Facing Wire Transfer Fraud Losses? Steps to Ensure Your Bank Has Coverage By Shelli J. Clarkston, Of Counsel Attorney, Spencer Fane LLP Wire fraud has become one of the most significant threats facing community banks in the last few years. Wire transfers used to be seen as an efficient and secure way to transfer funds from one account to another. However, because the transfers generally take place almost instantly, fraudsters are focusing their attention on ways to access customer account information to initiate wire transfers, and as a result, wire transfer fraud and resulting losses have increased significantly. There are many methods through which fraudsters attempt to gain this information, including phishing attacks, impersonation and social engineering, malware and trojan horses, and fake charities and investment schemes. Still, one of the most common is through business email compromise. Business email compromise occurs when the fraudster gains access to a business’s email system and then, impersonating an employee of the company, submits a wire transfer request to the bank through the compromised email. While banks should ensure they are following their policies and procedures to verify the wire transfer request, including established security procedures such as a call back to the customer, it is expected that mistakes may still happen. However, what is not expected is that the bank’s insurance company, from whom the bank obtained an insurance policy to cover these types of losses, is denying coverage. The reasons for denial are even more surprising. An increasingly common reason for denial is that the bank does not have a “written agreement” with the customer. While the bank likely does actually have a wire transfer agreement with the customer, especially for a business customer, if the agreement does not meet the requirements of what the 16 | The Show-Me Banker Magazine
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