Wire and Cheque Fraud: An Ever-Growing Business Problem

Wire and cheque fraud involve various forms of theft, forgery or manipulation of financial transactions. With the increasing reliance on electronic banking and the rapid processing of wire transfers, millions of dollars can be stolen within minutes. Mock references the FBI’s 2022 report, which recorded 22,000 complaints related to wire fraud scams, including business email compromise, resulting in losses of USD2.7 billion. Fraudsters often use phishing scams, social engineering, and other tactics such as SIM card swaps to manipulate businesses into unknowingly giving them access to sensitive banking information.

Mock explains how fraudsters sometimes pose as bank representatives, tricking businesses into sharing credentials by claiming their accounts are under attack. These fraudsters often hide their identities by spoofing legitimate phone numbers and convincing victims that the fraud is real by providing insider knowledge about the accounts. Once fraudsters gain access, they quickly execute wire transfers and even deactivate notifications so that the victim does not realise the fraud is happening in real time.

While electronic transactions are increasingly common, cheque fraud remains prevalent, particularly in business transactions. Mock notes a 385% increase in cheque fraud since the pandemic, with fraudsters intercepting cheques from the mail and altering or replacing them before depositing them into their own accounts. This form of fraud is especially dangerous for companies that routinely use cheques for transactions. Mock warns that fraudsters can take advantage of company insiders who may have access to incoming and outgoing cheques, allowing fraudulent activity to go unnoticed for extended periods.

Mock also introduces the concept of “cheque washing”, a sophisticated technique that involves altering the contents of a cheque digitally and reprinting it on new cheque paper. This form of fraud is hard to detect, as the altered cheques often appear legitimate when presented for payment.

Legal recourse for victims of wire and cheque fraud is primarily governed by the Uniform Commercial Code (UCC) and the federal Electronic Funds Transfer Act (EFTA). Mock explains that the UCC provides a framework for determining liability in fraudulent transactions, allocating responsibility based on which party is best positioned to prevent the fraud. Banks, under the UCC, may only charge clients for authorised transactions. However, the concept of “authorisation” can become problematic when fraudsters trick victims into providing credentials that lead to unauthorised transfers. Banks often argue that they followed standard procedures and are not liable for reimbursing the customer.

Victims of fraud may still seek reimbursement from their own bank if the bank acted in bad faith or failed to provide adequate security protocols. However, courts generally limit a victim’s ability to recover from the receiving bank unless that bank had knowledge of the fraud. Mock references a notable court case where a federal court in Virginia ruled that the receiving bank was liable for failing to investigate fraud indicators, a decision that could reshape how liability is viewed in wire fraud cases.

Mock offers several recommendations to help businesses reduce their exposure to wire and cheque fraud. He stresses the importance of using electronic transfers over cheques when possible, as cheques are more susceptible to certain types of fraud. He also advises businesses to work closely with their banks to implement the most robust security measures available. Businesses should also verify payment and delivery details through direct communication with trusted contacts, especially when transferring large sums of money.

For businesses using cheques, Mock recommends limiting access to accounts and providing training to employees on recognising phishing and social engineering scams. He also emphasises the need for timely oversight of transactions, including regular review of bank statements and prompt reporting of any suspicious activity to the bank.

In closing, Mock underscores the importance of hiring experienced legal counsel to investigate fraud cases and guide businesses through the process of recovering funds.