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10 July 2014


Posted by Rachel Booth, Marketing and PR at Legal Futures associate, Lawyer Checker

In the shadows: identity theft is a fast-growing problem for law firms

Solicitors have been given another wake-up call with regards to criminal clones this month by their regulator. In its second annual risk outlook, delivered last week, bogus law firms were elevated to being one of the key risks facing the profession.

How does your firm protect itself from this risk?

It is only a matter of time before another innocent conveyancer and their client are duped by criminals with this relatively new and sophisticated method of taking funds. Cloning a real law firm is still the most common method of duping firms into sending funds to criminals, as shown by the recent SRA publications, and so it is important for firms to be extra cautious.

Threats come from all angles and it is now vital for every conveyancing business to risk manage the remittance of funds, even checking employee back history and preventing employee fraud. It is worth noting that the UK’s Fraud Prevention Service reported earlier this year that cases of fraud committed inside an organisation rose by 18% in 2013.

The risk outlook states clearly that there has been an increase in firms targeted by criminals looking to gain a badge of legitimacy. Coincidentally, in the same week it was published, the SRA’s scam alert service highlighted an example where a London-based firm was cloned by criminals aiming to steal funds from conveyancing transactions. See http://www.sra.org.uk/consumers/scam-alerts/jiva-solicitors-limited.page

The surge in bogus firms makes for scary reading. The SRA said that in 2013 it received 548 reports about bogus firms, a 57% increase on 2012. In the first four months of 2014, it had already received 235 reports.

This is a very real and current risk. The majority of these reports relate to the identity theft of an existing law firm (57%). There have been 90 alerts issued by the SRA in the first five months of 2014, equating to almost 3.5 alerts per week.

The profession cannot ignore the fact that the current landscape is plagued by fraudsters. They are creating bogus firms, using cyber-crime and taking advantage of the fact that there are inadequate systems and controls within the industry over the transfer of money.

All of this is making conveyancing transactions more vulnerable, and it is only going to get worse before it gets better. Don’t go thinking that SMEs escape the fraudster – as many as 63% of small businesses were attacked by an unauthorised outsider in 2013.

How does the industry combat the criminals though? What are the expectations of the rest of the professionals within in the industry? How can your firm protect itself?

Nearly half (46%) of mortgage lenders agree that controlled processes are the way forward for the reduction of risk of vendor conveyancer fraud.

The importance of having integrated risk management processes in conveyancing is becoming more and more important in securing your client’s (and the lender’s) money, especially when you consider the fact that 92% of lenders think that data sharing, transparency and controlled processes are major drivers to help reduce the risk of fraud in property transactions.

Getting caught by a bogus solicitor or firm can harm a firm’s insurance premiums too; 70% of professional indemnity insurance claims made against solicitors relate to property transactions, according to broker Lockton.

Only 15% of those lenders asked felt that solicitors and licensed conveyancers are making big improvements to prevent fraud. Firms need to involve their compliance officers so as to safeguard themselves and their firms. What do you do?

The Nationwide v Davisons and Santander cases are precedents that demand conveyancers ensure that they and their firm are carrying out the most stringent of due diligence assessments when adhering to rule 10. How do you prove that your firm acted reasonably and honestly?

The risk outlook makes uncomfortable reading for conveyancers who are burying their heads in the sand when it comes to the reality of vendor conveyancer fraud, but the fact is that without tight and stringent risk management over the transfer of client money (including lender money), all firms and conveyancers are inevitably opening themselves up to becoming unwitting accomplices in the criminals’ game.

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