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Know Your Client: Pre, Present and Prevention

Fraud lies hid in general expressions

The general rule of the internet is to never believe everything you read; however, in the context of fraud on a law firm or lawyer, there are many plausible ways of this occurring.  Zooming in specifically on fraud by a client or potential client, it seems that the most strenuous method used by fraudsters on a law firm would be through email.  An example of such dubious email received reads as below:-

Dear Counsel, 

I wish to file a case against my ex-husband (Ramseyer Nakazato) for failure to complete court ordered payments of Child Support, Spousal Support, Equitable distribution and Medical support in our separation agreement. Kindly respond to confirm your readiness to assist. I reside in Japan. I am earnestly waiting for your reply. 

Warmest Regards, 
Andrian Nakazato

Replying to the email brought an explanation from the fraudster that she was once married and now divorced in Japan.  When the law firm requested for a copy of the relevant divorce decree document, the fraudster emailed the purported decree which appears to be in Korean language issued by a Korean district court.  The law firm then did a background check on the internet and found that this is a scam/fraud that has been encountered by many other law firms from other countries such as the United States and Chile.

Scams and frauds come in various manners and plagues different areas of practice. The most pervasive methods are through bad cheque scams and real estate scams.  It is therefore crucial for a lawyer to always be vigilant when approached by a client to handle a matter.  A complacent attitude with the surety thought of being fooled-proof could render a lawyer into a pitfall of a fraud and a claim against him or her.

Frauds are no longer what it was – sloppy and unsophisticated with bad grammar and a plethora of spelling mistakes – although there are still those few spam emails which would cause a lawyer to lower his or her guard to the stellar fraudsters.  Fraudsters are now able to create a line of seemingly trusted sources ie client, lender, buyer, and seller, all of whom are accomplices to the fraud.  Even the supporting documents and cheques or bank drafts supplied by the fraudster can look so genuine that bank tellers are not able to make a distinction.  This would give a false impression to the lawyer that he or she is dealing with a reputable or trustworthy client.

The first step a lawyer needs to take when approached by a potential client is to decide whether or not to represent the client in that particular matter.  Such a decision should be made wisely and carefully by obtaining as much information, both on the client and the matter at hand.  There are umpteen of red alert signs to indicate a fraud that a lawyer should look out for when dealing with a potential client.  These signs are not exhaustive and vary in a case-to-case basis.

Red Alert Signs!

When looking out for red alert signs, two scenarios must first be distinguished:-
  1. is the lawyer in a position where he or she is approached by a potential client to handle a matter ie where the lawyer has not rendered any professional legal services, OR
  2. is the lawyer in the midst of handling a matter for the client and is wary about the authenticity of the matter i.e. where the lawyer has rendered professional legal services.
For Scenario A, the red alert signs would be:-
    Client only provides a cell phone number;
    Vendor in a Sale and Purchase Agreement is not the last registered owner of the said property;
    Despite client stating that legal services is required to obtain payment, the debtor readily appears to settle the sum without being prompted;
    Client only communicates through email due to “different time zones”; and
    Client pushes the lawyer to “do the deal quickly”.

For Scenario B, the red alert signs would be:-
    Client informs that he/she is in need of the funds urgently;
    Stranger/third party appears on behalf of client to sign documents;
    Client is unable to produce any other supporting documents such as utility or tax bills relating to the property other than the title deed; and
    Lawyer is instructed to transfer funds to a third party who has no apparent connection to the matter at hand.

If you have encountered any of the red alert signs mentioned above, proceed the matter with caution and consider if the matter is safe to pursue.  However, if you have already provided legal services for the alleged fraudster, obtain further documents to verify the legitimacy of that said client.  Furthermore, if you feel that the alleged fraud poses a threat against you or your law firm, immediately notify the matter to the Insurers as a circumstance.

It must be noted that fraud is often successfully pulled off as there are misconceptions on how fraud is attempted.

Misconceptions of Fraud

    The fraudsters are not necessarily always new clients.  Some have been known to have the lawyers handle small legitimate matters before executing a fraudulent deal.
    Fraudsters do not always make contact via email or telephone only.
    Fraudsters can be creative and not all are copycats.  The ultimate frauds are executed perfectly because there are no indications of any red alert signs.

It should be clear that it is hard to pinpoint what a fraudster may do and may not do.  Lawyers should always be on their toes for any suspicious behaviour.  If the facts do not add up, there’s likely to be something amiss.  That being said, a fraud is not entirely unavoidable if the lawyer strictly adheres to the minimum requirement of best practice.

The NOT-To-Do List

☢ DO NOT disburse funds immediately even if the client is pushing for it.  Ensure that all cross checks are done and put in writing before proceeding.
☢ DO NOT let the fraudster lure you with the promise of generous funds if you have felt something is awry.
☢ DO NOT ignore your instincts that there is foul play.  Obtain as much information until you are satisfied to proceed with the matter.

Protect Yourself!

  Oral confirmation that a cheque or a bank draft is legitimate is not satisfactory.  Always obtain confirmation in writing before moving forward.
  Always remain on high alert and never let your guard down when dealing with a client and the client’s matter.
  As a lawyer, your instincts should be close to impeccable.  If you feel that there is something amiss, proceed with caution or terminate the retainer.
  Report obvious fraud attempts to the PII and Risk Management Department to help other lawyers be aware.
  Cross-check names, address, telephone number on search engines or other reliable sources as a precautionary method.
  Obtain photo identification of any parties to the matter.
  Train your staffs to be aware of red alert signs.  It never hurts to have multiple layers of defence when battling with fraud.
  Religiously follow client identification and verification steps required.
✓  If there has been an official engagement or retainment of legal services between you and the client, ensure that the client is informed in writing should you wish to terminate the retention or any legal representation rendered by you.