Red Flags in International Payments and Trade. Presented by Paul Warfield and Despina Margiori

Transcription

1 Red Flags in International Payments and Trade Presented by Paul Warfield and Despina Margiori

2 Red Flags on International Payments Financial Crimes Enforcement Network (FinCEN) alerts that Criminal organizations use the international trade & payment system to transfer value across international borders in order to disguise the illicit origins of criminal proceeds. The International banking & financial systems play a key role in every aspect of terrorist financing, money laundering, embezzlement, corruption, and illicit trade. Given the nature of Globalization, international markets cannot be left up to national security & agencies alone! 2

3 Red Flags on International Payments This presentation will focus on the major Red Flags on international payments and what businesses & entities need to look out for plus various tips on how to combat and / or prevent fraud. What could be the Issue? If a company is a victim of a wire fraud and a payment is made, the payment can either be delivered to the criminals account OR the goods could be delivered to a different delivery location. Example: The buyer can pay and never receive the goods OR the seller can ship the goods and never receive payment. 3

4 Cyber Crime and Hacking Cyber Crime and Hacking Over the past few years, cybercriminals have looted tens of millions of dollars from numerous businesses and other entities, by stealing banking credentials, involving Phishing or malicious computer software enabling a hacker to attack. Criminals have gotten even smarter by figuring out how to access their victims internet + telephone accounts. They can simply hijack targets phone lines and direct their calls to their own cell phones. When financial institutions for example contact their customer to validate the transactions it s the criminal who responds! 4

5 Mobile Payments Also as Mobile Payments -via mobile devices- are expected to become the dominant banking and payment channel in the near future; new techniques like SmiShing have been evolving to attack this channel. 5

6 Compromise and Wire Fraud FBI has issued a new warning on hacking and on an scam aimed at US Businesses. Fraud is on the rise and the scam is simple. It works through the criminal getting into the middle of your traffic. The fraudster intercepts legitimate s, and then creates a fake one that is nearly IDENTICAL. In many instances the fake e- mail is merely one letter changed or added to the legitimate address. Here is an example of a hypothetical valid address: usshippingtrade@yahoo.com is transformed by the fraudster to usshippingstrade@yahoo.com. No one notices the new (but fake) in an exchange, and soon enough; the parties are communicating through the criminal that controls the conversation, by being in the middle of it. The fraudster then issues instructions for payments, usually by wire transfer and the funds go offshore and are long gone!! 6

7 Guarding against Wire Transfer Fraud and Red Flags: While it is not always possible to prevent fraud from happening, education & awareness are the best ways to avoid it. In the industry of international payments we all (businesses and financial institutions) need to look out for: Transfers between business entities in wholly unrelated industries, Transfers where no apparent business relationship appears to exist between the originator and the beneficiary, Transactions involving off-shore banks or tax havens, Transfer amounts that are less than the $10,000 each. This method is known as Structuring OR Smurfing. Structuring is likely the most common method by which illicit funds are transferred via international wires (continued on next slide) 7

8 Guarding against Wire Transfer Fraud and Red Flags: Missing wire transfer data, empty data fields, unusual entries, repeated can be suspicious transactions. This is Scrubbing OR Stripping and it is characterized by removing identifying information from wire data. RUSH Requests Often, fraudulent requests insist that the funds transfers must happen as quickly as possible, due to some sort of emergency or purchase, Many cybercriminals STRIKE late in the day or on Friday, before the weekend, in hopes that a sense of urgency prevails! Customer is unable to produce appropriate documentation (i.e. invoices) to support a requested transaction. Client states they cannot be reached by phone to confirm the request. (continued on next slide) 8

