Check Fraud: Could your Firm be a Victim?

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Check fraud is a billion dollar a year industry in North America. Of organizations surveyed in the 2013 AFP Payments Fraud and Control Survey, 61 percent experienced attempted or actual payments fraud in 2012, and this number is on the rise.

Attorneys and law firms have increasingly become targets of financial fraud. Scammers primarily target sole-owned and smaller firms since they often have fewer financial controls in place, putting them at greater risk to be victimized.

Check fraud scams come in various forms and are typically disguised as legitimate requests, but often have common characteristics.

DEBT COLLECTION A new client calls requesting assistance in collecting debt from a large company in the area. You are asked for your standard retainer amount and then receive a large check by FedEx with a letter from the company (often containing grammatical errors). Instructions state that your firm is to deposit the check, retaining the portion that covers your required retainer amount, and wire remaining funds. Unfortunately, once the wire is transmitted, you learn that the check was fraudulent, that funds are not available to be transferred from the account it was written against, or that the account on which the check was written does not exist.

DIVORCE SETTLEMENT A new client, often located outside the United States, will request assistance with collection of a divorce settlement, often a large sum ranging from $600K to over a million. The client may provide all of what appears to be legitimate supporting documents, including divorce decree and settlement papers. On behalf of the client, the law firm will send an email to the ex-spouse stating they represent the client in collection of the divorce settlement. The firm receives a large check for all or part of the settlement, which usually appears to be a cashier’s check. The client then sends an email to the firm stating they are to keep the retainer and wire the remaining amount to an overseas bank account. The check is fraudulent, but funds are released by wire prior to the return of the check.

KADO

REAL ESTATE A new client requests assistance in purchasing real estate in the area. The client will state that they do not trust real estate companies and prefer using an attorney to facilitate the purchase. Your firm will receive a large check (usually what appears to be a cashier’s check delivered by UPS/FedEx) that you deposit. You then receive an email stating that the client’s plans have changed and that they no longer intend to move or purchase property and that your firm should keep the retainer, but wire the remaining amount from the check – which is, again, fraudulent.

How can law firms protect themselves against this type of fraud? The best solution is to ignore these types of solicitations, but when you think the inquiry might be real the following are just a few examples of how you and your firm can reduce your risk:

  • Know your client – take time to verify the accuracy of the information.
  • Ask additional questions when a local company or new client has a bank outside of the United States where funds are to be wired.
  • Review the check for spelling and capitalization errors, as well as the use of a variety of fonts and other suspicious errors. For instance, the bank’s name may be slightly altered or have a bad phone number or address.
  • Verify funds with the issuing bank, if possible, or ask your banker to check for you.
  • Do not wire any funds back to the client until you’ve received the all-clear from your bank that the funds have been honored by the payor bank. Often people hear the phrase “the funds are available” and interpret that to mean the check has cleared and funds can be used or wired out.
  • Work with a bank that knows you and your practice, and is familiar with how you handle your accounts.
  • Make certain everyone in your office – meaning all lawyers and staff–understand that it is possible a cashier’s check may be forged or counterfeit and that it may be difficult to detect the fraud.
  • Finally, when you find yourself in doubt, listen to your instincts. If it seems too good to be true, it probably is.

With fraud on the rise, staying alert and informed, and working closely with your bank can greatly decrease your chances of becoming a victim of check fraud. Sarah Guindy 

Alert Communications

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