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How Prevalent is Trust Account Fraud?

In recent years, would-be thieves have identified trust accounts as potentially lucrative targets.  The schemes used to target trust accounts have become more sophisticated as electronic banking and international transactions have become more common.

Counterfeit Checks

Lawyers should be cautious regarding checks drawn on out-of-state or foreign banks, including certified checks and cashier’s checks drawn on such institutions.  In recent years, the number of counterfeit or fraudulent checks presented to Iowa lawyers has increased.  The common theme in these schemes is inducing you to deposit the counterfeit check in your trust account and make an immediate disbursement of a portion of the deposit back to the thief, before the counterfeit check is returned by your bank.  Clearance times, particularly for checks drawn on foreign banks, are quite long.  Some confidence artists provide an initial check drawn on a foreign (often Canadian) bank, and then follow up with another, more substantial check drawn on the same bank when the first check appears to have been honored due to the long clearance times on checks drawn on foreign banks.  Soon after the second check has been deposited, the client’s circumstances change and they demand that the bulk of the second check be wired back to them expeditiously.    

Tip: A countermeasure for this threat is to wait until the out-of-state or foreign check clears through the banking system.

Counterfeit Checks Drawn on an Out-of-State Law Firm Trust Account

An alternate scheme is to tender a check that appears to be drawn on the trust account of a lawyer in another state, but actually is counterfeit, and request your assistance with a business transaction that involves disbursement the same day the counterfeit check is deposited.   

Tip:  One possible countermeasure for this threat is to require an electronic deposit to your account if same day settlement is desired, and verify the deposit has occurred.  An alternative countermeasure is to independently access the contact information for the law firm involved and verify that the trust account check is authentic.  A countermeasure for this threat also is to wait until the out-of-state check clears through the banking system.  

Keystroke Recording Implanted via Social Media

Social media sites are used by some thieves as a tool to implant keystroke logging or recording programs in the background on the computer used to access the social media site.  The keystroke logging program communicates in real-time over the Internet with the thieves.  When the user of the computer infected with the virus accesses an electronic banking website using that computer, the thieves are alerted.  The thieves note the bank website address and login data, and quickly raid the bank account, transferring funds to an off-shore account.  

Tip: A countermeasure for this threat is adoption of a law firm policy against accessing any social media site from any computer on the law firm network, but especially from any computer used for electronic banking.  You may want to consider segregating the computer used for electronic banking from the remainder of the computers on your office network.  You also may want to discuss with your bank the anti-fraud features the bank has available.

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