Latest scam shows wire transfers are still an easy target for fraudsters

The latest in an investigation from CBC News proves once again the uncertainty, and fragility, of wire transfers.

Long-time client of Cidel Bank Canada, Rod McLeod is now suing his bank for gross negligence and the return of more than $800,000 after his money was wired to a fraudulent account despite red flags being raised.

During an attempted real-estate purchase, McLeod received an email from his “realtor” asking him to send the balance to a different account.

All it took was a new email address with two letters being changed for fraudsters to convince McLeod that his money needed to be sent to a different bank. And despite Cidel’s bank mail server flagging the message as “suspicious,” the bank employee followed McLeod’s written instructions and continued with the transaction.

In response to the charges, Cidel released this statement,

“At Cidel, we take the issue of financial fraud very seriously. This is a growing issue facing financial services and many other industries. Cidel has robust compliance policies and procedures in place to implement wire transfers. Our practices meet, and in many cases, exceed the wire transfer protocols adhered to by the Canadian financial services industry. We continually work with industry experts and regulators to ensure that we maintain rigorous policies and procedures so we can deliver exceptional services to our clients.”

But that’s just the problem.

In both the US and Canada, there is a significant lack of legislation in regards to protecting wire transfers. Whatever practices Cidel put in place to protect and verify McLeod’s money were evidently not enough.

According to lead investigator in the McLeod case and former FBI agent Don Vilfer, better laws are needed.

This case is an example of what investigators call “business email compromise,” a type of wire fraud that targets businesses and their customers. As in this case, the fraudster hacks into and impersonates the business sender, instructing the customer to redirect the money.

According to a report from the FBI, compromised business emails, especially in the real estate sector, led to an estimated loss of $12 billion over the past five years. Scams like the McLeod case were reported in 150 countries, and in all 50 US states.

Lack of formal legislation

As it currently stands, there is no legislation in the US or Canada that requires a financial institution to confirm the identity of a bank account holder receiving a wire transfer.

It’s obviously considered “best practice” for banks to confirm they are sending a client’s money to the right place, but this has yet to come into law.

“We’re just relying on the banks doing the right thing,” says Vilfer. “It would be a good idea for both the US and Canada to stiffen up the statutory requirements; require policies for protecting against this sort of fraud.”

Along with other methods, ABA Insurance Services, the largest insurer of US banks, said one critical thing banks can do is start making phone calls to authenticate wire transfers.

With McLeod’s case, “You have the flag on the email that it’s a suspicious message,” says Vilfer. “And with this kind of fraud that’s so prevalent … that should certainly cause some sort of alarm, to take an extra look at this and see why is this being flagged?”

Vilfer says McLeod’s bank should have stopped the scam in its tracks.

“Good technology … apparently was ignored,” he said.

This issue rears its head over and over again and each time, nothing is done. So, how can people prevent the scams and issues that go along with bank wires, and send their international payments safely, transparently, and at low cost?

How businesses can protect their money

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* This blog provides general information and discussion about global business payments and related subjects. The content provided in this blog ("Content”), should not be construed as and is not intended to constitute financial, legal or tax advice. You should seek the advice of professionals prior to acting upon any information contained in the Content. All Content is provided strictly “as is” and we make no warranty or representation of any kind regarding the Content.