Beware of bad cheque scams

The scam typically involves a firm being asked by a new, typically foreign-based client to bank a cheque on the client’s behalf for a matter in the firm’s jurisdiction. The client then requests that some or all of the money be disbursed urgently before the firm is able to establish that the cheque is a fake. Payment of the money by the firm results in a trust account deficiency.

A practitioner reported a recent example where his firm was contacted by an agent acting for the vendor of a small business in Melbourne. The firm had dealt with the agent previously. The agent said he had been approached by a prospective purchaser located in Asia. The agent referred the purchaser to the practitioner’s firm to have the contract reviewed.

The practitioner discussed the retainer with the purchaser over email and requested a payment of $800 into the firm’s trust account for anticipated costs. The purchaser signed and returned the firm’s retainer letter, before sending a Manulife bank cheque for over $700,000 via FedEx. He told the lawyer it was for the deposit that his North American-based broker had ‘settled’.

By this stage the practitioner was suspicious and emailed a copy of the cheque to Manulife, which confirmed the cheque was counterfeit and should not be deposited.

This example involved several factors often seen in bad cheque scams such as:

• a new client located overseas
• all communications occurring by email, with the client using a free email service
• provision of a bank cheque for an unexpectedly large amount
• instructions for the firm to deduct its costs from the cheque amount.

The purported purchaser’s unexplained decision to buy a business in Australia that he had never inspected was also a red flag in this instance.

Practitioners should always treat client instructions with appropriate scepticism, and query unusual and unexplained aspects of a transaction or client behaviour.