Receivable/Accounts - Information for Credit and Collection Issues

Tuesday, July 21, 2015

Preventing Trust Fund Scams




So, October marks the 4th year Kingston Data and Credit has been in existence, and in that time we’ve had no less than five attempts to defraud us through fraudulent payments to our trust account.  The most recent involved a cheque for over $200,000.  We’ve become aware of what to look for, but looking online, many collection agencies and lawyers have fallen victim to this scheme.  It’s fairly predictable, and we can walk you through some preventative steps.


The Big File Rolls In

Suddenly, out of the blue, you receive a call, email, or most recently, Linkedin messages asking if you can represent them – these can come from China, India, or most recently in our case, Europe.  The request is to represent a company on a very large account, and they will provide documentation or even a collection agreement – while some of these requests might be legitimate, you need to protect your agency or law firm.  There are a few things to watch for and investigate when taking on these accounts.

=> Is the company legitimate?  If you are receiving an email from a CEO of a multinational company, and the email is coming from gmail.com, ymail.com, or even outlook.com, odds are it’s not authentic.  The most recent request we got was from a proper company domain … that on the surface passes the first step.  We go to the website, and everything looks legitimate, however a big red flag there is no phone number to contact the company, so it could be a ‘dummy site’

=> WHOIS is a domain search function on the internet – if you google “WHOIS abcompany.com” you will get a number of sites that pull up domain registry information.  In the case of the latest fraud attempt, it has an accurate address for the registrant, but the domain was only created in March of 2015 … and the agreement or contract provided is from 2013.  That’s the second red flag for fraud.

=> Expanding to a general Google search, there are a number of pages saying the company is 30+ years old and dissolved, others say it’s open and current – but none of them list contact information that we can call the company independently from the number provided to us.  Furthermore, the ‘new client’ contact doesn’t show up on Linkedin.


Money For Nothing

So while our suspicions are up, there’s no reason to not represent the company at this point (unless you are a lawyer with identification requirements through the law society) – however, we get the file listed in our office by email, and before we can even mail out a collection letter, we hear from the debtor!  They are paying $205,000 out of the $600,000 account listed, and the cheque is on it’s way – a little odd?  Not completely out of the question, but beyond suspicious.

And then the cheque magically arrives, and it’s not from the debtor company!  It’s from a completely different company in a different province.  A little independent detective work finds us the cheque company phone number, and after a quick call to their AP department, they confirm it’s not a cheque issued from their company, and they thank us for bringing it to their attention, and they notify their bank.


Meanwhile, Someone Wants Their Funds

The original ‘creditor’ is now jumping up and down asking when the cheque will clear and when we can do an international wire to Europe to send them their funds, less our commission fee.  Of course they want it as quickly as possible, because 30 days from now, the cheque would be returned insufficient funds, fraudulent, account frozen, or some other reason, and we’d be out the $205,000, with no chance of recovering our money.


Steps To Take

First of all, never disburse funds from trust earlier than required, and certainly if there is a good expectation that the funds will not clear.  Some provinces and states have deadlines for issuing funds within 45 days, or by the 20th day of the following month, but if there is a concern for fraud, don’t do anything other than a trust cheque – international wire transfers are not cancellable! 

Next, always verify your client is legitimate, the cheque is legitimate, and that you are not party to money laundering or fraud – always independently corroborate that everything is on the up-and-up.  Don’t call the phone number on the cheque, Google it and call independently.

Lastly, if there is fraud, report it.  Report it to the company that is the victim of someone sending out fraudulent cheques in their name, because their security has probably been compromised.  Report it to your bank so they can take steps to protect their customers, and report it to the RCMP (if you are in Canada) because it’s required by law.


They Are Getting Smarter

While the example above is the typical scenario, there are variants and evolutions of the trust scam constantly happening – now we receive Linkedin connection requests from ‘potential clients’ with fully fleshed out profiles, and the ‘creditors’ or ‘debtors’ have local numbers and websites forwarded to whatever location they are operating from.  These attempts at fraud are becoming more sophisticated, but all in all they have two key qualities – they are too good to be true, and they are in a rush for you to send them money.


Alert Websites and Useful Links

There are a lot of useful links below to keep an eye on trust fraud schemes – some list actual occurences.



Conclusion

While collection agencies and law firms are in the business of collecting funds in trust and disbursing them to creditors, due diligence and vigilance is always required.  Many of these scams could cripple or close a reputable business and these attacks are not uncommon.  We see these attempts to defraud our company every  six months or so, and the news is filled with stories of law firms issuing funds that never existed.  Be careful, be cautious, and be professional.

If you have any examples of fraud attempts against your company, I’d invite you to post them in the blog comments, to help protect agencies and firms in your area.

Thanks kindly,

Blair DeMarco-Wettlaufer
KINGSTON Data & Credit
Brantford, Ontario
226-946-1730