Cases of wire transfer fraud have dramatically increased in recent years—enabled, in part, by the pandemic. Assigning a dollar value to the cost of wire fraud is difficult since many cases go unreported. However, most experts believe wire fraud financial losses are around $1.8 billion.
The government sets steep penalties for wire fraud, yet it continues to be one of the most common forms of cybercrime plaguing businesses and financial institutions. When a business is the target of wire fraud, the company must deal with financial losses as well as their impacts on business operations, reputation, and payments. These indirect costs can add up and put smaller merchants out of business.
While it may not be possible to prevent wire fraud attempts completely, AI can improve risk management and identity verification to lower the chances of your business becoming the target of wire fraud schemes.
What is wire fraud?
The broadest definition of wire fraud is online fraud based on a false promise. Typically, a person conducts a plan or scheme to attain money by blackmailing their target or convincing them to send the fraudster money. For instance, a common wire fraud scheme dupes a victim to wire funds to an account owned by the perpetrator. The “Nigerian Prince scam” involves someone posing as a government official or member of a royal family and convincing their victim to wire funds to an overseas account.
Wire fraud is primarily defined by the method of communication used to commit the scheme, whether carried out via phone call, fax, email, text, or any social media source used to contact any other person.
The wire fraud statute is a federal law codified under Title 18, Section 1343 of the United States Code. This statute makes it a crime to use wire, radio, or TV communications to defraud others of money or property.
4 Elements of Wire Fraud
This code from the U.S. Department of Justice cites four key elements of wire fraud:
- That the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money
- That the defendant did so with the intent to defraud
- That it was reasonably foreseeable that interstate wire communications would be used
- That interstate wire communications were in fact used.
The punishment for committing wire fraud is quite stringent. Wire fraud is a federal crime that carries a sentence of up to 20 years in prison and fines of up to $250,000 for individuals and $500,000 for organizations. In exceptional circumstances, penalties can increase to 30 years in prison and fines of up to $1 million.
Moreover, the attempt alone can be enough to convict someone of wire fraud. “A person need not have defrauded someone or personally sent a fraudulent communication to be convicted of wire fraud. It is sufficient to prove intent to defraud or acting with knowledge of fraudulent communications being sent,” wrote Investopedia.
Despite these harsh penalties, the threat of wire fraud is persistent and common. So many criminals attempt wire fraud because there are many avenues for executing this crime. It’s often difficult for institutions to track the various types of wire fraud.
3 Common types of Wire Fraud
Wire fraud can take many shapes and forms, which is often why it’s challenging to protect your business from this type of threat. So how do you protect your business from wire fraud?
Start by knowing what you’re up against. There are several schemes that are especially common, with specific characteristics and methods for fooling an intended victim. Here are some examples of wire fraud your institution should be aware of.
1. Business Email Compromise (BEC)
Business Email Compromise has increased by 400% over the last five years making it one of the most common types of wire fraud. In these schemes, an attacker poses as a legitimate business email account and uses it to send fraudulent wire transfer requests to employees or business partners. Accounts payable, HR, and finance departments are prime targets for this type of fraud.
Learn how Fraud.net’s Email AI tool can protect your business from email fraud.
2. Fake invoice scams
In this fraud method, an attacker sends fake invoices to a business, posing as a legitimate supplier or vendor. The business is often convinced to send payment through wire transfer to a fraudulent account. This type of wire fraud was especially common during the pandemic. B2B businesses especially should be cognizant of fake invoice scams that can end up costing their clients who send funds to a fraudulent account posing as your company.
3. Investment scams
Fraudsters will offer fake investment opportunities to the victim and request payment via online transfer. These scams can take many different forms, including Ponzi schemes, pyramid schemes, high-yield investment offers, and “pump and dump” stock schemes. Banking and fintech institutions should be aware of these types of fraud as they can even be used to target analysts and investors.
While these remain the most common tactics used to target business clients, wire fraudsters are constantly evolving. Businesses need a solution to prevent wire fraud that can adapt to the changing threat landscape.
How do you protect your business from wire fraud?
The right strategy and tools can help lower the risk of wire fraud for your company, but it’s virtually impossible to prevent it entirely. Here are some best practices to help ensure your business is lowering its risk of wire fraud.
1. Implement identity verification tools
There are powerful platforms that can accurately confirm the identity of your new website visitor, applicant, or customer. Fraud.net’s Identity Services can identify and remove less than 1% of fraudulent and high-risk users so that you can focus on serving more than 99% of high-trust customers. Fraud.net’s Identity Services include modular tools that handle address verification, IP verification, identity verification, social media intelligence, and more. Identity verification, for instance, adds hundreds of critical identity-proofing data points to confirm your new accounts and transactions—highlighting anomalies and allowing teams to take steps to protect customers in real-time.
2. Train employees to spot suspicious behavior
Members of your organization can play a role in preventing wire fraud by learning how to spot suspicious emails and messages. Provide regular training to cover new developments in the security front, such as phishing, malware, and wire fraud schemes, that AP, HR, and finance teams should know. Include training on tools like multi-factor authentication and SSO to ensure everyone does their part.
Likewise, training should extend to cover payment best practices. Remind employees never to release funds if they cannot validate the request. Always verify the identity of the person to whom you are sending funds. And add Fraud.net’s Application AI and Transaction AI tools, which can make it easy to detect other wire fraud attempts.
3. Create an incident response plan
A business continuity or incident response plan will determine how your team will respond in an instance of wire fraud to protect customers and remedy the situation. This plan should cover the defenses you have in place to prevent wire fraud; how your business will detect and analyze wire fraud attempts; a containment plan; and post-incident recovery. Include key contacts and any legal actions you will pursue if you can document and catch a fraud attempt.
So, how do you protect your business from wire fraud? With the right preparation and tools, you can protect your company. Learn more about Fraud.net’s suite of solutions that help your business follow KYC regulations and protect your business. Sign up for a free demo to get started.