The council said the scam came to light after the Bar’s Professional Indemnity Insurance (PII) scheme was notified of five cases involving the misuse of SPAs to disguise friendly loan transactions.
“In these cases, clients exploited the knowledge of lawyers in order to prepare sham documents.
“There were lawyers who were aware of the nature of the transactions. There were also those who were unsuspecting victims,” it said in a recent circular sighted by FMT.
“This alert is issued with the aim of informing members of such schemes and to warn those who deliberately engage in preparing such sham documents,” the circular read.
The council said the modus operandi is for buyers to engage lawyers to prepare SPAs for execution, with some agreements containing unusual payment clauses.
“A large amount of money is (then) passed to the seller, usually through the lawyer who then transfers the property to the buyer.”
The circular says problems emerge when a seller alleges he was led to believe that the SPA was signed as part of a friendly loan transaction and that the property was only intended as a form of security.
“This eventually leads to the lawyer being sued for the return of the property, for conspiracy to commit fraud, negligence and breach of stakeholder duty, among others,” the circular added.
Some transactions may involve the sale of multiple properties or shares.
“Other variations of these cases may include the involvement of unrepresented persons, the insertion of unusual clauses in the SPA, the involvement of properties that were charged to banks when the agreement was signed, and the involvement of forged official letters,” it said.
In one case, a buyer claimed not to have signed the SPA at all, while in another, the purchaser openly claimed he had advanced a friendly loan and that the property was in full and final satisfaction of the loan.
In the circular, the Bar warned its lawyers that such sham transactions were likely to contain elements of criminality, adding that any ensuing monetary transactions, including those involving the payment of legal fees, may be construed as illegal proceeds.
The Bar said participating in such criminal activities may invite a fine and jail sentence under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
“Engaging in such activities can lead to negligence and conspiracy lawsuits, and the loss of one’s reputation, besides being struck off the roll. Most importantly, any claim for lawsuits made against these lawyers will not be covered by the PII scheme,” it said.