Rules require lawyers to guard against fraud

The Benchers have amended Chapter 4, Rule 6 of the Professional Conduct Handbook to reinforce a lawyer’s duty to be on guard against becoming the tool or dupe of an unscrupulous client.

In recent years, the Law Society has learned of dishonest investment promoters who have asked to deposit funds in lawyers’ trust accounts. The funds typically come from investors who have been promised spectacular profits. Perpetrators of these scams use a lawyer’s trust account and insurance coverage to add credibility to a fraudulent enterprise.

Although lawyers have always been under an ethical obligation to refrain from dishonest or fraudulent activities, the amendments to Chapter 4 of the Handbook expressly highlight a lawyer’s duty to refrain from any activity the lawyer “knows or ought to know” assists a fraudulent enterprise. In addition, a new footnote to Rule 6 explicitly warns a lawyer to be wary of clients who promise third parties unrealistic returns on investments placed in trust with the lawyer. The Law Society also urges lawyers to be wary of unfamiliar clients or investors who ask them to make representations about protection for potential claimants under the lawyer’s insurance coverage.

Amended provisions of Professional Conduct Handbook:

Dishonesty, crime or fraud

6. A lawyer must not engage in any activity that the lawyer knows or ought to know assists in or encourages any dishonesty, crime or fraud, including a fraudulent conveyance, preference or settlement.3


3. A lawyer has a duty to be on guard against becoming the tool or dupe of an unscrupulous client or of persons associated with such a client and, in some circumstances, may have a duty to make inquiries. For example, a lawyer should be wary of a client who:

(a) seeks the use of the lawyer’s trust account without requiring any substantial legal services from the lawyer in connection with the trust matters, or

(b) promises unrealistic returns on their investment to third parties who have placed money in trust with the lawyer or have been invited to do so.

Learn more about fraud targeting Canadian lawyers in real estate practice in this issue’s Practice Tips on page 15. For an overall survey of common schemes and scams, see “When scamsters target lawyers” in the May-June, 2003 Benchers’ Bulletin.