Home > Property & Casualty > Phishing Claims – watch out for wire fraud transfers

Phishing Claims – watch out for wire fraud transfers

fraudBe aware – issues of cyber crime are becoming more prevalent in today’s business landscape, with instances of hackers running various email scams that target a company’s CFO, controllers or directors and officers. Posing as the President or Founder of the organization, the fraudsters request an immediate transfer of large sums of money, (oftentimes upwards of $500 thousand to $5 million) indicating it is required to facilitate an offshore payment of a foreign tax obligation or for the acquisition of a foreign subsidiary. After sending the email, the hackers often make a follow-up phone call to the recipients to assure them that the request is high-level, legitimate and kept fully confidential. Using social media sites like Facebook and Twitter, as well as reviewing public company filings, the criminals gather as much data as they can to gain intimate knowledge of the company policies. As a result, the CFO or other targeted officers or employees come to trust these instructions and dutifully wire the money. Oftentimes, the wire fraud isn’t detected until the receiving bank questions the large transaction.

The targeted individuals of these wire frauds are often held liable if they willingly wire the money to the receiving bank without taking time to verify the legitimacy of the request. Doing so seriously jeopardizes their organization’s ability to recover the money, especially if the thieves cannot be traced or apprehended by local or foreign authorities. As a result, many insurers have been resistant to cover this type of loss under a crime policy. From their point of view, an officer or employee who willingly sends a large sum of money through an off-shore wire transfer to remote regions such as Nigeria, Latin America, or Asia can be liable for the scam, even if he or she performed due diligence to verify the authenticity of the request. As long as the hackers did not handle the actual wiring, most crime policies will not provide coverage, and that can mean millions of dollars in losses.

Due to the overwhelming number of wire fraud transfers (or phishing claims), a select group of insurers are responding with specific coverage endorsements to address these exposures. The coverage is subject to a specific supplemental and often sub-limited coverage. While biotech, technology and banks have been recent targets of these scams, no business is immune to the threat of cyber crime and wire fraud scandals. Enforcing internal controls on wire transfers is imperative in the current cyber crime environment. It’s a good idea for businesses to ensure that wire transfers are confirmed and approved by more than two executives within a firm. Proactive risk management controls could save your firm from a significant wire fraud loss.

About the Author

James Gaudette is a Vice President and counsel for the ExecutiveRisk Practice at William Gallagher Associates. He advises clients on issues of coverage and advocates on their behalf to maximize coverage on all claims submitted to the insurers that comprise their Executive Risk portfolio. His professional liability expertise includes Directors and Officers Liability, Employment Practices Liability, Errors’ & Omissions’ Liability, Fiduciary Liability and Legal Malpractice.

617.646.0203 | JGaudette@wgains.com | Connect with Jim on LinkedIn

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