NASDAQ’s Verafin business unit released its 2024 Global Financial Crime Report this week, highlighting the scale of the problem with an estimated $3.1 Trillion in illicit funds flowing through the global financial system. One interesting aspect of the report is the personal stories told by victims of financial crime. It’s easy to forget that every penny of that $3.1 Trillion has a story associated with it that often includes tremendous pain and personal loss.
One story that struck me as very telling was of Lilah, who mistakenly wired $130,000 to a criminal because she was the victim of an email scam. Lilah was buying her first home and wanted to ensure everything went well. Buying a home is often the most significant financial transaction a person engages in, and the process can produce a lot of anxiety. A few days before her closing, Lilah received an email with wire transfer instructions for her down payment that appeared to be from the title company handling her closing. The sender of the email even had the same name as her contact. To make sure, she called the title company to check, but no one answered or returned her call. She didn’t want to impact the closing, so she followed the instructions and wired the money.
Fortunately, this story has a happy ending as Lilah and her husband were able to close on the house and recover their stolen funds a few months later by working with a company specializing in financial crime recovery.
How could this have been prevented?
Lilah’s experience in this process was not good and certainly not designed to prevent this type of fraud effectively. Banks have invested billions in digitizing and improving their client experiences, often centered around key life events like purchasing a home. These investments make accessing products and executing transactions via websites, smartphones and call centers much more convenient.
How is it that Lilah was able to instruct her bank to wire $130,000 to an account without someone or something flagging the transaction as potentially suspicious and taking extra care to verify Lilah’s intention and the counterparty’s validity before releasing the funds? I am guessing that she never wired that amount before and likely never wired any amount before. Many fraudulent transactions occur the first time the customer has accessed that product.
Where was the title company? Why didn’t they make it clear to Lilah that they would never send wire transfer instructions via email?
There is plenty of blame to spread around. Still, it is critical that financial institutions carefully consider the adverse scenarios associated with their product features and intentionally design the experience to counter them. Financial services are based on trust, and institutions must ensure they build that trust into the experience as more customer interaction becomes digital.
