For community banks, protecting customers from fraud is more important than ever. That’s becoming an increasingly difficult task, however, as fraud and scams become more complex and harder to catch. This is especially true for smaller financial institutions that don’t have significant resources to dedicate to fraud detection and prevention.

We reached out to Michael Moore, Bell Bank’s director of BSA and Fraud Risk Management, to learn about types of fraud banks and their customers should be aware of, and what everyone can do to protect themselves. Michael has almost 25 years of experience in the financial crimes field, and joined Bell four years ago.

What are some types of fraud or scams that banks and their customers should be aware of?

Business Email Compromise: This is where a fraudster impersonates a known contact or vendor by email and tricks someone into paying a fake invoice. This can be avoided by verbally verifying who you’re paying and vetting the vendor you’re working with. Changes in payment accounts or destination banks can be an indicator that a fraudster has taken over an account.

Synthetic Identity and Beneficiary Account Fraud: Fraudsters increasingly use synthetic, or fabricated, identities to open accounts that appear legitimate but are then used to receive fraudulent wires. These accounts often originate through downstream institutions and are funneled through correspondent banks. Enhancing your Customer Identification Program (CIP) and Know Your Customer (KYC) oversight, and performing additional reviews of newly added beneficiaries – especially those receiving high-dollar or rapid inbound wires – are some ways to slow down and limit these types of schemes.

Deposit Fraud: With this type of fraud, customers will receive a fraudulent check through email or via the mail from a fraudster they met online. The customer will be instructed to deposit the funds at a bank branch or through online banking, and then withdraw or transfer the funds immediately. The fraudster will tell the customer to send the funds to a specific recipient through platforms such as Zelle, Cash App or Venmo, or by purchasing and sending them a gift card. The check will then get charged back and the customer will end up being responsible for paying the bank the total that they spent to buy the gift cards or transfer the funds.

Pig Butchering: This scam with a sensationalist name is characterized by fraudsters building a long-term relationship with a target. The fraudster exploits that person’s trust to trick them into investing in fake cryptocurrency platforms, often starting with small investments to test the waters before increasing to significantly larger amounts. The fraudster will use fraudulent platforms to show that the investments are making large returns, which will incentivize larger investments. By the time the victim realizes it’s a scam, the money is gone, and they have no way of getting it back.

What Community Banks Can Do to Protect Themselves

To protect yourself and your customers from fraud, one best practice is to stop issuing checks to pay employees, vendors or bills. Instead, set up direct deposit for employees and auto payments for bills. When it comes to paying vendors, make sure they’re well known or fully vetted.

Some other best practices to keep in mind: 

• Never click on links or open attachments from unknown sources.
• Regularly monitor transactions for suspicious activity.
• Always verbally verify account information when receiving payment instructions
• Ensure your CIP and KYC programs are regularly reviewed and enhanced as needed.
   

Fraud is a constant threat, but community banks can take important steps to reduce their risk by being vigilant and educating employees and customers about the latest fraud trends and tactics.