Banking tech fraud: How to trace and recover your money
Even when stolen assets are sent offshore, the special powers of the English civil court system mean all may not be lost
By
Nathan Capone and Stephen Cartwright
Published: 29 Jun 2021
Push payment fraud, where individuals, businesses and financial institutions are tricked into sending payments to bank accounts controlled by fraudsters, is a very common occurrence.
Such scams are not always particularly sophisticated, often involving spoof emails, fake invoices and impersonations over the phone, yet several recent incidents have shown that sums stolen in this way can range from a few thousand pounds to tens of millions for a single fraud.
But while technology and electronic communications can make it easier for fraudsters to steal and hide money, they can also provide the key to recovering assets and bringing the perpetrators to justice.
In March this year, the Commercial Court in London handed down a summary judgment in favour of an individual who had €15m fraudulently taken from an account in the Cayman Islands.
The fraudster persuaded the client’s bank to transfer the money to the fraudster’s account simply by using a sham payment order and two telephone calls.
By using a combination of legal tools, the victim, with the help of a legal team, was able to follow the electronic footprints, stored as data, of the fraudster’s movements and recover the majority of the stolen money – and conclusively identify the person responsible.
Fake it to make it
Even though banks and their clients are acutely aware of the risk of fraud, well-choreographed telephone calls, emails, faxes and other carefully orchestrated circumstantial factors can be all it takes to persuade account holders to authorise large payments to fraudsters, who are often based in another country.
Once the funds have been received by the fraudster, they are usually rapidly paid away to other accounts and companies.
Pursuing a civil action against cyber criminals may be a faster and more effective way of recovering stolen property, which in most cases is the victim’s primary priority
If the assets are taken offshore, it is easy to assume there is no chance of ever getting them back.
Victims of fraud often consider the criminal route of redress first, which can be an effective way of bringing the perpetrators to justice.
However, pursuing a civil action against fraudsters may be a faster and more effective way of recovering stolen property, which in most cases is the victim’s primary priority.
Freezing, tracing and returning stolen money
The English civil court system offers a number of powerful and fast-acting solutions that can help victims locate assets, prevent further dissipation and ultimately recover them.
In the case of the individual who had €15m fraudulently taken from her Cayman account, the money was transferred to a bank account in England, providing the jurisdictional hook needed to pursue a claim through the English courts.
On learning of the fraud, the victim – now a “claimant” in the English civil court system – made a series of urgent applications to the Commercial Court in London to freeze the money in the English account.
Because the identity of the fraudster was initially unknown, the victim commenced the action against “persons unknown”. This is a legal approach unique to the English courts (typically such actions require a named defendant) that has evolved to help tackle cases involving unidentified wrongdoers.
The claimant obtained a freezing order over the English bank account and the English bank was required to disclose the identity of the account holder, which was revealed to be a London-based company.
Information disclosed by the bank also showed that much of the stolen money had been paid out to other companies and third parties with connections to the owner of the London company.
This created a trail, allowing further disclosure orders to be made against the banks and financial institutions that had handled the money to trace the destination of the stolen funds, along with a combination of freezing orders to prevent the money from being dissipated further.
Using this approach, the claimant was able to quickly trace, freeze and recover approximately €11.5m of the €15m that had been stolen, with the potential to recover more by other legal means.
Identifying the perpetrator
Fraudsters usually hide their identities to evade detection. However, in the same way as transaction records create a path to track stolen funds, the electronic communication methods used to commit the fraud also leave a trail that can be used to identify the perpetrator.
Again, many people assume that such methods of detection are the domain of criminal law enforcement only, when in fact the English civil law system can also help identify fraudsters.
In the case of the Cayman account fraud, mobile phone location data and technical evidence of spoofed emails was gathered and used to demonstrate that a particular defendant – the owner of the London company that initially received the funds – was behind the fraud.
The defendant had used a “burner phone” (a cheap, prepaid mobile phone that can be destroyed or discarded when it is no longer needed) to make the fraudulent calls to the claimant’s Cayman bank.
By making a third-party disclosure application against the phone services company that had facilitated the calls, the claimant was able to establish that the burner phone had been purchased from a store less than 600 metres from the defendant’s London office, and the fraudulent calls had connected through a cell tower less than 100 metres away.
The burner phone had also been paid for using a bank card, which a further non-party disclosure application revealed was in the name of a junior employee of the defendant, and that the card had been funded by the defendant the day before the phone was bought.
The claimant was also able to show that emails the defendant claimed to have received from a third party prompting him to take the funds had been “spoofed” using a website.
Finally, the defendant was unable to explain why the money received by the London company had been so rapidly dissipated.
This evidence was strong enough to enable the claimant to obtain summary judgment against the defendant, short-circuiting the legal process (keeping costs down and speeding things up) by avoiding the need for a full trial.
Combating fraud through the English courts
By using the injunctive and disclosure regimes of the English Commercial Court, claimants in civil fraud cases, through their legal representatives, can secure judgment against the perpetrators and beneficiaries.
Even if the fraud takes place abroad, if the case has a jurisdictional link to the UK – such as if the proceeds of the fraud flowed through a UK bank account – the court has the power to grant a worldwide freezing injunction. England and Wales is one of only two jurisdictions in the world that has this power, the other being Singapore.
Worldwide freezing injunctions are not limited to freezing cash in bank accounts, but will capture many types of asset, including cryptocurrency.
The difficulty for the vast majority of fraud victims is that the legal costs of pursuing the perpetrators through the civil courts outweighs the value of the money or assets stolen.
However, recent cases where fraudsters have been tracked down and money recovered show there are methods of addressing this increasingly ubiquitous problem, and cases can also be managed in a way that is economical for claimants.
Nathan Capone and Stephen Cartwright are dispute resolution lawyers specialising in international fraud disputes and investigations involving high-net-worth individuals at European law firm Fieldfisher.