9 Guarding against Wire Transfer Fraud and Red Flags: Bad Wording. The Request includes unusual phrases, grammatical errors, and incorrect punctuation, spacing and / or capitalization. The nature or amount of the expense is out of the ordinary. Criminals are sending fraudulent s that look like they are from company executives and request that large wire transfers be coded to a department within a company. Settlement Instructions for payment SUDDENLY change. Always verify using a different method than to seek proof that a transfer request is genuine. As of lately, some big brokerage firms say they don t accept wire transfer requests via , period! Instead they use a variety of measures including multi-step authentication & proprietary technology applications (for security reasons, they haven t disclosed these details!) 9

10 Phishing Attack and ways to prevent / combat 1. Use secure . Web based s from free accounts is a very bad idea when conducting business. Use that is ENCRYPTED. 2. Develop Verification Procedures. If the wire transfer instructions come in by , then they should be confirmed through a secondary procedure, such as a phone call or other verification methods. Make sure the VOICE + the BEHAVIOR are in line with the voice + behavior of client or boss. 3. Require dual Controls in the office. 4. Ensure the firm / company has Up-To-Date policies regarding based wire transfers requests. 5. Do Not use the REPLY button. Instead FORWARD the or TYPE the address. 6. Don t click links in an unsolicited message. (continued on next slide) 10

11 Phishing Attack and ways to prevent / combat 7. Browse through a secure connection when visiting a bank website, online retailer or a social network. Use HTTPS where the S stands for security NOT HTTP. 8. Boost your security and avoid giving up information to cyber criminals. Check the SSL certificate of the website you log into. It will display the lock and green color in the website address bar to provide validation that the site is using SSL and is legitimate. Clicking on the lock icon will provide additional information. 9. Maintain Up-To-Date Antivirus software. 10. Avoid Activate Security Scam s or SMS messages. These messages target account credential typically tricks users into giving up their login & password details by luring them into implementing a new security feature. These scams use a major bank brand or merchant name. (continued on next slide) 11

12 Phishing Attack and ways to prevent / combat 11. Check s Headers which can give the details of a sender. 12. Your Account has been hacked, if you find s you didn t send in your SENT folder, OR, Hearing from your friends that they have received spam from your addresses. 13. USA Patriot Act Violation Messages. The phony message says the victim s bank account is no longer insured because of suspected violations for the Patriotic Act. The Phishing then attempts to steal the victim s identity by requesting verification through an online form. 14. Don t Answer RIGHT AWAY. Thieves have a tendency to send follow up s stressing the URGENCY of the situation. 15. Don t ALERT your Facebook friends that you have been hacked. Alert your supervisors and /or file a complaint instead. (continued on next slide) 12

13 Phishing Attack and ways to prevent / combat 16. Properly always log-out of all your financial institution web sites and close the browser window. 17. Don t SAVE sensitive information in your account. Example: People sometimes put Bank information in the contact list and their account numbers in the side notes. 18. If using mobile devices for payments, extra care on what information you expose is advised. These devices should be managed, handled and integrated into the business strategy and be code or password protected. 19. If the Smartphone or a Blackberry is the way you conduct your business, note that it is easier to just REPLY and very difficult to pick up on a fake address. 20. Dodge Mobile SMS Scams Phishers who can create fake phone mobile applications. If s come on your smart phone, make sure the phone is code or password protected. 13 (continued on next slide)

14 Phishing Attack and ways to prevent / combat If you believe your firm or client has been the victim of a scam, file a complaint at that includes: a) How, When, and Why you were contacted b) Actual Amounts of Potential losses c) Header Information from s d) Any identifying information related to the perpetrators! 14

15 Phishing Attack and ways to prevent / combat To conclude, it is important for all businesses and financial institutions to take preventive measures to stop cyber fraud by educating their employees on current payments fraud practices and implementing the products & processes they need to protect their corporate assets. Crime and Cyber Insurance policies exist, but are not easy since coverages are depending on facts of each scam. The Best Protection will always be OPERATIONAL SECURITY and Risk Management on business s practices. Preventing the Loss in the first place is always a winning strategy. 15

