Fraud. Advance fee fraudster's paradise
26 November 1996
4 June 2013
17 March 2014
17 October 2013
30 August 2013
6 March 2014
Despite continued publicity, the pervasive problem of advance fee fraud is still a very real one for the legal profession in England and Wales.
Advance fee fraud can be as simple and blatant as the common "Nigerian letter scams which are well known to the Serious Fraud Office. The fraudsters ask for the victim to supply bank account details, allegedly to allow money to be laundered and returned to Nigeria and with the promise of a sizeable fee.
Once the bank details are given, the fraudsters are at liberty to empty the account of the victim's money. In a sense, these types of scam, like mortgage frauds are moderately straightforward and, with a modest amount of common sense, fairly easy to avoid.
The more problematic advance fee frauds are the "investment" type that may involve fraudsters offering victims the opportunity of:
investing in what appears to be a complicated financial transaction involving the trading of, for example, so-called "prime bank instruments", discounted standby letters of credit or Federal Reserve Notes with the promise of huge profits as a result.
a free or very low interest (self-liquidating) loan as the result of an investment in non-existent financial instruments.
the opportunity to win a contract or part of a contract to supply goods or services for major projects in countries such as the ex-Soviet republics.
In all cases of investment fraud the victim is asked by the fraudster for an advance payment as a precondition to their involvement, and this is then stolen. Often in the case of the contracts mentioned above, a further condition imposed is that the investor must arrange a performance bond in circumstances where there are likely to be fraudulent attempts to obtain payment under it.
There are a number of ways in which these frauds can affect the legal profession. A fraudster can try to persuade an investor to pay an up-front fee. The investor will almost certainly be told that the fee will be refundable if the transaction does not complete and that until then the money will be safely held by a lawyer in "escrow". The investor will be told that the money will be held by a solicitor in England or Wales because the investor will then have the added comfort that if the money is not returned as promised, the investor can make a claim either on the solicitor's professional indemnity insurance, the Solicitor's Indemnity Fund or the Law Society's Compensation Fund (even though such claims are not necessarily bound to be successful). Fraudsters are also using this apparent protection as a means to attract victims from foreign counties to the UK for the purpose of defrauding them.
Solicitors acting on behalf of fraudsters also write letters which may confirm that they act for the fraudster or that they are aware of the nature of their client's "business". These are then shown to investors as a way of persuading them of the bona fides of the fraudster.
Some solicitors are persuaded to give undertakings to third parties in relation to the holding and release of money in circumstances where they are likely to be unable to comply with the terms of that undertaking. Even if they are able to comply they still may be implicated in any subsequent theft.
Other solicitors may be actively looking for investors to introduce to supposed investment programmes, or (like sole practitioner and convicted fraudster Charles Deacon, who obtained $19m from investors, $14m of which was never recovered) may themselves be fraudsters.
The threat from advance fee fraud arguably is greater from the investment type frauds than Nigerian letter scams. Investment frauds tend to have a lower profile but can involve millions of pounds. Small practices in particular continue to be involved in investment frauds, and many are repeatedly involved in these scams.
Recent figures from the Office for the Supervision of Solicitors (OSS) suggest they have recently discovered more than 40 potential advance fee or investment type frauds in which solicitors are involved. There is concern on the part of the OSS that by the end of the year this figure may increase to more than 60. In only one recent case there were approximately 20 firms who were involved or whose name cropped up in related documents. Some of these solicitors are deliberately or negligently ignoring the risks they are causing for investors.
The time has come when the honest majority of the profession is entitled to protection and the reassurance that steps are being taken to stamp out this problem. Moreover, the exposure of the Compensation Fund, the SIF or professional indemnity insurers to claims should no longer be tolerated.
Some might say that the victims of investment frauds are greedy and deserve no sympathy. This, however, is no excuse for the current failings of the profession and its regulators.