AML/CFT Financial Crime Fraud Prevention Financial Elder Abuse Fraud Trends

Wire transfer fraud prevention: Strategies for avoiding losses

Terri Luttrell, CAMS-Audit, CFCS

April 22, 2024

Read Time: 0 min

Wire transfer fraud prevention is more important than ever.

In this article, you will learn what constitutes wire fraud, common scams to tell your clients about, and what you can do to prevent wire fraud.

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Education is prevention

What constitutes wire transfer fraud and steps for prevention

Fraud losses are growing at an all-time high, keeping financial institutions and their clients on their toes. In fact, the Federal Bureau of Investigation's  2023 IC3 Report reveals that a record number of complaints were received in 2023 at 880,418, with potential losses exceeding $12.5 billion. These figures represent a 22% increase in losses compared to 2022.

However, most of the fraud instances reported by the FBI fall into the category of wire transfer fraud—one of the oldest forms of fraud faced by financial institutions. Wire fraud is loosely defined as a financial crime intentionally perpetrated through electronic communication, which includes traditional wire transfers and any other fraud using the Internet, phone calls, text, social media, and email.

Whether the fraudster steals money, property, or personal information, if they've used electronic means to lure their victims, it is considered wire fraud. According to a 2024 survey conducted by CertifID, one in every four consumers is targeted with suspicious communications.

Statistics and schemes

Preventing wire transfer fraud avoids big losses

The FTC reports that the three top fraud payment methods (and the losses associated with each) for 2023 are all wire fraud typologies:

Bank transfer or payments: $1.8 billion
Cryptocurrency: $1.4 billion
Wire transfer: $343.7 million

As you can see, the total losses are staggering. It leaves victims embarrassed and financially strained, if not depleted. As a result, financial institutions are in a unique position to detect and prevent wire fraud by understanding the current methods used to scam victims.

Of those targeted, 5% fell victim to
wire transfer fraud schemes.

Instances of wire transfer fraud has increased over the years because it's easier to send money. Consequently, businesses and individuals are becoming victims at an alarming rate. Wire transfers are often transacted on a larger scale with the potential for significant losses. Avoiding wire transfer fraud means banks, credit unions, and clients must understand what it entails and prepare against its effects.

The Federal Trade Commission (FTC) identifies common elements of wire fraud, which include:

Intent to defraud: Wire fraud requires the perpetrator to have the intent to defraud the victim.
Use of electronic communication: The use of electronic communication, such as emails or phone calls, to commit fraud is a key element.
False pretenses: The fraud typically involves misrepresentations or deceptive tactics to convince the victim to send money, spend money, or send valuables.
Interstate or international transmission: Federal wire fraud prosecutions involve the use of interstate or international wire communications, as a result it triggers federal jurisdiction.

Some examples of wired fund
fraud schemes include:

Investment fraud: False promises of high returns lure unsuspecting investors into fraudulent schemes. As an example, funds are siphoned off for personal gain rather than legitimate investment purposes. Investment fraud includes Ponzi and Pyramid schemes.
Business Email Compromise (BEC): Fraudsters infiltrate business email accounts to impersonate executives or vendors. They manipulate employees into believing an email is from a trusted source and transferring funds or sensitive data under pretenses.
Ransomware: Criminals launch malware onto a system to permanently block access to the victim's data unless a ransom is paid. Additionally, businesses can also become victims and have their entire customer base compromised.
Spoofing and phishing (includes smishing and vishing): Offenders masquerade as legitimate entities to trick individuals into divulging sensitive information like usernames, passwords, or financial information. The fraudster disguises an email address, sender name, phone number, or website URL to convince you that you are interacting with a trusted source.  
Romance schemes: A criminal adopts a fake online identity to gain a victim's affection and trust. These relationships most often play on the romantic relationship but can also be a trusted friend or caregiver. Similarly, pig butchering scams frequently use this technique. 
Advance fee schemes: Investors are asked to pay a fee upfront for an investment deal to go through.  Once paid, the investment never happens.

The wire transfer fraud list is growing

Nigerian letter (419 fraud): The fraudster requests help to facilitate the illegal transfer of money to get funds out of Nigeria. The number "419" refers to the section of the Nigerian Criminal Code dealing with fraud and the charges and penalties for such offenders.
Synthetic identity fraud: This uses a combination of personally identifiable information to fabricate a fake person or entity to commit fraud for personal or financial gain. It's typically found at new account onboarding.
Grandparent scams: Criminals pose as a relative—usually a child or grandchild—claiming to be in immediate financial need. Sadly, senior citizens are most often the target of these scams.
Government impersonation scam: Fraudsters pose as employees with government agencies, such as the IRS, and threaten to arrest or prosecute victims unless they agree to transfer money or other payments.
Sweepstakes/charity/lottery scam: Criminals claim to work for legitimate charitable organizations. They gain victims' trust - or they claim their targets have won a foreign lottery or sweepstakes, which they can collect for a fee.

Wire fraud repercussions extend beyond monetary losses.

Wire fraud repercussions extend beyond monetary losses, encompassing damage to reputation, regulatory scrutiny, client attrition, and legal liabilities. Beyond that, customers and members face dire financial consequences. These range from depleted savings to tarnished credit and compromised personal information.

According to the FBI, more than half of wire fraud victims are senior citizens whose financial loss is not easily made up during their lifetime. That is made clear by the stories of retirees who fall victim to a pig-butchering scam.

Tips for AML/CFT efforts

One of the more common challenges a financial institution faces in wire transfer fraud prevention is convincing clients that they are victims of a fraud scheme and advising them not to send funds.

Understandably, it is a difficult conversation to have. But, it is critical to preserve the trusted advisor role. Most importantly, if a financial institution is unable to convince the client not to send money, which could be substantial amounts, file a SAR and follow up with call to law enforcement if high dollar amounts are involved.

The FBI offers the following guidance to financial institutions when detecting wire fraud if you cannot prevent it:

Contact the financial institution that originated the wire transfer as you recognize fraud and request a recall or reversal and a Hold Harmless Letter or Letter of Indemnity.
File a detailed complaint at www.ic3.gov. Be sure it contains all required data in the provided fields, including banking information.
Only make payment changes after verifying the change with the intended recipient; verify email addresses are accurate when checking email on a cell phone or other mobile device.

There are several ways that financial institutions can be proactive in preventing wire transfer fraud:

Develop a comprehensive fraud risk assessment and develop mitigation steps for any gaps.
Implement effective fraud policies, procedures, and processes that center around prevention and detection.
Be vigilant when responding to unsolicited communications requesting sensitive information or urgent action, primarily via email or phone.
Verify the authenticity of requests for funds or sensitive information, particularly those involving unfamiliar parties or unusual circumstances.
Utilize robust fraud detection software, which may include machine learning but should also include human decision-making for more complex processing.
Educate employees about typical wire fraud schemes and equip them with protocols for verifying requests and detecting suspicious activity.
Educate clients on wire fraud typologies and warning signs.
Utilize secure communication channels and encryption methods to safeguard sensitive information from interception or unauthorized access.
Implement multi-factor authentication measures to add an extra layer of security to online accounts and transactions.

Wire transfer fraud prevention demands a concerted effort from financial institutions, regulatory authorities, and consumers alike. The repercussions of wire fraud extend beyond monetary losses. To sum it up, it affects victims' personal lives and disproportionately impacts vulnerable populations.

This underscores the importance of proactive prevention strategies and collaborative efforts to uphold the integrity of the financial system. Therefore, detecting and preventing wire fraud safeguards against detrimental consequences for both financial institutions and their clients.

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