When it Comes to Wire Fraud, Are We Asking Enough Questions?
September 8, 2021
By Jason Doshi
The title industry more widely understands that wire fraud is a very real, and very dangerous, threat. It’s a concern for almost any title agency, too. In ALTA’s own 2021 Wire Fraud and Cyber Crime Survey, “title insurance professionals reported cyber criminals attempted to trick employees to wire funds to a fraudulent account in a third of all real estate and mortgage transactions.” While the current, preferred methods of thwarting fraud, better authentication tools and increased employee vigilance, are helping, there’s an elephant in the room that’s being ignored. While the technique of wiring funds has long been preferred for its speed and timing, it also has vulnerabilities that, once exploited, are difficult to recover from. It’s time to have a second look at the equation, and ask ourselves if the risks associated with wire transfers are worth that speed.
How and Why Wire Fraud Works
By now, most title agents understand how wire fraud typically works, although the variations and nuances grow more sophisticated by the day. Typically, a hacker poses as an involved real estate agent and convinces the title agent or buyer to divert closing costs to a fraudulent account. That fraudster will often use fake emails, phone numbers or websites to impersonate someone the person ordering the change of wiring instructions trusts. The means of deception could include an email address or phone number that looks authentic. Many times, the scammer has already phished personal information out of the real estate agent’s email to falsely “authenticate” the scammer’s false identity. More recently, “spoofing” has been a preferred technique. Spoofing occurs when a scammer uses special software to mimic a real estate agent’s or lender’s phone number or email, making it even less likely to raise red flags with the target.
We’ve learned over the past few years that the most successful scammers are usually affiliated with international crime syndicates. It is the speed with which the wire works that aids their success rate. Traditional “wiring” involves the SWIFT network, which is a rapid series of bank-to-bank payment orders using a dedicated code. Typically, a transfer of this type involves multiple banks in different regions. Once the cash transfer is initiated, it is nearly impossible to rescind. And while it can be tracked, banks can be notoriously slow to initiate or execute that trace—although they have improved as the specter of wire fraud has grown. The most successful wire fraud perpetrators typically transfer the illicit funds rapidly and multiple times. They’ve also perfected numerous laundering techniques using international havens. As a result, once a wire transfer to an inauthentic account has been initiated, the clock is ticking. And the results are rarely good. According to the same ALTA survey of title agents, 71% of those polled said that the funds fraudulently taken were never fully recovered.
The Solutions We’ve Been Using
Authenticating the entity seeking a change of wiring instructions is a solid path to reducing the occurrence of wire fraud. The vast majority of technological solutions to this point have worked to do exactly that—whether through two or multi-factor authentication, making communication channels more secure or the like. There are even biometric solutions, which require facial or similar authentication, beginning to enter the market.
Similarly, some efforts have been made to either reduce or eliminate the massively unsafe use of phone or e-mail to convey wiring instructions—or virtually any NPI that could reward phishing efforts and lead to later losses. Unfortunately, widespread adoption of the most effective solutions (encryption, closed systems) has been low and slow, primarily due to the lack of convenience and market demand for speed of communications. In 2021, throughout the mortgage, title and real estate industry, phone (text or call) and email remain the preferred means of communication in a real estate transaction—even if unsecure.
Training and awareness—the human element—has been on the rise in recent years as well. The more employees and consumers who realize that any request to change wiring instructions is a glaring red flag, the fewer scams will likely succeed. Again, however, the rise of spoofing; the chaos surrounding the final days of almost every purchase transaction and the increasing sophistication of the fraud attempts renders this approach far less than perfect. The ALTA survey supports this as well. The title agents surveyed in 2020 reported that 75% of all unrecoverable funds taken by fraud were sent by a title employee.
ALTA’s survey suggests that authentication, training and vigilance are certainly helping overall, with the title agents surveyed indicating that only about 8% of the wire fraud attempts they had experienced actually resulted in a fraudulent transfer. But while an 8% success rate would deceptively suggest the problem has been eradicated, there are a few other numbers to consider. Fraud impacted 13,638 victims in 2020, resulting in over $213 million in losses, according to the FBI’s 2020 Internet Crime Report.
Why Not Ask One More Question About Fraud?
Perhaps it’s time to ask a question few have wanted to ask out loud for years. Why are we still insisting on using the wire to transfer such large amounts of cash? The answer, of course, is the speed of a wire transaction. The funds move almost instantaneously, which meshes extremely well with the need for explicit timing in a real estate transaction as well as customer demand. And yet, for those who never receive the funds they were rightfully intended to, or those who unwittingly transmit them to fraudsters, those extra hours mean a lot less than they did before being scammed.
Wiring funds has several weaknesses, as explained above, and they extend beyond vulnerability to fraud. But the most obvious is that the sender is essentially sending “blind,” forced to rely on the email or voicemail, authentic or not, that provided the account information in the first place. This, of course, is the clear weakness being exploited by criminals to the tune of millions of dollars. Less often discussed, but no less a threat, is the fact that wire users can expose their own, vulnerable bank information to criminals, possibly leading to direct hacking as well.
One potential solution is the introduction of a secure, electronic transfer platform, which offers several additional forms of security and typically using Real-Time Payments (RTP). RTP comes with the speed and irrevocability of a wire but with the ease of use of ACH. Many of these RTP-enabled electronic transfer solutions offer better encryption of personal information and allow for an easier and faster method of tracking the funds once sent. They also serve to shield the users from exposing their own banking information, exposing themselves to hacking opportunities.
The challenge remains convincing the industry that the dangers and risks of using wire transfers significantly outweigh the convenience of the speed inherent to using it. That will be a very real battle. Then again, electronic disbursement platforms also offer major conveniences and gains in speed when used for things like earnest money or cash-to-close refinances where, all too often, the archaic paper check transferred by mail or even personal transportation (speaking of security risks) remains the favored “solution.” But with tens of thousands still being impacted by fraud to the tune of hundreds of millions of dollars in losses, all at the end of a transaction that typically has already taken over 52 days to close, are the extra hours saved by using the wire really worth it?
Jason Doshi is the CEO and co-founder of Charlotte-based Paymints.io, a national provider of electronic disbursement technology developed specifically for the mortgage, title and real estate industry. He can be reached at [email protected].
Contact ALTA at 202-296-3671 or [email protected].