Wire Fraud: What You Need to Know

by TERRY S. LORINCZ

$1.2 Million gone. $50,000 gone. Either number causes the same reaction…that pit in your stomach and panic in your mind…all caused by fraudulent wire instructions.

A wire transfer is a way of moving money electronically between two banks. A traditional money wire goes from one bank to another using a network such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire.

When you need to send or receive money quickly, a wire transfer might be the right tool for the job. For some large transactions, a wire transfer might be the best option as they are fast and reliable. This is because the funds are available to the recipient right away. For example, if you are buying a house, your settlement agent will offer the option to use a wire transfer to pay your down payment and closing costs. On the other side of the transaction, the seller may choose to receive their proceeds via wire.

As with any large value asset, wire transactions attract a criminal element seeking to steal what is not theirs. Wire fraud is a serious risk in the real estate industry, and it continues to rise in frequency. The following statistics show that wire fraud is big business. No longer is it the lone hacker in mom’s basement. Criminal organizations with entire management structures like you might see at any corporation, have wire fraud as their main business model.

Although wire fraud has many direct and indirect impacts on consumers, title companies, banks, and others involved in the process, it is still difficult to capture the full extent of its cost. The FBI’s 2021 Internet Crime Report shows that losses from all forms of fraud reached $6.9 billion in 2021, up from $4.2 billion in 2020.

According to ALTA’s 2021 Wire Fraud and Cyber Crime Survey, cybercriminals attempted to trick employees into wiring funds to a fraudulent account in a third of all real estate and mortgage transactions. A full recovery of lost funds was only possible in 29% of cases. In 40% of the cases, less than 10% of the funds were recovered. The good news, however, is that training and education seem to be working, as funds were only wired to a fraudulent account in a little over 8% of these attempts.

The cases range from 10s of thousands of dollars to $1MM+ mortgage payoffs. And the fraud entry points vary from spoofed emails from a decision-maker or one of the parties to the transaction to the transmission of fraudulent facsimiles.

A common tactic is for a fraudster to gain access to an email account of a realtor, lender, title agent, or buyer. They intercept emails from one of the parties and change the wire instructions. They can also create an email account that is similar to the actual email by adding a “.” or changing a lowercase “l” to a vertical bar “| .”The unsuspecting wire initiator sees the email address as legitimate and changes the wire instructions, thus sending the funds to the fraudster’s account.

Several things can be done to prevent wire fraud:

  • Utilize secure email systems with threat detection.
  • Be wary of any emails with wiring instructions, especially if wire instructions are being changed.
  • Have outgoing wire confirmation protocols in place and follow them.
  • Always contact the wire recipient at a previously known good phone number…not one from an email changing wire instructions.
  • Confirm everything!

To mitigate a loss should wire fraud occur, prepare a Rapid Response Plan. The American Land Title Association’s ALTA Rapid Response Plan for Wire Fraud Incidents is a great resource.

Wire fraud is a serious risk in financial transactions. Awareness and a healthy dose of suspicion will go a long way to ensure funds are wired to the correct party. Good procedures and regular training are key to preventing wire fraud.

Resources:

FBI’s 2021 Internet Crime Report https://www.ic3.gov/Media/PDF/AnnualReport/2021_ IC3Report.pdf

ALTA’s 2021 Wire Fraud and Cyber Crime Survey https://blog.alta.org/2021/04/surveytitle-professionals-targeted-for-wire-fraud-in-a-third-of-all-transactions.html

ALTA Rapid Response Plan for Wire Fraud Incidents https://www.alta.org/file. cfm?name=ALTA-Rapid-Response-Plan-for-Wire-Fraud-Incidents

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