Fraud Alert: December 15, 2008

December 15, 2008

As you know, many scams are making the rounds and some of them involve fraudulent certified cheques and bank drafts in the real estate context. The Law Society has learned about a new variation of real estate scam that was attempted in another province. The basic scheme works similar to this:

• Residential property is for sale by the registered owner and a realtor is involved.
• A Canadian lawyer is contacted by telephone to act for a purchaser.
• The purchaser is from outside of Canada.
• The lawyer meets in person with an individual acting on the purchaser’s behalf (e.g. a relative with a power of attorney).
• The lawyer receives a certified cheque for the purchase amount.
• The lawyer deposits the cheque into trust.
• The relative advises the lawyer that the purchaser has passed away and the relative requests that lawyer to quickly return the funds (e.g. by wire transfer).
• The lawyer transfers the funds to the relative before learning that the certified cheque is fraudulent.

How can you protect yourself?

This scenario should make you suspicious. When you are suspicious, trust your judgment. Do not pay out hastily when it’s not necessary. Just because a client is anxious to get their money does not mean that the pay-out must be right away. Contact your bank to verify a cheque’s authenticity and to confirm that the funds have cleared. This reduces the risk, but may not eliminate the risk completely.

As of December 31, 2008, lawyers are required to comply with the new client identification and verification rules. When a lawyer provides legal services in respect of a financial transaction (as defined in Rule 3-91), including a non-face-to-face transaction, the lawyer must take reasonable steps to verify the identity of the client using what the lawyer reasonably considers to be reliable, independent source documents, data or information. “Client” (as defined in Rule 3-91) includes another party that a lawyer’s client represents or on whose behalf the client otherwise acts in relation to obtaining legal services from the lawyer.

The lawyer must verify the identity of both the attorney and the principal/donor. Since the principal is not in Canada, the lawyer must use an agent to verify the individual’s identity. The lawyer must enter into a written agreement or arrangement with the agent to obtain the required information and attest to the individual’s identity (Rule 3-97).

Taking the above steps will give you some protection but there is more that you can do to protect yourself. See the Law Society’s website for more tips and information on counterfeit scams, and stay tuned for updates in Practice Watch. A list of Law Society publications on these scams is available on the website at Regulation & Insurance/Risk Management/Fraud prevention.

If you think that you have been contacted by a fraudster or would like to discuss how to apply the client identification and verification rules, you are welcome to contact Barbara Buchanan, Practice Advisor, Conduct & Ethics, at 604 697 5816 or bbuchanan@lsbc.org.