It Takes Two to Defraud – How to Mitigate Losses and Prevent Receiving Dirty Money
With the advancement of technology, we become more and more familiar with online payment and transaction. At the same time, the convenience of Internet transfer brings along the acceleration in the number of multiple-jurisdictional cyber fraud cases.
In this article, we wish to share our observations from cases that we have worked on and provide some tips to watch out for cybercrime.
From Love to Lure – Romance Scam
There are a few common tactics for fraudsters to approach victims, for instance through romance scam. The fraudsters will identify and connect with the victim through dating applications and spend substantial amounts of time to build rapport with the victim, spanning from months to years.
When sufficient trust is built, the fraudster tends to identify himself/herself as a salesperson or investment manager of a company, claiming to offer an exclusive price for the victim to purchase shares or funds, or encouraging the victim to participate in online trading programmes. The victim will then be lured to deposit gradually substantial sums of monies. The story will continue until a few months later where the fraudster will completely block contact with the victim and abscond with the victim’s monies completely.
The Fake Company – Classic Email Scam
Advanced fraudsters may intercept business email correspondences and falsify bank account details in their favour. As there are increasing means for communications, defrauding schemes are also getting more sophisticated. We have come across cases where the fraudster will even fabricate a company stamp and produce an invoice, directing the victim to deposit to a third-party bank account. It is also not uncommon for the fraudster to create a fraudulent bank website or trading account website, in order to paint a picture that they come from a trustworthy company and their investment scheme is genuine and authentic.
Follow the Money
Most of the time, upon discovery of cybercrime, the fraudster would have already dissipated monies to multiple accounts. If the victim is fortunate to apply for Mareva injunction in a timely manner, the bank will freeze the monies in the fraudster’s bank account upon a court order.
In some circumstances, if Mareva injunction is not applied for, the fraudster may have already transferred the defrauded monies to multiple recipients, involving not only local bank accounts, but international bank accounts as well. This will certainly increase difficulty in locating the whereabouts of the monies.
In this case, the victims may consider applying for a court order to obtain copies of entries in the banker’s record under the Evidence Ordinance (Cap. 8) for the purpose of tracing the dissipation of monies. Nonetheless, if there are multiple layers to be traced, the costs of recovering the monies will amount substantially, not to mention that the chance for entire recovery will be slim.
If the victim is fortunate to freeze the monies in the fraudster’s account and has a straightforward case where the fraudster does not come forward to defend, the victim can usually proceed with the civil action by obtaining a default judgment followed by a garnishee order or vesting order (subject to the needs of the victim and factors in different cases). In such circumstance, the whole process will take approximately six (6) months, subject to the court’s availability for hearing your application for garnishee order/vesting order.
Proving Innocence for Unknowing Receipt of Proceeds of Fraud
Apart from fallen into cybercrime, there are also unfortunate parties who have unknowingly received monies alleged to be part of the proceeds of fraud. For instance, Aaron is a seller of products and receives monies from Bella in accordance with their sale and purchase agreement. However, Aaron has no knowledge that the monies transferred by Bella are proceeds of a fraud scheme. In this case, when there is legitimate business relationship and dealing between the parties, the crux would be whether there is evidence showing the recipient was a party to that design or a knowing recipient of the proceeds of fraud. Every case turns on its own facts, but the burden lies on Aaron to demonstrate a choate and complete defence that he is a bona fide purchaser for value without notice of the fraud.
Best Practices and Precautions
For all day-to-day transactions, we remind our readers here to duly conduct “Know Your Customer (KYC)” of your clients, observe payer/payee details and corresponding amounts carefully. Case law suggests that it is not an unduly heavy burden on the recipient to be alerted or feel suspicious and make necessary enquiries when the paying party is not the contracting party. The court would expect a businessman to make reasonable enquiry, not merely accepting that the amount received seems to tally with the balance due under a transaction. In fact, when you receive monies from a payer who is not your contracting party, you should make reasonable enquiry. If that third party is an authorised party of the legitimate contract party, a proper authorisation letter shall be retained for record keeping.
Further, one should not merely assume that any difference between the invoice amount and the actual amount received is due to difference in exchange rate or bank charge. One shall make prudent enquiry as to the difference, even though it may be minute. Only when you can properly explain your possessions without knowing they are proceeds of fraud, then you have discharged your burden by not casting doubt – in the eyes of the law – that you are a party to the fraudulent scheme.
To conclude, if unfortunately you fall prey to cybercrime, you are reminded to act swiftly by reporting to the local police and seek professional legal advice to pursue timely civil action. There is power by the local police to apply administrative measures to stop payment out of the fraudster’s account. Nonetheless, for recovery of monies, you are required to take immediate civil action. The faster you act, the higher your chance to recover the monies.
This summary is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. Transmission of this information is not intended to create, and receipt does not constitute, a lawyer-client relationship between JC Legal and the user or browser. JC Legal is not responsible for any third-party content which can be accessed through the hyperlink provided in this summary.