the information to law enforcement agencies and regulatory bodies both inside and outside of Canada.

15. If someone has scammed you, report it to the RCMP or to your municipal police force. You can also report a fraud to the Canadian Anti-Fraud Centre at:

Canadian Anti-Fraud Call Centre (PhoneBusters)

Toll-free: 1-888-495-8501

Toll-free fax: 1-888-654-9426

Email: info@phonebusters.com
Website: phonebusters.com/english/reportit.html

16. For more tips to help you recognize and manage the risk of becoming a tool or dupe, read materials published by the Law Society.

See Practice Watch (May, July, October, and December 2008; April, Summer, Fall, and Winter 2009; Spring and Summer 2010 Benchers’ Bulletins), Notices to the Profession and Insurance Issues: Risk Management in the Publications & Forms section of the Law Society website at lawsociety.bc.ca.

17. If you suspect that a new client may be a scamster and you would like confidential practice advice, you are welcome to contact Barbara Buchanan, Practice Advisor, at bbuchanan@lsbc.org or 604-697-5816 or another practice advisor.

Do your systems protect you from employee fraud?

When you hire new employees, are you calling their references? Are the references even real? Have you ever done a criminal records check? You may do all of these things with new employees; however, in many cases it’s the long-term employee, the one who is intimately familiar with your accounts, systems, passwords and signature, who ends up stealing from a firm.

Someone I know was shocked that his bookkeeper of 10 years had been stealing from his general account for the past couple of years. The amount stolen was in the six-figure range. Other employees had noticed that the bookkeeper was wearing more expensive clothes, seeing a manicurist on a weekly basis and had bought property in a foreign country. For some time, the employer was only aware that invoices were being paid later and later and the business had less money. Eventually the employer hired an outside investigator and the situation came to light.

What can you do to protect yourself from employee fraud? Some of the things that you could do include:

  • Perform reference checks and background checks (e.g. employment verification, education verification, criminal background check, credit bureau) before hiring new employees who will have -access to financial and other sensitive information.
  • Be alert to changes in lifestyle, particularly if an employee seems to be living beyond her or his means or shows signs of substance abuse or depression.
  • Watch out for phony invoices or excessive payments made to one vendor; payments may be made to businesses that did not perform any services or supply any products.
  • Establish a policy that blank cheques may not be signed.
  • Store trust cheques securely.
  • Keep sensitive passwords secret.
  • Separate office functions so that one employee is not responsible for all accounting, bookkeeping and banking. Keep involved!
  • If you are a sole practitioner who will be away for the office for vacation or illness, arrange for a locum to monitor your files and staff during your absence. (See Practice Support / Locums on the Law Society website, or log in as a member for the locum registry.)
  • Obtain professional advice regarding your insurance needs.
  • Retain a consultant to review your internal controls.
  • Abide by the rules for supervision of employees set out in Chapter 12 of the Professional Conduct Handbook.
  • Review the Trust Accounting Handbook on the Law Society’s website (Trust Assurance / Trust Accounting page), especially Accounting Alert! (pages V-5 to V-6), and the Internal Control Checklistand the Common Deficiencies Checklist (Appendix A).
  • Contact a Trust Assurance Auditor (trustaccounting@lsbc.org) or a practice advisor for further assistance.

Banks refusing to accept lawyers’ trust cheques for deposit?

Some lawyers have reported that banks are refusing to accept a lawyer’s trust cheque for deposit unless it’s certified. A lawyer may ask for your cooperation in having your trust cheque certified. Unless funds are to be paid under an agreement that specifically requires another form of payment or payment by another person, a lawyer must not refuse to accept another lawyer’s uncertified cheque for the funds. However, it is not improper for a lawyer, at his or her own expense, to have another lawyer’s cheque certified (Chapter 11, Rule 8 and footnote 1, Professional Conduct Handbook).

Further information

Contact Practice Advisor Barbara Buchanan at 604-697-5816 or bbuchanan@lsbc.org for confidential advice or more information regarding any items in Practice Watch.