If fraud prevention/ risk management isn’t on your high priority list, it should be!
Lawyers who conduct financial transactions for their clients (such as real estate or estate litigation matters) are becoming increasingly more vulnerable to fraudsters who take advantage of their trust.
Fraud schemes are growing more sophisticated and harder to detect, as explained in this recent article in LawPro magazine. Schemes range from homeowner impersonation and hacking into email threads, to altering transaction documents and redirecting wire transfers to unverified bank accounts. Some firms have been duped for thousands to millions of dollars through fraudulent activity.
As of January 1st, 2024, The Law Society of Ontario (LSO) is enforcing By-Law 7.1 which requires lawyers to be more vigilant and thorough in their data collection process in verifying the identification of their clients overall, but particularly those you engage virtually vs in person. The LSO wants you to ensure that ‘documents and records be authentic, valid and current, and provide a safeguard against fraud, money laundering, and other illegal activity’. Additionally, where there is a financial transaction involved, the new LSO requirements mean licensees need to obtain “source of funds” information from their client as well.
All of this will require lawyers to make the necessary adjustments to their retainer letters and “Know Your Client” file opening sheets in order to collect the appropriate required information and communicate your fraud prevention policy.
Professional liability insurance companies such as LawPro’s TitlePLUS are scrambling to protect themselves, as well as help lawyers mitigate loss due to fraud, that they offer third party alignment with identification verification services such as Treefort Technologies.
There are several reputable and client user-friendly third party service providers available out there to suit your local or international needs, just do your homework. And speaking of homework, if you have questions on this new Anti-Fraud By-Law, the requirements and how they affect you, there is a useful Q&A forum available on the LSO website.
Knowledge and vigilance are your best allies to fraud prevention. Be proactive by:
- developing a risk management action plan and policy,
- continuously train employees on how to detect cyber-crime and fraud,
- keep your technology updated,
- refresh your data collection process to ensure you meet LSO requirements, and
- conduct random spot checks on compliance.
Cosgrove Associates offers guidance on the preparation of a fraud prevention plan.