Civil remedies will remain vital for companies despite new fraud code

Out-Law News | 16 Jul 2019 | 4:19 pm | 2 min. read

Civil recovery remedies will remain a vital tool for defrauded companies seeking recovery of stolen funds regardless of new industry initiatives such as the authorised push payment (APP) fraud code, according to an expert at Pinsent Masons, the law firm behind Out-Law.

Alan Sheeley said that a recent case demonstrated the importance to fraud victims of acting quickly in order to recover money, in this case paid out to the wrong recipient following a so-called 'invoice hijacking' fraud.

"Without the quick action of the victim in this case freezing the money in the account it is likely the entire sum would have been dissipated by the fraudster," he said. "Owing to the quick action, €350,000 was frozen."

Invoice hijacking is a term typically used in cases where a fraudster has been able to serve a false invoice on a business after positioning themselves in the middle of correspondence between the company and one of its suppliers. This is often achieved through email hacking and observing patterns of behaviour and correspondence.

Invoice hijacking frauds are becoming increasingly common in business and personal transactions, Sheeley said.

"The case is another example of the courts beginning to take a pragmatic approach to invoice hijacking. The court was sensible and allowed the claimant, World Proteins Kft, to obtain default judgment and thereafter the return of its money from the funds in the account. It is right that victims of fraud should not be forced to have to jump through the 'legal hoops' that the court system can put in place when it is clear to all that the victim was exactly that - a victim of fraud," he said.

Sheeley Alan

Alan Sheeley

Partner

Companies need to be aware that it is likely that they will not be covered by the APP frauds voluntary code and the commitments many banks have made because they are not individuals.

The court, without holding a full hearing, found in favour of World Proteins Kft, allowing it to recover €350,000 directly from a bank account belonging to the purported fraudsters, who had not acknowledged World Proteins' court action or filed a defence, according to a Lawtel report of the caseWorld Proteins had previously obtained an order freezing the funds, although some of the money had already been transferred to accounts in Dubai.

World Proteins received two invoices, for €1.5 million and €500,000, which it believed to be from one of its longstanding suppliers. The invoices were included in a chain of emails between World Proteins and its supplier, but included new bank details and were in fact false. World Proteins was able to recall the €1.5m payment once it realised it had been defrauded, but was unable to recall the €500,000 payment.

The court decided that it was able to grant the application sought in this case, as the money clearly belonged to World Proteins and both the bank and purported fraudster had been informed about the application. On the evidence, it would have been "disproportionate and unnecessary to ask and expect the applicant to jump through legal hoops where the respondent had not attended", the judge said, according to the Lawtel summary.

A new, voluntary, code of conduct allowing victims of APP fraud to claim reimbursement came into force on 28 May 2019. Banks and other payment service providers which have signed up to the code have agreed to reimburse victims of APP frauds where certain criteria are met, and have committed to a number of measures to detect, prevent and respond to APP fraud. However, only consumers, 'micro'-enterprises which meet strict turnover and employee thresholds and charities are able to obtain reimbursement under the code.

"The new APP frauds voluntary code will be used by many individuals in this type of scenario to seek redress directly from the bank," said Sheeley. "However, companies need to be aware that it is likely that they will not be covered by the code and the commitments many banks have made because they are not individuals. Therefore, it is vital that companies that suffer fraud contact a civil fraud lawyer as soon as possible if they are to be successful in freezing the funds that have been taken."

"It is clear that civil recovery methods are quicker than contacting the police and will likely result in a better chance of recovering the money even if there is a cost - legal fees - for self-policing, as in this situation," he said.