Fraud against and relating to lawyers is a serious issue that is on the rise. Lenders, insurers, law societies, and lawyers themselves are the losers. Fraud can occur in every type of practice. All too often, sole practitioners or those who are struggling in their practice are the targets of the fraudsters. This is because lawyers who are isolated or who have serious financial needs are more vulnerable to manipulation.
You should never feel alone in your practice and particularly so when it comes to dealing with a potential fraud. You are encouraged to contact another lawyer or a staff lawyer 1 at the LSBC, if a situation presents itself that you feel ill prepared or unable to manage. Although client confidentiality is always a concern, in most cases you will be able to find a way to discuss the scenario without revealing the client's identity.
In the extreme, if you have taken things too far before realizing that you have been duped, you may have to retain your own counsel to discuss the matter fully in confidence. But do so, no matter how compromised you may feel. To continue to cooperate with the fraud artist out of fear of exposure or reprisal will come to no good end. A fraud left unchecked can lead to discipline action by the LSBC, denial of insurance, personal financial ruin, and in some cases criminal law sanction.
In 2005, the Benchers amended what is now Chapter 3, rule 3.2-7 of the BC Code:
When acting for a client, a lawyer must not engage in any activity that the lawyer knows or ought to know assists in or encourages any dishonesty, crime or fraud.
The commentary to that rule provides:
A lawyer has a duty to be on guard against becoming the tool or dupe of an unscrupulous client or of persons associated with such a client and, in some circumstances, may have a duty to make inquiries. For example, a lawyer should make inquiries of a client who:
- seeks the use of the lawyer's trust account without requiring any substantial legal services from the lawyer in connection with the trust matters, or
- promises unrealistic returns on their investment to third parties who have placed money in trust with the lawyer or have been invited to do so.
The Rule was strengthened to include a duty on lawyers to refrain from any activity that the lawyer "knows or ought to know" assists in a fraudulent enterprise. The footnote adds some examples of the types of activities about which you should be concerned, and which on their face may be evidence of involvement with a scam artist. As well, you should be wary of any client who is unfamiliar to you and begins to ask for representations about your insurance coverage.
All the types of frauds that can affect lawyers are too numerous to mention in detail. 2 But the following outlines some of the most common and problematic areas, and may give you some tips on recognizing and managing the risks.
Review the Law Society’s website section on Fraud Alerts, which will keep you current on fraudulent activity that may affect your practice. It describes various fraudulent schemes in the areas of: real estate; investment schemes; bad cheques and other negotiable instruments; and employees.
1 "Staff lawyers" in this module refers to both the LSBC Practice Advisors and the Claims Counsel at the Lawyers Insurance Fund. Both are very experienced with fraud scenarios and the circumstances of any particular scenario may dictate which is best suited for contact.
2 See Appendix A for more examples of actual scams and frauds that have been perpetrated