Publicizing of the China Wire Fraud Scheme – Too Little Too Late?

Was it too little too late when the FBI publicized a wire fraud scheme involving Chinese shell companies? Knowledge is power, right? Once the specifics of a fraud scheme are made public, aren’t we better prepared to prevent fraud? In the short term, the answer is yes. As banks deploy effective countermeasures, that particular fraud scheme’s success rate will decline over time. However, your bank needs to be equally concerned about the fraud schemes that the FBI is not talking about.

Let’s say your bank read the FBI’s press release and immediately revisited its ability to detect fraudulent wires being sent to China. Thankfully, your bank already has in place a review of wires destined for China. Unfortunately, that alone isn’t enough to stop this scheme. If we keep reading the press release, in addition to wires being sent directly to China, the fraudsters also use ACH and domestic wires. The recipients include “mules” (normally, unwitting accomplices) as well as companies that the victim organization has done business with in the past. Catching the fraud is now exponentially more complicated. It’s not just a question of flagging and reviewing all wires being sent to China. Combating this fraud scheme will also require a review of domestic ACH and wires that would appear “normal” in that they involve seemingly straightforward business transactions.

This fraud scheme although complex can be prevented. In that respect, the FBI’s press release provides actionable information. However, as soon as the FBI shared the existence of the scheme it became it old news. The next fraud scheme is already in the making. In fact, there is no doubt in my mind that the fraudsters have already adapted their approach.

To prevent fraud perpetrated by organized crime, your bank’s approach to ACH and wire fraud detection must be flexible. Let’s not forget that the scheme netted the fraudsters $11 million ($20 million attempted – a 55% success rate) before the FBI made the information public. The victims of this scheme were able to prevent fraud only 45% of the time. Most likely, they didn’t see it coming, were unable to adapt their fraud detection solutions quickly enough to prevent the attack, or had no prevention system in place at all! Your bank’s approach to ACH and wire fraud should be flexible enough to respond to existing threats. It should also be able to probe for emerging fraud schemes before they become seven figure losses. Waiting for the FBI to announce the specifics of fraud scheme then adapting your approach is often too little, too late.

Is your bank prepared to respond to the new and improved Chinese wire fraud scheme that has yet to be made public?

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