Remote working arrangements during the COVID-19 pandemic have left businesses increasingly exposed to business email compromise attacks. Businesses whose monies are stolen by scammers must act quickly to recover the funds. Where the funds have been received in a bank account in Hong Kong, court proceedings should be immediately started to freeze the account and to gain further information to enable follow-up action to be taken if the funds have been withdrawn. In this article, we provide a checklist of action items for businesses who have been defrauded with funds transferred to Hong Kong.
Law enforcement agencies around the world are reporting heightened incidences of email fraud targeting businesses as employees work from home during the COVID-19 pandemic. In this type of fraud, known as business email compromise or email account compromise, fraudsters send emails designed to deceive the recipients into transferring money. The fraud exploits the fact that most recipients of email do not verify the origin and authenticity of email before acting upon them.
The frauds frequently demonstrate significant background due diligence into the businesses being targeted to understand the organization, thus lending as much credibility as possible to any scam email request for a fund transfer In a frequent variation of this type of fraud, the scammer will send an email that appears to originate from a senior executive of the organization requesting that the employee receiving the email to transfer funds, perhaps in satisfaction of an invoice or the completion of an acquisition. Often, if a business falls prey to a fraud and transfers funds, the fraudster will continue to perpetrate the fraud, following the first successful fraudulent email with a second and third fraudulent email, each requesting the transfer of more money.
The scams may spoof an email account or website. For example, after identifying a senior executive who may have authority to request a fund transfer, the fraudster may create a fake email address which appears to be the same as the executive's but is in fact a slight variation (firstname.lastname@example.org vs. email@example.com – note the change of the letter "m" in "sam" to the letters "r-n").
"There is often a temptation for businesses to conduct an internal investigation into the fraud or to wait for the bank or the Hong Kong police to take action before contacting lawyers. This is a mistake."
The scams may be supported by spearphishing emails designed to trick the recipients into providing background information into the organization or by malware allowing the scammers to obtain information about invoicing and payables practices and chains of command.
Victim businesses are often tricked into sending monies to a bank account located in a foreign jurisdiction to make it harder for the businesses to recover the monies. Hong Kong is a popular choice because it is a major financial and business centre and fund transfers to Hong Kong are less likely to be appear out of the ordinary. At the same time, once funds are in Hong Kong, they can be easily moved to mainland China where recovery becomes even more difficult. Finally, the fraudsters are frequently located in mainland China and it is easy for them to travel to Hong Kong to establish bank accounts for use in the frauds. The Federal Bureau of Investigation (FBI) in the United States itself has indicated that China and Hong Kong are the primary destinations of fraudulent funds.
Steps to Recover Money Stolen
What can you do if your business wire transfers money to a scammer as a result of this type of fraud? Can you reverse or recall the bank transfer? If not, can you sue to get the money back?
The faster and more decisively you act, the greater the chance that you can recover the funds. Every moment of delay gives the fraudsters the opportunity move the funds beyond reach.
Where the bank receiving the funds is located in Hong Kong, we suggest the following steps:
- Contact Your Bank – Contact the transferring bank immediately to request a stop on the transfer or, if funds have already been transferred, a recall of the transfer on the basis of fraud.
- Report to the Police – Report the fraud immediately to your local police as well as the Hong Kong police. The Hong Kong police operate an online cyber crime reporting facility.
- Contact a Lawyer in Hong Kong – Retain a Hong Kong lawyer to apply to court to freeze the receiving bank account and prevent the fraudsters from withdrawing the funds. Such an application, if granted, will result in a type of order called a Mareva injunction. A Mareva injunction can be supported by a request for information about the bank account, including the balance on the account and details of the activities on the account.
- If you have insurance which may cover fraud, report the matter to the insurer.
There is often a temptation for businesses to conduct an internal investigation into the fraud or to wait for the bank or the police to take action before contacting lawyers. For example, the business may wait to see if it was able to successfully stop, recall or reverse the wire transfer made as a result of the scam before contacting lawyers. This is a mistake, often fatal to the ability to effect any recovery of the funds transferred.
The police have no duty to take prompt action. After they take a report from you, their resources may not permit them to follow-up immediately.
While the receiving bank is likely to freeze the account to comply with anti-money laundering laws, this may take some time. The receiving bank is unlikely to freeze the account simply because it has received a recall request from the transferring bank.
Understanding how the fraud was committed is not essential to recovering the funds. Though such an understanding can help to prevent future fraud, it will play little role in getting money back.
Time is of the essence and every moment of delay increases the risk that the funds will be gone as the fraudsters transfer funds out chunk by chunk. Where the funds have been wired to a bank account in Hong Kong, IMMEDIATELY contact a Hong Kong lawyer with experience in asset recovery, providing full details of the scam including all fraudulent emails, all internal emails relating to the wire transfers and attachments to those emails.
"The court will be concerned to see that its powers are not abused to freeze bank accounts or reverse a wire transfer without consideration of the impact its orders may have on others and without assurances as to the fact that there was in fact a fraud."
How We Can Help
The Hong Kong legal process to freeze bank accounts and recover the stolen funds is a court driven one, which means that you will need to hire a lawyer to prepare the court application and supporting documents. The court will be concerned to see that its powers are not abused to freeze bank accounts or reverse a wire transfer without consideration of the impact its orders may have on others and without assurances as to the fact that there was in fact a fraud. We have the experience to prepare and issue pre-action correspondence with the receiving bank and to prepare and file the court application and supporting documents quickly to maximize the chance of recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.