Scam fraudsters: Beware

November 1st, 2014
x
Bookmark

By Ann Bertelsmann

As a professional indemnity insurer to the profession, the Attorneys Insurance Indemnity Fund is notified of many and varied instances of fraud perpetrated against attorneys by outsiders and employees alike.

Believe it or not, attorneys are as vulnerable as anyone else when it comes to falling for scams. Their trust and business accounts are fair game for unscrupulous people. The criminal mind is becoming increasingly fertile and the minute one scam receives publicity the scammers have yet another to replace it.

Story 1 – the AFF scam

The fraudster:

  • deposits a stolen cheque into a practitioner’s business account;
  • contacts the practitioner and purports to be an employee of the Attorneys Fidelity Fund (AFF) explaining that the deposit was made in error; and
  • requests that the practitioner urgently refund the money by electronic transfer, into a bank account that is purportedly an AFF account (but in fact belongs to the fraudster who has opened it using a stolen identity document).

The amount credited to the practitioner’s business account (via a stolen cheque) is reversed by the bank once it becomes clear that the deposit is fraudulent.

The practitioner who paid out against this deposit has fallen victim to a scam. Surprisingly, many practices have fallen for this scam.

Story 2 – the first conveyancing scam

A conveyancer is instructed to attend to the registration of transfer of a property.

At the conveyancer’s offices, the seller signs transfer documents, including a document with banking details into which the proceeds must be paid.

Around the time of registration, a person pretending to be the seller telephones the conveyancing secretary, instructing her to deposit the proceeds into a bank other than the one already provided. This is followed by an e-mail providing the new banking details.

The proceeds are duly paid into the new bank account and withdrawn within a short period of time. The account was opened by someone on behalf of the fraudster.

By the time the real seller and conveyancer discover the problem, it is too late.

Story 3 – the second conveyancing scam

This scam is more sophisticated than the previous one.

In one such matter, a property sale had been cancelled and the conveyancer sent an e-mail to the purchaser’s Gmail address, advising her that the refund of the deposit would be paid into the FNB account from which the payment had been generated. He received an e-mail response – ostensibly from the purchaser – advising him that that FNB account had been discontinued and providing details of a Nedbank account into which he was instructed to pay the refund. He transferred the refund to the Nedbank account electronically, as instructed.

Meanwhile, the purchaser received e-mails (ostensibly from the conveyancer) apologising for the delay in the transfer of the funds into the FNB account.

By the time the conveyancer became aware that the Nedbank account did not belong to the purchaser, the money had been withdrawn.

A closer examination revealed that the e-mails sent to the conveyancer, in fact came from a Gmail address almost identical to the purchaser’s address. One letter had been swapped around – for example fraudest@gmail.com became fraudster@gmail.com.

The conveyancer did not notice the slight discrepancy.

E-mails received by the real purchaser, ostensibly from the conveyancer, also came from an address almost identical to that of the conveyancer – for example h.sucker@scammedinc.co.za, became h.sucker@scammedInc.co.za.

The purchaser did not notice the slight discrepancy.

  • The fraudster had somehow intercepted the e-mails sent to the purchaser’s genuine Gmail address.
  • He then opened e-mail accounts with similar addresses to those of the conveyancer and purchaser.
  • This enabled him to send messages to the conveyancer and the purchaser, which at first glance, came from their genuine e-mail addresses.

Practitioners should be extremely vigilant when receiving any instructions via e-mail, particularly instructions to make payments.

  • Carefully check e-mail addresses to ensure that they are identical to the ones on file.
  • Telephone the person who ostensibly sent the e-mail using a verifiable contact number. Never use a number provided in the e-mail concerned.
  • Attorneys should not have potentially unreliable e-mail addresses like Gmail, Yahoo, Webmail, Ymail or Hotmail. If the client has such an address, then it might be a worthwhile precaution to follow up any important e-mail sent to that address with a short telephone call to ensure that (the correct) e-mail has been received by the correct recipient.

The success of these scams rely on the fact that the onus is on the depositor to ensure that the recipient account actually belongs to the payee. Generally, when an electronic transfer is made, the bank does not match the payee account number with an account name.

Scam-proof your practice

Be alert to the risks. Review your payment processes and procedures to minimise the risk that your practice falls victim to fraud. These should be included in your practice’s Minimum Operating Standards (MOS). Every member of staff must be made aware of the dangers of non-compliance.

Never –

  • pay out on an e-mail or telephone instruction alone;
  • pay out on amounts received into trust or business until you have properly confirmed with the bank that the payment has been verified; and
  • make payment into an account without verifying the banking details. Insist on proof of bank details. Have a Financial Intelligence Centre Act 38 of 2001 (FICA) policy in place and insist that it be followed to the letter without exception.

Story 4 – who is your client?

A conveyancer was instructed to transfer a property from company O (represented by Mr P) to company C.

A company resolution authorising Mr P to act on company O’s behalf, specifically stated that Mr P’s authority was limited to signing the deed of transfer and that the execution of any other documents should receive prior approval from the company director.

After registration, the proceeds of the sale were paid into a bank account nominated by Mr P.

He was uncontactable thereafter.

Always –

  • know who your client really is;
  • ensure that an agent/representative has the necessary authority;
  • take careful note of any limitations on a representative’s authority;
  • study and be aware of the contents of all relevant documents; and
  • insist on proof of banking details.

