Fraud Alert #1 – Social Engineering Claims
Fraud Alert: One Phone Call Can Prevent a Six-Figure Loss
Recent fraud incidents involved more than $1 million in trust funds being transferred based on fraudulent payment instructions.
In each case, the instructions appeared legitimate. Fraudsters compromised email communications, intercepted existing conversations, and used fraudulent banking information to redirect client funds. In some cases, the fraudulent instructions were supported by forged banking documents.
Fortunately, financial institutions identified discrepancies in several cases, preventing a financial loss. The outcome could easily have been different.
One common theme emerged in every case: the law firm did not independently verify the change in banking instructions before transferring trust funds.
The lesson is simple: never rely on email alone to verify payment instructions.
How to protect your firm
1. Establish a written funds transfer protocol.
Your firm's protocol should clearly outline how payment instructions are verified before trust funds are transferred. At a minimum, the protocol should include:
Independent verification whenever banking instructions change.
Verification using a trusted communication channel, such as a telephone number already contained in the client file.
Verification outside the original email chain.
Documentation of the steps taken to verify payment instructions.
2. Train all lawyers and staff to follow the protocol.
A written protocol is only effective if it is consistently applied. Everyone involved in trust transactions, including lawyers, assistants, and accounting staff, should understand the firm's procedures and follow them without exception.
3. If you suspect fraud, act immediately
Time is critical.
Contact your financial institution immediately.
Notify the receiving financial institution, if known.
Preserve all emails, attachments, banking documents, and transaction records.
Notify the appropriate individuals within your firm.
A prompt response may improve the likelihood of recovering funds.
And remember a simple phone call may be the difference between a routine transaction and a six-figure loss.