Do You Know How to Protect Your Business from International Payment Fraud?
By: Michael Salerno, Vice President, International Banking
According to the SBA, nearly 96 percent of consumers live outside the U.S., putting two-thirds of the world’s purchasing power into the hands of foreign countries. Exporting your goods or services may provide a significant opportunity to expand your buying audience, but it doesn’t come without risk.
Cyber criminals can strike at multiple points of the international payments process, so it’s important to understand the signs and to know how to protect your business when making international transactions.
How Cyber Criminals Can Infiltrate Global Business Relationships
Cyber criminals continue to develop schemes designed to attack international exporters and divert cross-border payments, defrauding American businesses of hard-earned revenue. Often, the deception starts with the very first contact.
A company that seems like the perfect international business partner may have used false credentials or lied about influential industry partnerships and their financial status. The intent is to lure your company into an unprofitable relationship. Unless you fully vet potential partners and have the proper payment instruments in place before exchanging goods, you could find yourself on the losing end of what initially seemed a valuable business relationship.
However, the discovery process is not the only place that international trade can go awry. Thanks to the rising prevalence of cybercrime, cross-border payments are also vulnerable to fraud and criminal activity.
One tactic criminals use is the Fake Company Scam, where a long-time international business partner requests that you wire payment to a different account. A variety of reasons for the change can be cited, but all sound reasonable.
Trusting in the strength and history of the relationship, the company makes the payment into the new account, only to find out from their long-term partner that payment was never received. Instead, it was hijacked by scammers.
By accessing company email accounts, cyber criminals have been known to send malicious communications that appear to come from a trusted sender. The unsuspecting company then complies with the instructions only to be defrauded of the remitted funds.
While scams like these are becoming increasingly common, there are several steps you can take to safeguard your business.
Tips for Preventing International Payment Fraud
For 60 percent of businesses, cross-border payment fraud has become an increasing pain point. Fortunately, you can help protect your business when making international transactions by taking the following actions:
- Leverage existing relationships and those with external resources, such as banking partners, state and government agencies, and A/R insurance providers or brokers to research and vet potential buyers or sellers.
- Learn about available tools to help ensure that a new international business relationship is viable.
- Ask for financial statements from overseas business partners, making sure they are audited by a trusted source and completed in accordance with International Financial Reporting Standards (IFRS).
- Check if the partner’s bank is a viable financial institution.
- Conduct regular audits of email servers to identify vulnerabilities that could allow an outside party to infiltrate the company system.
- Purchase and utilize an encryption service for email to help prevent takeovers or infiltration by hackers. Also, be sure that any software is kept up to date.
- Have an internal risk management policy that provides all parties within your company with established steps to follow in the event of a requested change to a vendor or customer relationship.
- Understand your insurance coverages and gaps. Have a third party conduct a review of your policies to determine areas your company could be liable for fraud.
- Utilize dual control whenever possible for activities such as sending wires and writing checks, as well as sending and receiving wiring instructions.
What to Do if Your Business Is a Victim of International Payment Fraud
Unfortunately, when engaging in international trade, there may come a time when fraudsters slip through. The good news is, there are steps you can take to help your business recover.
First, reach out to the financial institution that initiated the payment. If you spot the fraud quickly enough the bank may be able to recall the payment. Tools such as Swift gpi’s Stop and Recall service can help with this.
Second, contact your local authorities. They should launch an investigation, and while the likelihood of identifying the criminals behind the scheme is uncertain, you may need a police report to prove fraudulent activity to other organizations such as your bank, the IRS, or insurance providers.
Last, contact your insurer. While most fraud is not covered under the traditional property and casualty policy, there are carriers offering fraud packages that can cover email spoofing and other cyber fraud schemes. Adopting a policy like this and contacting your insurance provider as soon as you discover the fraud will help to limit your liability.
Just remember that vigilance is your best key to fraud prevention, so establishing policies and procedures up front to protect payments activity will go a long way when it comes to protecting your business.
Interested in learning more tips to protect your business from cyber criminals? Learn more from FNBO’s Security Center.
About the Author
Mike Salerno joined the bank in 2002 and currently leads the Global Banking team, which includes business development, international payments, foreign exchange management and trade finance solutions for corporate and correspondent banking customers. International issues can present challenges for organizations, and Mike enjoys creating simple and transparent solutions that reduce the complexity of doing business internationally.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.