Wire transfer compliance: the 6 things you need to know

wire transfer compliance

Last modified on March 26th, 2024

Toyota company loses $37M to scammer. In 2019, the automotive firm fell victim to a wire transfer scam: a hacker convinced a financial executive to wire them money under false pretenses. Besides the financial loss, that was a breach in wire transfer compliance. Compliance protects you against fines and payment fraud. It can be hard to keep track of domestic and international laws, so keep reading to learn the essentials!

Trustpair wipes out wire transfer fraud by ensuring all payment orders are sent to the correct beneficiary. It helps you comply with international regulations (AML, KYC, etc.) and manage your fraud risk efficiently. Request a demo to learn more!

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You must respect the EFTA

The Electronic Fund Transfer Act (EFTA) was established in 1978 in the United States to protect consumers. It’s regularly amended by the Federal Reserve, which oversees its compliance with evolving requirements.
The EFTA applies to both businesses and financial institutions (also called payment originators) dealing with anything considered an electronic fund transfer:

  • Wire transfers,
  • ACH (learn the difference with wire transfers here),
  • FedWire transfers,
  • Point of sale payment,

Etc.

While the Federal Reserve provides a framework of rules for establishments dealing with electronic transfers generally, it also encompasses wire transfers.
This applies to banks, financial institutions of all kinds, and also your business. Chances are, your business is already compliant with this because your financial institution will be (that’s one of the many requirements for financial institutions). But it’s worth checking what systems your organization has specifically set up regarding this law.

 

You can’t send wire transfers everywhere

When it comes to wire transfers, there are some geographic limitations. Just like there are travel rules for us, there are wire transfer rules that are imposed by governments and banks:

  1. The country of your beneficiary must be able to accept foreign wire transfers. That means their financial institutions are a part of the wire transfer network and the facilities needed to process it. If your beneficiary is located in North America, Europe, the UK, or Australia, there shouldn’t be any problem. However, if you’re sending an international wire transfer to a recipient outside of the West, it’s best to check if their bank can accept it beforehand.
  2. It cannot be on the list of sanctioned countries. As part of their geopolitical strategy, governments may decide to impose economic sanctions against another country. In the US, it has been illegal since 2017, under the Countering America’s Adversaries Through Sanctions Act (CAATSA), to send money to North Korea, Iran, and Russia. This applies to direct wire transfers but also if you can reasonably assume that the funds could be sent to one of those countries.

It’s also worth noting that international wire transfers tend to be more dangerous than domestic wire transfers.

The reason? It’s harder to make the necessary bank and beneficiary checks when sending cross-border wire transfers. For example, the SWIFT code (the number identifying the financial institution of your beneficiary) can be trickier to check, or the bank account numbers in a different format.

Criminals make the most of this confusion by attempting wire transfer fraud in large international companies.

 

There is no maximum amount for wire transfers (in theory)

Technically, you can send any amount by wire transfer, whether domestic or international. In reality, most banks have their own limits. For example, your bank might limit transactions to $5M for domestic transfers and $1M for foreign transfers.

That’s partly because banks want to protect their customers against fraud risks: in 2022, 56% of US companies were targeted by at least of fraud attempt.

Banks also charge different service fees depending on the number of transactions sent, their amount, or how fast you want it credited to the receiving account (wire transfers usually take 1-2 business days for processing).

It’s best to connect with the financial institution where your business bank account is to talk about those limits — especially if you have a couple of big transactions planned in the future. The intermediary financial institution (where your recipient bank account is) might also have a set of limits and controls in place.

Banks must report any funds or cash sent to some accounts, or when transactions are above a certain amount. Sending wire transfers might trigger the IRS or other governmental agencies.

Of course, the higher the transfer, the more important it is to protect yourself. Ensure you are compliant throughout with the international laws and protected against the risk of fraud (see below).

As wire transfers cannot be reversed in most cases, any funds you send to any financial institution are irretrievable. That’s what happened to the Toyota company, and countless other victims of B2B fraud over the years.

So if you’re expanding your business area or overall expenditures, you must up your safety protocols. That happens through:

  • Working with your financial institution to meet the regulations,
  • Assess your risks as a payments originator,
  • Set up control procedures (including a system for securing transactions) to match those.

 

There are 2 main US Anti-Money Laundering Laws

The US Patriot Act and the Bank Secret Act (BSA) are the main anti-money laundering laws you need to be aware of in the United States. They apply to any sort of transaction and are a big part of wire transfer compliance.

Money laundering funds terrorism, drug operations, and other illegal activities. According to the United Nations Office on Drugs and Crime, it’s $2 trillion that are laundered globally each year. It’s up to every company — and their employees — to contribute to the fight against it.

