Protect yourself with a double security protocol and remember to never send a wire based upon an email alone.
Fraudsters continue to successfully misdirect wire transfers by inserting themselves into email exchanges between parties of real estate and other transactions. Sophisticated fraudsters, however, are no longer just hacking a real estate broker or law firm’s computer server to commit this wire fraud. Fraudsters are now hacking email providers such as Yahoo or Google to scan millions of emails for key words such as “wire payment” or “real estate closing”.
Further, fraudsters are disrupting internet access and diverting phone messages to increase the chance that their victim will follow the emailed wire instructions. The fraudsters will create a fake email address that is close to the authentic email address (For example, [email protected] becomes [email protected]). Often, this address change goes undetected and the fraudster is easily able to assume the identity of the wire fund recipient. The fraudster will then email wire payment instructions, often to an out-of-state bank, where funds are ultimately wired internationally and typically never recovered.
When the true recipient of the wire transfer complains that the funds are not in his account, the fraudster may engage in a “lulling strategy” to keep the legitimate parties from recognizing something is horribly wrong. The lulling strategy may buy the necessary time so that the fraudster has time to re-wire the funds to banks located internationally.
Note that unencrypted emails are subject to scanning across the board. Thus, wire payments pertaining to real estate transactions and/or settlements or other payments are all susceptible to intervention from fraudsters who are monitoring email traffic through providers such as Google or Yahoo. To increase security relating to wire transfers, use only encrypted emails.
Risk management two-step process for a wire transfer
Develop a two-step wire transfer procedure. Train attorneys, staff and opposing parties to help manage wire fraud risk
- Telephone and verify each and every wire transfer
In addition to training all attorneys and staff, each side to the transaction must establish a wire transfer protocol, and agree that any email referencing and/or countermanding wire instructions will be treated as a fraudulent communication. Both sides signing off to this agreement is recommended. Bottom line, wire transfers should never be sent based upon an email instruction alone. Attorneys and staff should telephone the recipient (using a known and authenticated telephone number, and never taken from an email) to verify hard copy instructions before each and every wire transfer.
- Provide wire instructions in hard copy documents only
Deliver hard copy wire instructions by hand or overnight mail to eliminate any chance of electronic fraud. Further, wire instructions should never be buried deep within voluminous closing documents. Indeed, while some title insurers now demand a best practice of incorporating wire payment instructions into the hard copy of the closing documents, these efforts will be defeated if the instructions are not easily found. Consequently, training and an agreed-upon protocol are imperative in preventing this fraud.
What to do in the event of a fraudulent scheme
Immediately report the fraud to the bank and law enforcement. Time is of the essence in any recovery action. In certain circumstances, the Financial Fraud Kill Chain (FFKC) may be utilized to recover large international wire transfers. To utilize this procedure, the details must be reported to the FBI. Do not wait until it’s determined that the funds have gone overseas, but work with the bank to report the fraud as soon as it is discovered.
The transaction must meet the following criteria for FFKC action:
- The wire transfer is $50,000 or more
- The wire transfer is international
- A SWIFT recall notice has been initiated
- The wire transfer has occurred within the last 72 hours
In conclusion, wire transfer fraud shows no sign of slowing down, and fraudsters continue to develop new ways to intercept wire transfers. The only effective way to defeat a fraudster is through proactive risk management. All attorneys and staff should be trained and protocols should be agreed upon between all parties to a transaction. Remember that even the most thoughtful wire transfer procedure must be followed to be effective.
Deborah Bjes, Risk Manager
Swiss Re Corporate Solution
Swiss Re is the world’s second-largest reinsurer, with offices in more than 25 countries. Lockton Affinity Lawyer’s Professional Liability products for California, Kansas, Missouri and Texas are underwritten by Westport Insurance Corporation, a member of Swiss Re Corporate Solutions.
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