Lawyers Burned in Banking Scam

I’m reminded by recent news that many consumers and businesses do not understand funds availability and endorsement responsibility. A new trend in check fraud scams involving law firms brought this to mind if most attorneys don’t understand it, what does that imply about the level of knowledge for the average consumer?

It is no news to habitu’s of eBay and Craigs List that there are international scams involving counterfeit Cashier’s Checks and Money Orders. EBay and Craigs List have both prominently posted warnings to sellers to avoid these payment methods.

So what have the scammers done? They moved upstream to larger dollar fraud targeting businesses and law firms.

Here’s are some recent check fraud scams that trapped law firms in Atlanta, Los Angeles, Chicago and other cities:

• A law firm gets an inquiry, usually by email from a company in Asia with a request to assist with collecting funds due from a US company. The firm represents a new client and, at least based on a cursory directory check, appears legitimate. Given the 12 hour time difference from the US East Coast to Asia, the fact that everything is handled by email does not set off alarms.
• The attorney writes a collection letter and receives payment by cashier’s check. They are instructed by their client to immediately deposit the funds, and wire the balance (less their fee for collecting the debt) to a bank outside of the US.

You can guess the rest of the story. The check, which appeared to come from a well known bank like Chase or Citibank, is counterfeit. By the time this is discovered, the funds have already been wired out. To the surprise of the law firm, they are on the hook.

The concept of provisional credit is not well understood.: “You told me I had the funds in my account”. It’s not just a customer relations issue if $100,000 is out the door, it is hard to collect.

OK the lessons. First of all, the scammers are smart and innovative. They’ll find the weak spots, and you need to flag potential areas of fraud even if it unwittingly involves your good customers.

More importantly, banks need to continue to educate their customers on warning signs of potential fraud, and the remind them of what
“good funds” really means.

Finally, fraudulent activities like this are a great reason to show customers the value of various remittance services that help them manage payment streams in a safe and legitimate way.