The Serious Organised Crime Agency (SOCA) has issued an updated warning in its recent e-newsletter, Payback Times, about the vulnerability of law firms to advanced fee fraud.
The methodology
Law firms have been approached to act for foreign nationals in relation to a personal injury or contractual dispute in the UK.
Shortly after instruction, cheques for substantial sums are received, purportedly as an out of court settlement.
These cheques have later turned out to be fraudulent or stolen, with some firms suffering losses where they have forwarded on payments before the cheques have cleared.
In many cases the purported client has also provided false identification details.
Action to take
Where you receive instructions from a client who is unusual for your firm, remember to always ask the question: why are you instructing me?
While litigation is not covered by the Money Laundering Regulations, it can be used to facilitate fraud and money laundering. Ensure that your fee earners know the warning signs, including unexpectedly quick settlements.
Read more on the warning signs of laundering through litigation
If you receive a stolen cheque, you will have the existing proceeds of crime. In this case you will need to consider making a suspicious activity report (SAR) to SOCA under section 332 of the Proceeds of Crime Act. You may also wish to make a separate crime report directly to the Police or the National Fraud Authority, as a SAR is not a crime report.
If you receive a fraudulent cheque, you are likely to be in possession of the instrument of a crime, rather than its proceeds, unless funds have already been drawn down against the cheque. If there are no existing proceeds of crime, you do not need to make a suspicious activity report, but should consider making a crime report directly to the Police or the National Fraud Authority.
You would also consider terminating the retainer to protect your firm from the fraud and to avoid being utilised in perpetrating the fraud on others.
Read more about the advice from SOCA in the recent edition of Payback Times
Get access to our money laundering reporting officer (MLRO) only forum to read other alerts from SOCA and previous editions of Payback Times by emailing us at antimoneylaundering@lawsociety.org.uk.