16 Red Flags in International Trade Presented by Paul Warfield

17 Red Flags in International Payments and Trade Doing business internationally can be rewarding and challenging. Aside from the typical risks when working internationally like credit and compliance risk the need to be smarter than the fraudsters has never been greater. Focus today will be identifying Red Flags when working with international payments such as wire transfers and trade transactions such as letters of credit and documentation. 17

18 Red Flags in Exporting: Companies operating, shipping or marketing overseas should know and respond to Red Flags that signal possible serious legal exposure for their employees, officers, directors and third party relationships. Customer or its address is similar to one of the parties found on the Commerce Departments list denied persons. Customer or purchasing agent is reluctant to offer information about the end use of the item! The product s capabilities do not fit the buyer s line of business. (continued on next slide) 18

19 Red Flags in Exporting: The item ordered is incompatible with the technical level for the country to which it is being shipped. Customer is willing to pay cash for an expensive item when the terms of sale would normally call for financing. Customer is unfamiliar with the product s characteristics but still wants the product. Deliveries are vague and / or planned for out there destinations. A freight forwarding firm is listed as the product s final destination. 19

20 Red Flags - Trade Based Money Laundering Over and under-invoicing of goods and services Invoicing at a price below the fair market price enables the exporter to transfer value to the importer Invoicing at a price above market value enables the exporter to obtain a higher payment than the importer will receive in the open market Multiple Invoicing for goods and services Invoicing the same good or service multiple times Beware of amended payment terms Corrections to payment instructions (continued on next slide) 20

21 Red Flags - Trade Based Money Laundering Over and under shipment of goods and services By manipulating export and import prices the quantity of goods can be overstated or understated. No supply of goods just paperwork? Falsely described goods and services A relatively inexpensive good is supplied but a much more expensive good is invoiced Documentation does not adequately describe what is being shipped 21

22 Red Flags International Trade The instructions for the order, or structure of the sale, are overly complex with unknown parties. Inquiries are numerous with a need for confidentiality Urgent need to rush and perform quickly. Unrealistic sense of urgency You are being asked to transship through one or more jurisdictions for no apparent reason Transactions are evidently designed to evade legal restrictions, including evasion of necessary government licensing requirements Letter of credit has unusual clauses, terminology or structure without a reasonable explanation (continued on next slide) 22

23 Red Flags International Trade Customer wants you to use a misleading or unclear merchandise description Customer requests payments of proceeds to an unrelated third party Applicant documentation controls payment without reasonable justification Standby letter of credit is required for bid bonds or performance bonds but there is no reference to the underlying project Standby letter of credit is issued and is drawn on almost immediately (continued on next slide) 23

24 Red Flags International Trade Letter of credit contains non-standard wording Ready, willing and able Letter of Interest Letter of credit is unconditional, divisible and assignable Funds are good, clean and cleared, non-criminal origin Top 50 Prime Banks, Prime Bank Instrument Freight Forwarding firm is listed as the products final destination The item or order is incompatible with the technical level of the country to which it is being shipped, e.g. semiconductor manufacturing equipment is being sent to a country with no electronics industry (continued on next slide) 24

25 Red Flags International Trade Routine installation, training or maintenance services are declined by the customer Transaction involves dual use goods The method of payment appears inconsistent with the characteristics of the transaction 25

26 Additional Information Bureau of Industry and Security Dual Use Export Licenses FCPA OFAC Export.gov (Export Licenses and Regulations) FATF Wolfsberg U.S. Customs and Border Protection 26

27 Any questions? Contact Us: Paul Warfield SVP International Banking & Operations Manager 6111 N. River Road MBFC6 6 th Floor Rosemont, IL t e. Pwarfield@mbfinancial.com Despina Margiori VP Foreign Exchange Sales Manager 6111 N. River Road MBFC6 6 th Floor Rosemont, IL t e. DMargiori@mbfinancial.com 27