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The Money’s Gone – After a Successful Wire Fraud

By September 12, 2018 June 12th, 2020 No Comments

For many in the Real Estate Settlement Services industry this is their worst nightmare: the moment you realize that you have acted on fraudulent wire instructions, and the funds are gone. Panic sets in. You are trying to find the guidelines you have on what steps you need to take. You quickly call your bank, you report the fraud at the FBI’s website, you try to reach out to the FBI and local law enforcement. Now what? You feel powerless. You feel like you have no control. You want to get this fixed now!

If this is your first time buckle up. You are in for a wild ride, for you truly have no control. No one will give you answers. Your bank will talk to you, but without much detail. You are in the twilight zone where you are the victim, not prepared for what is about to come. You have created processes and procedures designed to prevent this day from happening, and they have failed.

So, let’s get you equipped for the ultimate nightmare with tips on how to prepare and insight on what to expect. The first thing you need to understand is that every case is different. There are a lot of variables that come in to play. You might experience all of the items I will describe or none of them. Your mileage may vary.

Let me say up front, if you wired the money it is most likely not recoverable. If you are lucky you might retrieve some of the funds. If you are VERY lucky you might retrieve all of the funds. At this point, speed and knowing what to expect are essential for a positive outcome.

Your biggest ally is your bank. If you have not talked with your bank about wire fraud and how they can help you, have that conversation now.

In a perfect world, recovery from a misdirected wire should be quick and easy. As soon as you notice the error you reach out to your bank and notify them. Your bank then reaches out to the receiving financial institution and requests a recall. The receiving financial institution then verifies the transfer and that the money is still in the account and sends the money back. Easy peasy lemon squeezy.

But we do not do business in a perfect world. And this is not a simple misdirection due to human error. It is the result of an active fraud attempt, one that is repeated multiple times every day putting a drain on every financial institution and their fraud departments.

Your first step is to contact your bank and notify them that the wire was sent using fraudulent instructions – it is NOT a simple case of misdirection – and remind them that it is critical that the funds are frozen as quickly as possible. This is where the first hurdle comes into play.

The fraudsters know that you are going to quickly try to recall the funds, so they are going to move them out of the receiving bank as soon as they can. Freezing the funds as quickly as possible is the only way you can hope to get some of the funds back. Notice that I said “some of the funds.”

As the number of fraudulent wires has increased, banks have started to try to identify “money mule” accounts. One way to identify them is that large wire transfers come in and then the funds quickly go out. In an effort to avoid detection, when the fraudsters receive the funds, they make multiple transfers out to multiple locations over some period of time to mimic normal business traffic. The good news is that this now gives you a slightly longer window to retrieve at least some of the funds.

This brings us to the second hurdle. No longer will the receiving financial institution simply return the funds. Because of the massive increase in occurrences, the banks will only freeze the funds and then ensure that there is legitimate cause for returning the funds. Before funds are returned the receiving financial institution will most likely require that the sending financial institution provide them with a letter of Hold Harmless. The process of creating and agreeing to the letter can add days to the process.

The delay in returning funds while the two institutions agree on the Hold Harmless letter has opened an opportunity for the fraudsters. There have been occasions where the fraudster has hired an attorney to go to a local bank branch to threaten legal action if the frozen funds are not released, even though the negotiation of the Hold Harmless letter was ongoing. This technique has been successful for the fraudsters in gaining access to the funds.

If all goes well, you might get some or all of the funds returned, but it can take days or even weeks for that to happen. Being prepared is essential. Know who to talk to and what to expect. Remember the following:

  • Talk with your insurance carrier. Know what you are insured against; understand any limitations, and what your obligations are.
  • Your bank is your best ally, talk with them before it happens.
  • Always refer to the event as a Fraudulent Wire. That term brings action.
  • Contact your bank first, the FBI second, then your insurance carrier.
  • Remind your bank of the need for fast action in freezing the funds.
  • Express your concern that the funds might be inadvertently released by a local branch of the receiving bank.
  • Follow up, be the squeaky wheel. Don’t wait for the bank. It’s your money.

Hopefully, you never have to experience this, but if you do you will be better prepared for what might happen. Remember that once you wire the funds there is no guarantee that you will get them back. Your best chance is to avoid the fraud; never trust email and always verify wire instructions.

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