Employees are actually held accountable for it: anyone breaching the BSA is subject to a criminal fine of a maximum of $250.000 and five years in prison. Across the world, about 12 people were fined over $31M for their role in AML compliance breaches in 2022.

Accounting fraud is one of the many examples of money laundering happening at a corporate level. By manipulating your books and financial statements, executives can make your company absorb money obtained illegally to “clean” it. For instance, they’ll pay a supplier for a bigger order.

Trustpair helps you stay protected against third-party fraud, so you always know who you’re sending money to!

 

You need ongoing account validation

Another important piece of wire transfer compliance is account validation. The Know Your Customers (KYC) and Know Your Suppliers (KYS) regulations are mandatory in the EU and the US. These international requirements are designed to protect your business against scammers by making sure any payment that leaves your bank account is made to the right beneficiary.

Simply put, they ask you to identify who you are in business with. This means checking bank account numbers, business owner identity, and any other relevant data. It should be part of your due diligence process when starting to work with a new third party. Once more, it’s to ensure you’re not about to transfer funds to illegal entities.

The law requires you to make those checks when first onboarding a supplier or when their bank account numbers change. At Trustpair, we recommend doing it before any transactions are sent — yes, even if you’ve been working together for years!

We know cyber security in and out, so we know that most cases of bank transfer fraud happen without your knowledge.

Maybe your “supplier” emailed you new information, and nobody checked the new ones thoroughly. Maybe they hacked into your network and changed it manually. Chances are, you won’t see it coming and your money will be exposed to fraud.

It could be months before you realize you’ve been a victim of wire transfer scams. Unfortunately, the consequences for companies can be dire: on top of losing funds, it can disrupt business activities, damage reputation, and tarnish relationships with partners.

Our solution? Using Trustpair. Our software does real-time checks of your suppliers’ credentials. We check their bank account numbers against their name, make sure everything matches, and our system detects anything suspicious. We also have access to international databases to ensure that you’re 100% protected even when dealing with suppliers overseas. Our system offers 100% security to the entire payment chain as well as compliance with the main international requirements.

 

Using anti-fraud software to remain compliant and protected

Integrating fraud prevention and detection software in your payment process helps you to remain compliant while being protected against third-party fraud.

Your software solution will act as a hub for all your vendor information and leave an audit trail that’s important in case of controls. It makes it easier to stay on top of your vendor information and to ensure wire transfer compliance throughout your whole company.

It also raises awareness in your company, communicating that compliance and fraud protection are a priority. It’s easier to get everyone to stick to the regulations when there are actual processes to support them!

At the end of the day, everyone should play their part in remaining compliant and preventing fraud — from accounting to sales and HR.

Working with Trustpair means you always know who you’re sending funds transfers to. We provide you with:

  • Automated monitoring system of your vendors and their subsidiaries, so you know your Ultimate Beneficial Owners (UBOs) and are compliant with regulations and requirements
  • Real-time bank account checks (bank account number, beneficiary ID, business localization, etc) with international coverage,
  • Predictive modeling to detect fraudulent attempts and raise the alarm
  • Ongoing account validation before any wire transfer, domestic or international.

Using Trustpair means eradicating the risk of fraud while ensuring your total wire transfer compliance. We’ve worked with 200+ companies with a 100% success rate in preventing third-party fraud. Our software adds a layer of security to the P2P process as well as more time and peace of mind for financial teams.

 

Key Takeaways:

Wire transfer compliance is a multi-faceted challenge that requires companies to stay up-to-date with the latest regulations while finding best practices to meet them efficiently. Using anti-fraud software like Trustpair ensures your compliance while protecting you against fraud. Our fraud prevention system automatically checks all banking information (bank account number, identity of the beneficiary, etc) before any payment is executed.

FAQ

Trustpair does automatic and real-time checks of your vendor information before any transaction is sent. It means that even if it was changed without your knowledge, you are still protected against fraud (and compliant with AML laws).

Our system handles fraud risks globally by streamlining communication between financial team members, increasing the security of the P2P process, and blocking any risky transaction before funds are transferred. We also offer compliance with international regulations and domestic NACHA requirements in terms of account validation.

Our software will ensure no suspicious payment leaves your business accounts and offer more time and peace of mind to financial teams.

Wire transfers aren’t technically riskier than ACH payments, but international wire transfers present more risks. Cybercriminals know it’s harder to access the information to validate accounts overseas and seize this opportunity to commit fraud. Both ACH payments and wire transfers are irreversible, so you need adequate protection for both of them — try Trustpair!

Manage the risks related to corporate treasury.

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