SPECIAL FEATURE: Verifying where to send funds

The Court of Appeal today released its judgment in the case of Nationwide Building Society v Davisons.

The judgement follows lengthy litigation after Davisons were conned into sending money to a fake branch office of a legitimate solicitors firm. The fake office appeared on the Find a Solicitor website.

This is the latest in a series of cases that have illustrated that the checks carried out prior to transferring the money in a property transaction are increasingly insufficient.

The facts highlight that registration with the SRA is not a guarantee of legitimacy.

In this case a solicitor called Mr Gill established a properly authorised practice known as Rothschild at Pitman Building, Corporation Street, Birmingham. Unfortunately, in October 2008 someone pretending to be Mr Gill notified the SRA of an intention to open a branch office of the Rothschild practice in Small Heath, Birmingham.

The SRA did not recognise that the source email address was not the same as that previously used by the practice and included the supposed new office on the Find a Solicitor website from the end of October 2008

This branch office subsequently defrauded Davisons Solicitors who believed they were interacting with a legitimate solicitors practice. This fraud led to Nationwide Building Society seeking damages of £185,620.00, from Davisons.

This case is just one of a number of cases in recent years where fraudsters have either impersonated a firm or set up an entirely bogus firm which was not picked up prior to the transaction.

Davisons have, after lengthy litigation, been able to demonstrate that on the facts they acted both honestly and reasonably.

Since this issue arose the SRA have issued a Bogus Firm warning notice informing conveyancers not to rely on the Find a Solicitor site to determine that a solicitors practice is genuine or legitimate. This warning will make it significantly harder for conveyancers to demonstrate that they have acted reasonably if they are subject to a identity theft fraud in the future.

A new service called Lawyer Checker allows firms to combat the increasing risk of vendor conveyancer fraud by checking the previous use of the client account number to which they are sending funds. This helps conveyancers avoid the distraction and impact of a professional indemnity claim on their insurance, lender panel status and brand.

For a fixed price, conveyancers will be able to run a check on the client account purported to be a legitimate vendor’s solicitor to help verify that the firm is legitimate.

Firms are exposing themselves to significant financial risk and potential brand damage by not thoroughly checking where they are sending money prior to a transaction.

Lawyer Checker offers a way for them to reduce that risk.

To use the service, a firm will need to enter the other firms client account details and Lawyer Checker will instantly assess whether the client account has a track record of previous use in the conveyancing market or whether it presents a potential risk. Where a potential risk is highlighted, other checks are performed to provide the conveyancer with information to help them determine whether they should accept the undertaking offered to them.

Chris Harris, director, Lawyer Checker: “Nationwide v Davisons highlights how easy it is for good quality firms to be defrauded by criminals. Since the original facts the SRA have issued a warning notice about Bogus Law firms indicating that firms should not rely on the Find a Solicitor website to validate a firm of solicitors. If the facts were repeated today it would be harder for Davisons to demonstrate that they had acted reasonably.”

Karen James, head of residential property, Ramsdens Solicitors said: “When we first started a pilot with Lawyer Checker I admit that I thought I wouldn’t see the benefit and might only use it if a lender or regulator forced me to. Within a few weeks of the start of the pilot one particular case stood out and made me realise the value. Lawyer Checker identified that we were about to send £270,000 to a firm that had only just opened and was a phoenix from a firm that had previously been intervened by the SRA.

“There was no way that I wanted to be one of the first conveyancers to rely on an undertaking from partners who have recently emerged from an intervention. Without Lawyer Checker we wouldn’t have spotted this issue. I would encourage all firms to try Lawyer Checker and see the value for themselves.”

Tracey Carr, financial crime manager, Mortgage Fraud, Santander, added: “We have done a lot of work to reduce fraud but vendor conveyancer fraud remains an area of growing concern. That is why I welcome initiatives like Lawyer Checker that help our panel firms manage the risk associated with transmitting our money to vendor conveyancers. All conveyancers should reassess the checks they make before they send money to organisations offering undertakings.”