We know we have been inundating you about these frauds. Why? Because the last thing we want to see is lawyers being brought to their knees when they get caught by one of them. They can be devastating and easily exceed the insurance available through us and other providers. The reality is that every lawyer in every practice area, whether in a big firm, small firm or practising on their own, is a target. And all of these frauds could have been avoided by a simple phone call to verify payment instructions.
Here is what recently happened. Jane (not her real name), a sole proprietor in Burnaby, settled a family law matter and an agreement was concluded. She received proceeds of $180,000 in her trust account from the lawyer for the wife. Jane then requested and received payment instructions by email from someone she thought was her client but was actually the fraudster instructing her to deposit funds to a Canadian bank account. Because the client was out of the country on vacation, Jane did not call the client to confirm the payment instructions and the money was transferred to the fraudster. Unfortunately, it may be too late to claw back the $180,000. Had Jane simply awaited the client’s return to confirm the payment instructions, this fraud would never have happened.
What should you do? The crux of it is that any time you are transferring trust funds, by any means, in any kind of legal matter, you are at risk and must verify emailed instructions through direct phone or in-person contact. You must initiate the phone contact with your client, the bank or another lawyer or notary, in-person or by using the original phone number in the file or from a reliable directory. Do not rely on a party calling you to confirm instructions. That call is likely to come from the fraudster. Never use the contact information in the instructing email (or confirming letter) and implement a firm-wide protocol. Educate your staff about frauds and the importance of verifying client instructions, especially if the instructions come by email.
This secondary verification also reduces your indemnity deductible from 35% to 15% of the indemnified loss and costs. It’s easy to miss red flags when you are busy and trying to get funds quickly to your clients. You can virtually eliminate your risk by always relying on a simple, formal process. Use a checklist for every payment.
A lawyer recently admonished us for not encouraging lawyers to go “old school” to avoid these frauds. If you do decide to have your client pick up their cheque, ensure that the person who comes to your office is your client and not someone else. We have a report involving this exact failure – the fraudster picked up the cheque and the funds were irretrievably lost. And if you courier the cheque to the client, use the address the client originally provided to you.
If you think you have been a victim of a funds transfer fraud, immediately notify your bank and request a clawback of the funds. Next, contact your IT department and cyber insurer (Coalition or other) to ensure the fraudster is not lurking in your system, and then report to us. Find additional information here about funds transfer frauds, and learn how you can prevent fraudsters from hacking into your systems here and what you can do to avoid cybercrimes. Also see Real estate transactions – know your client primer (Summer 2021 Benchers’ Bulletin) and the Client ID & Verification web page.
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