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FRAUD ALERT: Bogus cheque scam circulating

In the July 2019 issue of LIANSwers we wrote of a scam whereby a client from out of province (who the lawyer had not personally met or previously known) sent the lawyer funds by cheque and then sought return of those funds when the transaction at issue did not go ahead. But the cheque was fraudulent and in that case, the lawyer discovered the fraud in time. Well here is another one making the rounds. It is not sophisticated. But it works if you are not diligent.

This one starts with the lawyer in N.S. being contacted by a potential client in the U.S. in respect of a transaction, in this case a bitcoin transaction. The potential client advised that he had entered into an agreement to purchase bitcoin from another and sent that person half the total purchase price. Then there was an intervening event – a death in the family – such that the potential client could not complete the transaction but the other party refused to return the initial payment. In this case, our lawyer on the initial contact asked to see the contract and advised of his retainer. He also did a conflict check which was, unsurprisingly, clear. He also asked identifying questions and the potential client provided an address, contact details and his passport ID page.

Then a few days later and without doing anything, our lawyer received an email from the individual identified by the potential client as the person who kept his money explaining his side and offering to work with the lawyer to resolve the matter. Even though our lawyer did not reply to that note, a few days after that email, by courier with an Ontario return address, our lawyer received a cheque for USD162,000 from the individual identified as the person who refused to refund the money. The cover letter said the funds were to settle any claims by the potential client. The cheque was drawn on what appeared to be a legitimate bank. In Kentucky.

Rather than depositing the cheque, sensing something odd by this point, including the lack of any tie to this province, our lawyer contacted the drawing bank who advised that the cheque number and the amount on the cheque did not match and that the cheque was not legitimate.

Our lawyer then called the return address on the courier envelope that the cheque came in. It is a lighting store in Brampton Ontario and the person who answered the call described getting calls from law firms all over North America in the last months who had been couriered a similar cheque.

This scenario discloses several red flags that you have to pick up on. For example, if you get an unsolicited request like this, if you respond, ask how the person got your name. If they say a friend ask who and confirm it. If you do reference checks on new hires, why not on unsolicited new clients from out of province? The odds that they randomly picked you and the matter is legitimate are astronomical. Even for us. And as an insurance program, probabilities are what our business is based on.

But of all the red flags that this scenario sends out, we want to focus on a couple issues related to cheques that could arise in any transaction. The first is cheques drawn on foreign banks. Cheques, even those drawn on a bank across the street, take time to clear. In the case of a foreign cheque, clearing can take weeks if not months. And don’t forget that with any cheque, the person or entity on whose account it is drawn has a certain amount of time – it could be 30 to 90 days – to confirm their statements. If you accept funds in this manner and you close a transaction before the item has cleared and before the payor has confirmed their statements, you may be assuming the risk if the item is fraudulent and returned. If these funds are withdrawn from your account because the originating instrument was fraudulent, they may become your problem as the person you sent those funds to will be long gone. A second issue with cheques nowadays is that with modern editing and printing technology, it is relatively easy to scan an existing valid cheque that someone finds, especially given the propensity now to deposit cheques electronically, alter some numbers and print the fraudulent item on cheque type paper so that looks legitimate on its face.

Issues with cheques can be mitigated against in various ways. One is that you know your client. Another is that cheques have sufficient time to clear before closing.