This article by Kathleen Waters, president and CEO of LAWPRO, originally appeared in the August 23, 2013 issue of The Lawyers Weekly published by LexisNexis Canada Inc.

Fraud attempts come in many different forms. Some schemes (often the more transparent ones) rely on a “volume” approach: target as many lawyers as possible in the hope that a few are naïve or vulnerable enough to fall for the trap. But other fraudsters work patiently to create – or exploit – conditions that lower the guard of an otherwise careful lawyer target.

Some of the fraudsters in this second category invest significant effort in building a relationship of (unwarranted) trust with the target lawyer or, after a history of legitimate dealings, act opportunistically—for example, in response to a personal financial crisis. While lawyers who find themselves the victims of these attacks often feel blindsided, a look back at the circumstances often reveals dangerous patterns in the lawyer-client relationship.

Here are five examples of higher-risk client “types” that lawyers should look out for:

(1) The “invisible” client – this is a client whom you may have acted for over a long period of time, but most of your contact (if not all your contact in recent years) is with an intermediary, such as a business broker, investment advisor or mortgage broker. (In fact, as a slight variation the intermediary could even be within your office, where you think you know what the client wants so well, you don’t even bother paying attention to what work is flowing through your office: the client just contacts your law clerk directly.)

The client has money and with the assistance of the intermediary undertakes various transactions. The problem arises when the intermediary or family members get into trouble, and all of a sudden the instructions coming from the intermediary don’t involve arm’s-length transactions, but ones in favour of the intermediary’s family. You just assume this is ok with the client and paper the deal (assuming you delve deeply enough to know who the true beneficiaries of the transaction are). When it all falls apart, the client won’t be too happy, because invariably the intermediary will have lied to the client about those deals.

Where your staff member is the communication intermediary with the client, the risk is that you are not regularly turning your mind to what the client needs to know − how deals were done 10 years ago may not be appropriate for how deals should be done in 2013, with the plethora of legal risks facing all business and investment opportunities.

(2) The “can’t meet with you” client – this may be a client with a genuine scheduling problem, but it may also be a set-up for a fraud. For example, a spouse who claims the other spouse is too ill to attend at your office to sign documents should be a red flag for potential fraud, in addition to possible capacity issues. Either you have to wait until the other spouse is well again, or make arrangements to attend at the house. What you cannot do is let the documents leave your office and then sign the ILA statement (and perhaps falsely commission a few affidavits for good measure) where you never even saw the person signing and certainly did not give ILA. Photocopies of identification documents aren’t much good when you never see the original to make the comparison to the photo.

(3) The “repeat” client – Just because you have acted for a client previously does not mean that everything the client will do with you in the relationship will be legitimate. Apart from the risk of a client developing problems that may lead him or her down an unethical road or open to pressure from others, fraudsters often give one or more legitimate pieces of work to build the relationship. Then once your guard is down, the big one slips by.

(4) The “I already paid that” client – Assume you are acting for a lender and a borrower, and in accordance with the loan terms you are instructed to ensure that a certain indebtedness must be paid off using the loan proceeds. Since when did real estate lawyers start taking the word of a borrower client that “everything is ok” or “I will pay that myself”, and releasing the entire loan amount to the borrower with no evidence to prove the payment was made? In some cases, lawyers hesitate to question the word of the client out of fear of being disrespectful, given the position of the particular client in the lawyer’s life or community. Isn’t the answer that if you can’t hold the client and yourself to the same rules as you do all your other clients and files, you shouldn’t be acting? Effectively, you are in a form of emotional conflict beyond the technical issue of acting on both sides of the deal, even if not a conflict necessarily prohibited by the Rules of Professional Conduct.

(5) The “friend/relative of the law clerk” client – Nothing is more valuable for a fraudster than an inside accomplice, whether a clerk, junior lawyer, mortgage officer, loan underwriter, etc. Even a long-term, highly regarded employee can develop problems in life that leave him or her open to pressure from unethical individuals. Always keep your guard up and remember that just because a referral comes to you from a staff member doesn’t mean that you handle that retainer differently from any other file.

The great majority of clients are honest; but maintaining an awareness of circumstances that open the door to fraud is essential to protect your reputation, your business, and the interests of the honest parties with whom you do business.

Categories: Fraud Prevention