What’s Possible for Wire Transfer Fraud Recovery?

ALTA’s January 2024 study “Critical Issues Study: Cybercrime & Wirefraud” found that 28% of title agents had a customer fall victim to wire fraud in 2022, with 17% ultimately transferring money.  Of those who transferred money, only 26% recovered their funds entirely. 

These figures demonstrate that the chances of wire transfer fraud recovery are low; however, it’s still in one’s best interest to act quickly in the event of a fraudulent wire transfer to potentially recover funds. 

When can a wire transfer be reversed?

While it’s commonly believed that wire transfers cannot be reversed, there are a few extenuating circumstances in which a reversal might be possible (though it’s important to note that a reversal is never guaranteed). 

• Can a money wire transfer be reversed if a bank makes an error? If the sending bank makes a mistake in processing the transfer, they may be able to initiate a reversal.
• Can a fraudulent wire transfer be reversed? Banks may attempt to reverse the transfer if fraud is suspected.
• Can an international wire transfer be reversed? If the transfer was made through a remittance transfer provider (i.e., an international transfer), there might be a brief window (usually 30 minutes) to cancel it.

For real estate transactions, one of the most prevalent reasons to attempt a wire transfer reversal is wire fraud. Qualia’s 2023 Real Estate Wire Fraud Trends Special Report found that wire fraud is not only common but also often results in financial losses; one in 10 title & escrow professionals reported financial losses due to wire fraud in the past 12 months. Of the companies that reported financial losses, over 35% reported losses of over $100,000.

Factors limiting wire transfer reversals in the event of fraud

Wire transfers move funds almost instantaneously, making them challenging to reverse once sent. Once the recipient bank has accepted the transfer, reversal becomes nearly impossible and then completely hopeless once the fraudulent actor moves the funds into another account, withdraws the money, or converts it to cryptocurrency. 

Wire transfer reversals are a race against time, and time typically isn’t on one’s side due to several factors:

1. Fraudulent actors know that time is of the essence and will often use banking holidays or weekends to slow the recovery process. They will also work quickly to withdraw or transfer funds immediately. 
2. There’s a general lack of obligation for financial institutions to act when they suspect fraudulent activity. During ALTA’s “2024 State of Wire Fraud in the Title Industry” webinar, the speakers noted that the “deck is stacked against” those attempting to recover funds because financial institutions have “flyover cover” with Uniform Commercial Code (UCC) article 4A, which shields them from being held liable in fraudulent transactions if basic due diligence thresholds have been met.
3. Incident response can take weeks. The duration of fraud investigations can range between 30 to 90 days, depending on the complexity of the case and the level of collaboration with different parties, including law enforcement. 

What should you do in the event of wire fraud?

Discovering that your client has fallen victim to wire fraud can be a distressing and overwhelming experience. And while it’s important to understand the limitations of reversing wire transfers, the faster you act, the better your chances of mitigating the damage and possibly recovering some or all of the transferred money. 

It’s essential to have a well-prepared incident response plan in place that outlines specific steps, the contact information of relevant parties, and clear responsibilities for team members. ALTA offers a framework for a wire fraud rapid response plan that you can use as a starting point for your own operations. A detailed plan will allow for a more methodical and efficient response that increases the chances of recovery. 

Below are the basic steps that a response plan should include:

1. The moment you identify a fraudulent wire transfer, act immediately by alerting company management and internal wire fraud response teams.
2. Contact the sending bank to request a Wire Fraud Recall and confirm the recall request was processed.
3. Notify the receiving bank so that they can potentially freeze the account if the funds haven’t been withdrawn. 
4. Report the case to the FBI’s Internet Crime Complaint Center at IC3.gov. The FBI works with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and may be able to assist in freezing or recovering the funds. See ALTA’s video here on how to report an incident to the FBI. 
5. Contact the regional FBI and local police to file a case.
6. Inform all affected or potentially affected parties, including the buyer, seller, and real estate agents involved in the transaction. 
7. Contact your insurance carrier(s) and legal counsel. Keep detailed records of all communication, actions taken, and the timeline of events. This documentation will be critical for potential legal action or insurance claims. 
8. Review your incident response plan to determine if you need to update passwords, secure hardware, etc., to determine how and when accounts were accessed.
9. Conduct a thorough review of how the fraud event occurred and document what happened. Use this information to continue education among staff. 

Best practices to mitigate the risk of wire transfer errors and fraud

Given the limitations of wire transfer reversal, it’s essential to implement robust wire transfer processes and regularly train staff and clients on the risks of wire fraud and appropriate prevention measures.

Regularly train staff and clients on wire fraud prevention

• Train staff: Provide comprehensive training on data security protocols, fraud recognition, and compliance requirements. This creates a culture of risk awareness and accountability.
• Client education: Your internal team may know when something seems suspicious; however, a typical homebuyer likely doesn’t know the signs of a wire fraud attempt. Consider technology like Qualia Shield which includes built-in wire fraud education as part of the user flow.

Develop robust processes and protocols for wire transfers

Given the prevalence of wire fraud attempts, staff must remain vigilant when conducting wire transfers. In general, your processes should, at minimum, require:

1. Verification of wire instructions: Always verify wire instructions through direct contact using known, trusted phone numbers.
2. Risk scoring: Each wire transfer should be evaluated for its risk level based on factors like the amount, destination, and any unusual patterns. For instance, a transfer to a new or international account might be considered higher risk. For transactions deemed high-risk, additional verification steps should be taken. This could include requiring a second approval from a senior staff member or implementing an enhanced authentication process.
3. Segregation of duties: By ensuring that no single individual has control over all aspects of a transaction, organizations can create a system of checks and balances that makes it more difficult for fraudulent activities to go unnoticed. For example, one staff member receives the request for funds, and another authorizes the release.

Implement technology solutions to limit security breaches

Reinforce processes with automated workflows

Your internal workflows are critical to maintaining secure processes during the wire transfer process; however, tasks can sometimes slip through the cracks when things move quickly. Consider a technology solution with built-in settings to reinforce wire transfer protocols. For example, with Qualia Shield, admins can configure settings and require that team members complete a risk assessment review and acknowledge the assessment findings before funds can be disbursed.

Title production software

Title & escrow companies have access to various wire fraud prevention tools; however, the security of your title production software is the first line of defense against fraudulent actors who attempt to access your systems and initiate scams. At a minimum, your title production software should offer features like multi-factor authentication (MFA), role-based access control, allowed IPs, and single sign-on (SSO) to limit the risk of security breaches.

Secure communication portals 

One of the most common ways fraudulent actors intercept real estate transactions and initiate wire fraud attempts is through business email compromise (BEC). For this reason, it’s best to avoid email communication when sending wiring instructions or other sensitive personal and financial details. Instead, use a secure communication portal, like Qualia Connect.

Advanced wire fraud prevention tools 

Utilize technology that analyzes transaction patterns, identifies anomalies, and flags or blocks suspicious wire transfers in real time. Many wire fraud detection solutions on the market offer only one or two methods to mitigate the risk of fraud. To better fortify your business, consider solutions with multilayered risk assessments. Qualia Shield, for example, offers multivariable risk assessments that help teams assess users’ bank accounts and identities for potential wire fraud risk.

Interested in learning more about Qualia’s advanced wire fraud detection tool, Qualia Shield? Click below to get in contact with a product specialist.