Some thieves gain control of company bank accounts using a corporate account takeover scheme. And with that control they steal money. Below you’ll see how this type of theft occurs.
On March 17, 2010, cyber thieves hacked into the computers of Choice Escrow and stole the login ID and password to their online banking account. With that information, the thieves were able to submit a $440,000 wire transfer from Choice Escrow’s bank account to an account in Cyprus.
When Choice Escrow and the bank were unable to resolve their differences, Choice Escrow filed suit. The back-and-forth legal battle lasted until March 18, 2013 when a court ruled the loss was the responsibility of Choice Escrow. A major determining factor in the decision was Choice Escrow’s refusal of the dual control security mechanism offered by Bancorpsouth Bank. According to Article 4A of the Uniform Commercial Code, if an institution offers a reasonable security procedure to a commercial customer and that customer turns down that security procedure, then the customer is liable in the event of a loss.
Bancorpsouth Bank offered dual control to Choice Escrow twice. Not only did the bank offer this security feature to Choice Escrow, but Bancorpsouth also documented the customer’s refusal to use the security feature. The documentation of the customer’s refusal of the security features was a determining factor in this case. From a bank’s perspective, this case underscores the importance of a written agreement with commercial online banking customers and, more importantly, the importance of documenting the security procedures offered to those customers. From a user’s perspective, the case highlights the need to use the security procedures offered.
Corporate account takeover is a term which has become more prevalent over recent years. Generally speaking, corporate account takeover occurs when an unauthorized person or entity gains access or control over another entity’s finances or bank accounts. This usually results in the theft of money in the form of fraudulent wire transfers or ACH transactions.
These fraud schemes first began to be noticed in 2005 but have since become much more widespread and frequent. Recent statistics have revealed that the fraudsters carrying out these schemes are actually becoming less successful in getting money out of a bank account. This reduction is due to both increased efforts on the part of the financial institutions, as well as better education of the customer to help them avoid becoming a target.
Usually, the financial institutions themselves are not the targets of the attack but rather the corporate customers of the institution. Using malware, social engineering and various other methods, the fraudster obtains information about the customer’s online banking credentials. Once the online banking credentials have been obtained, a request for wire or ACH transfers is placed by the thief. Any business may be targeted for these types of attacks, but those at risk mostly are small businesses, governments, and nonprofits who have limited resources to protect against such threats.
This post was contributed by John McLeod, one my firm associates who audits financial institutions and specializes in technology issues. John is a CPA and is CISA certified. He often speaks to banking groups about technology and internal controls. You can reach him at email@example.com.
Click here to see my recent post about wire fraud prevention.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses.He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events.Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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