Between 2016 and 2019, wire fraud cost a total of $26 billion globally. But the threat is growing, and in 2022 alone, the figure grew to $10.6 billion, solely for US companies. The prevalence of wire fraud means that there are just as many chances to prevent it. But what is wire fraud exactly? Find out the best detection strategies, alongside real cases of wire fraud to help your business build its defense plan.
Trustpair blocks specific types of wire fraud, such as business email compromise (or BEC), by continuously controlling payments before they’re executed. Contact an expert to learn more!
Wire fraud, a definition
Wire fraud: a scheme to deceive victims and gain their information or money using “wire” communications, such as telephones or the internet.
Contrary to popular belief, wire fraud doesn’t relate to wire payments. It actually refers to wire communications, which is the umbrella term for any form of electronic communication. It’s the transmission of words, pictures or sound over a device. This includes the likes of:
- Text messages (SMS)
- Phone calls
- Social media
- Instant messaging services
- Emails and more
In the US, the definition of wire fraud encompasses all types of electronic fraud across the internet and phone lines – and this is collectively known as “interstate” communications. Therefore, most white collar crimes fit into wire fraud, including some Ponzi schemes, hiring scams and insurance fraud (if it’s been committed online or over the phone).
Wire fraud perpetrators target both individuals and organizations and use the likes of social engineering techniques, phishing emails, and telemarketing to succeed in their crimes. But more on that later.
What are the elements of wire fraud?
In the US, professionals actually work from a legal definition when assessing whether a crime can be categorized as wire fraud.
The Cornell Law defense attorney definition has five key components:
- The accused must be involved in a scheme to commit fraud
- The scheme involves a lie or omission of the truth
- The scheme results in a loss (of money, property, services, or something else of that nature)
- The accused uses interstate communications
- The use of interstate communications furthered the fraud scheme
It’s clear by this legal definition that not only must interstate communications (or wire communications) be used, but that they were a necessary part of the fraud scheme. Plus, the accused perpetrator doesn’t actually have to commit the crime; instead, the prosecutors only need enough evidence to prove they intended to commit wire fraud.
What are the penalties for wire fraud?
Wire fraud is a federal crime, and due to the enduring nature of wire fraud, the penalties and punishments are well-established.
Individuals who are convicted of the crime face a fine of up to $250,000 plus sentencing of 20 years imprisonment. Organizations charged with committing wire fraud violations face a fine of up to $500,000 and members of organizations can be imprisoned for the same length of time.
In both cases, the fines and imprisonment sentences are per count of fraud or per federal offense. It means that where more than one attempt of wire fraud is made, the penalties stack up. Theoretically, an individual who is convicted of five counts of wire fraud could be fined $1,250,000 plus up to 100 years imprisonment.
Moreover, there are special Federal court cases where higher fines and longer prison sentences are given. In the event that the wire fraud causes a state of emergency, or where financial institutions have been defrauded, perpetrators could receive a fine of up to $1,000,000 and imprisonment of up to 30 years per count.
What are examples of wire fraud?
There have been hundreds of cases of wire fraud but for companies and organizations in particular, it could be useful to know about specific cases in order to detect attempts of fraud. Here are two of the most relevant examples of wire fraud:
- Medicare scams
- Tech support scam
Medicare
In 2021, 10 perpetrators were charged with wire fraud after they allegedly targeted Medicare, State Medicaid, and private health insurers in a huge nationwide scam.
The con artists used spoofing, phishing, and business email compromise techniques to impersonate hospitals. Posing as ‘hospital staff’, they sent emails to Medicare, Medicaid, and private insurers asking for a change of bank details for all following reimbursements. The fraudsters also relied on social engineering techniques to pressure the administrators on the other end to follow their instructions.
Unfortunately, 5 different State Medicaid programs, 2 Medicare Administrators, and 2 private health insurers followed the instructions to change the bank account details. It led to huge financial losses, the appointment of a criminal defense lawyer and caused operational issues for each of these healthcare providers, which millions of people rely on every single day.
Tech support scam
Since 2014, there has been a growth in the popularity of the ‘tech support scam’.
Here, fraudsters target businesses by first hacking into their internal systems and locking or encrypting files. Most of the time, an employee is sent a ransomware note requesting a few hundred dollars to unlock the files.
Of course, the employee is likely to flag this with the company’s internal IT department. They are likely to pause some of the systems or send a company-wide notification to let the other workers know systems won’t be running as usual until it is resolved.
Little do they know that this part of the scam is only a distraction – and it’s after this moment that the fraudsters strike again.
This time, the perpetrators spoof the email address of a senior member of staff and send a payment request to an accounting employee. Since the normal systems are down, it becomes less suspicious for an executive to ask for urgent payment to a supplier in a straight bank or wire transfer.
Over the course of almost a decade, this dual-attack scam has resulted in over 2000 victims and cost businesses in the US alone approximately $180 million.
How can you prevent wire fraud?
Since wire fraud encompasses any and all forms of electronic communication, almost every US company is at risk of falling victim to it. But there are lots of measures that businesses can put in place to prevent wire fraud, including:
- Fraud awareness training
- Robust security measures
- Anti-fraud payments platform
Fraud awareness training
There are two separate ways that fraudsters could infiltrate your business: a) through devices or b) through your employees. Fraud awareness training can prevent the latter.
It usually goes through how cybercriminals may attack the business and how to respond to prevent their success.
Fraud awareness training is most effective when held multiple times a year – as this ensures that employees can become aware of new techniques. It’s effective because it helps workers spot the red flags of social engineering and recognize the likes of a false pretence and scam artists.
Does it seem too good to be true? Then it’s probably a bogus, dishonest scam operating illegally.
Moreover, for wire fraud, in particular, awareness training enables businesses to remain vigilant of suspicious circumstances.
Robust security measures
If fraud training is the right method for preventing employee exploitation, then the introduction of strong security measures can protect your devices.
Robust security measures include:
- Strong internal controls: such as the segregation of duties within payments to spread responsibility among multiple employees
- Due diligence: background checks on suppliers (such as UBO) and customers (KYC)
- Upgraded software: regular email spam filters aren’t 100% effective, but upgrading these can provide more security from wire fraudsters
Companies that implement robust security measures benefit from well-structured operational efficiency. However, it also brings peace of mind into daily operations – ensuring there are no disruptions so that teams can focus on driving revenue.
Anti-fraud verification platform
Finally, platforms like Trustpair provide that extra security in case any attempts of wire fraud get past your people or your devices, because they block the financial effects of wire fraud.
That’s because Trustpair continuously monitors payments and checks account details in real time. When suspicious payments or unknown third parties are detected, they are automatically blocked before the money even leaves your account. It helps wipe out different types of fraud such as vendor fraud.
To learn how to launch a sucessful fraud prevention project, download our Ultimate Fraud Guidebook with expert tips and advice!
To conclude…
Wire fraud is a malicious and deceptive scheme in which criminals communicate with victims via electronic means (email or phone), usually by impersonating someone else. Prevent wire fraud with robust security measures, anti-fraud training and payment verification software like Trustpair.