Story 5 – trust me, I am your client

Scenario 1

The partners of a firm of attorneys (HF) were introduced to a very wealthy potential client, who lived in Greece and was interested in doing business in South Africa. He took their details, promising to give them work shortly.

Within a few weeks, a fax arrived from HF’s new client, confirming that he had deposited R 3 million into their trust account and gave specific instructions for disbursing the money. HF dutifully followed the client’s instructions.

Scenario 2

An acquaintance gave attorney B the opportunity to become involved in an unbelievably lucrative gold bullion deal, subject to three conditions –

  • he had to raise a ‘goodwill deposit’ of R 3 million to prove that he was not a man of straw;
  • he had to deposit the R 3 million into the dealer’s attorneys’ trust account, to be held in trust pending the transaction; and
  • he was not to make any contact whatsoever with the dealer’s attorneys, to avoid the risk of the middle man being cut out of the deal.

You connect the dots.

(See Hirschowitz Flionis v Bartlett and Another 2006 (3) SA 575 (SCA)).

Story 6

Ms X, the purchaser of a commercial property, advised the transferring attorneys, law firm B, that her accountant would deposit R 500 000 (the balance of the purchase price) into their trust account. The R 500 000 was indeed paid into law firm B’s trust account and thereafter paid over to the seller on transfer.

This seemed like a fairly standard transaction – but was it?

The real story:

It subsequently transpired that the R 500 000 had in fact been deposited by a certain Mr Y, as the purchase price for a different domestic property.

How did this happen?

Ms X, who had previously worked as a secretary at law firm A, posed as an attorney from law firm B. She met with Mr Y on a Saturday morning, to sign the documents (purportedly relating to the sale and transfer of a domestic property). They met at the offices of law firm A, for which Ms X had apparently kept a set of keys.

Ms X sent Mr Y a letter (on law firm B’s manipulated letterhead) providing law firm B’s banking details for payment of the purchase price.

Subsequently, Mr Y claimed that law firm B had negligently paid the R 500 000 to the seller of the commercial property, on behalf of Ms X.

(See the Hirschowitz case, Van Hulsteyns Attorneys v Government of the Republic of South Africa and Another 2002 (2) SA 295 (SCA) and also Du Preez and Others v Zwiegers 2008 (4) SA 627 (SCA)).

Always –

  • know your client (FICA);
  • find out who deposited trust money; and
  • obtain the depositor’s written instructions before paying out trust money.

Story 7 – let’s keep it in the family

Mr X instructed conveyancers to attend to the transfer of his father’s property to the purchaser, Y. He asked the conveyancing secretary to allow his bedridden, elderly father (who was moving into a frail care facility) to sign the documents at home.

It transpired after transfer, that the father was hale and hearty and had had no intention of selling his home.

Story 8

Mr and Mrs Smith, seemingly a very loving couple married in community of property, were selling their matrimonial home. They signed all the transfer documents at the conveyancer’s offices. When asked for her identity document, Mrs Smith discovered that she had forgotten hers.

‘I changed handbags this morning’ she explained.

‘Never mind’ said the kind, understanding secretary, ‘you can send us a copy by fax’ – which she subsequently did.

Aside from the fact that the conveyancer should have had sight of Mrs Smith’s original identity document before commissioning it, this was a fairly standard transaction … or was it?

The real story:

Subsequently, the real Mrs Smith received a bit of a shock when she discovered that she no longer had a home and that her philandering husband had spent all the proceeds of the sale on his mistress.

Always –

follow your FICA processes, without exception. Original documents must be checked and the copies commissioned in the attorney’s offices, except in exceptional circumstances, where a notary or conveyancer in another jurisdiction may be required to do so. All documents must be signed at an attorney’s offices and witnessed contemporaneously (and not after the fact, as so often happens).

Story 9 – let’s keep it in the office

Theft and fraud by staff members

A conveyancing secretary applied for bridging finance on several transactions where neither party had requested it. She forged the parties’ signatures on the applications and the conveyancer’s signature on the undertaking.

She instructed the bridging finance company to deposit the loan into her creditors’ accounts.

Several conveyancing secretaries have misappropriated money held in trust pending the registration of properties, continuing to borrow from ‘Peter to pay Paul’ until the problem is discovered – usually when they are on leave or have left the practice.

These problems arise because many practices do not have MOS, which include checks and balances to minimise the risk of fraud/dishonesty or they fail to enforce the provisions of the MOS by not properly supervising staff.

Some essentials for your MOS are –

  • segregation of duties;
  • proper documents and records;
  • independent checks;
  • reconciliations;
  • proper authorisations; and
  • access controls.

In many ways, information technology and electronic banking have made it easier to run a practice efficiently, but they bring with them the attendant risks of theft, fraud and human error.

Therefore, be warned to maintain a heightened level of vigilance and awareness. It is essential to ensure that there are effective risk management policies and controls in place, to address and mitigate these risks. Any breaches of policy by staff should be dealt with immediately and appropriately.

Ann Bertelsmann BA (FA) HED (Unisa) LLB (Wits) is the legal risk manager for the Attorneys Insurance Indemnity Fund in Johannesburg.

This article was first published in De Rebus in 2014 (Nov) DR 14.

X