Grounded Ingenuity | Refined Results

June 29, 2020
By Timothy Loh and Mary Lam

Remote working arrangements during the COVID-19 pandemic have left businesses increasingly exposed to email scams known as business email compromise attacks. Businesses whose monies are stolen by scammers in these types of email scams must act quickly to recover the funds. Where the funds have been sent to a bank account in Hong Kong, as is often the case, steps should be immediately taken to freeze the account and to gain further information to enable legal proceedings to recover the funds. In this article, we provide a checklist of action items for businesses who are victims of this type of email fraud where funds are transferred to Hong Kong, focusing on how to get money back from the scammers. In our companion article we outline the legal framework for asset recovery in the case of email fraud. Readers with specific queries as to how to recover monies as a result of email fraud should contact one of our dispute resolution lawyers.

Law enforcement agencies around the world are reporting heightened incidences of email fraud targeting businesses as employees work from home during the COVID-19 pandemic. In this type of fraud, known as business email compromise or email account compromise, fraudsters send emails designed to deceive the recipients into transferring money. The fraud exploits the fact that most recipients of email do not verify the origin and authenticity of email before acting upon them.

These types of email frauds frequently demonstrate significant background due diligence into the businesses being targeted to understand the organization, thus lending as much credibility as possible to any scam email request for a fund transfer. In a frequent variation of this type of email fraud, known as CEO fraud, the scammer will send an email that appears to originate from the CEO or another senior executive of the organization requesting the employee receiving the email to transfer funds, perhaps in satisfaction of an invoice or the completion of an acquisition. Often, if a business falls prey to an email fraud and transfers funds, the fraudster will continue to perpetrate the fraud, following the first successful fraudulent email with a second and third fraudulent email, each requesting the transfer of more money.

The email scams may spoof an email account or website. For example, after identifying a senior executive who may have authority to request a fund transfer, the fraudster may create a fake email address which appears to be the same as the executive’s but is in fact a slight variation ([email protected] vs. [email protected] – note the change of the letter “m” in “company” to the letters “r-n”).

The email scams may be supported by phishing emails designed to trick the recipients into providing background information into the organization or by malware allowing the scammers to obtain information about invoicing and payables practices and chains of command.

Victim businesses are often tricked into sending monies to a bank account located in a foreign jurisdiction to make it harder for the businesses to recover the monies. Hong Kong is a popular choice because it is a major financial and business centre and fund transfers to Hong Kong are less likely to be appear out of the ordinary. At the same time, once funds are in Hong Kong, they can be easily moved to mainland China where recovery becomes even more difficult. Finally, the fraudsters are frequently located in mainland China and it is easy for them to travel to Hong Kong to establish bank accounts for use in the frauds. The Federal Bureau of Investigation (FBI) in the United States itself has indicated that China and Hong Kong are the primary destinations of the funds stolen in these email scams.

Steps to Recover Money Stolen

Q. What can you do if your business discovers that it has transferred money to a scammer as a result of this type of email fraud? Can you reverse or recall the bank transfer?

A. Contact the transferring bank immediately to request a stop on the transfer or, if funds have already been transferred, to request a recall of the transfer on the basis of email fraud. International bank transfers often occur through SWIFT, a global messaging system used by banks. Banks can send a follow-up SWIFT message to reverse or recall a transfer already made. However, receiving banks do not normally respond immediately to SWIFT messages sent to them. It may take days for a receiving bank to confirm to a sending bank whether or not it is able to reverse or recall a transfer. In the meantime, if the receiving bank is unable to reverse or recall the transfer and the victim business was waiting patiently in the hopes of a successful reversal or recall, the scammer has gained a multi-day advantage in moving the funds to different banks. As a result, while you should immediately report the email fraud to the bank and seek a reversal of the transfer, you should not wait to see if a recall or reversal is successful if you wish to maximize the chance of recovering the money sent as a result of the scam.

Q. If I sent money to Hong Kong as a result of an email scam, can the Hong Kong police help me to get my money back?

A. You should immediately report the scam to both your local police as well as the Hong Kong police. The Hong Kong police operate an online cyber crime reporting facility. There are 2 purposes for the police reports. First, after filing a police report, the police may take action to freeze the bank account which received the funds based on anti-money laundering laws. Secondly, the police report will provide evidence of a crime which will be important in any court proceedings to recover funds. However, even if the police do freeze the receiving bank account, filing a police report will not result in the Hong Kong police arranging to return the stolen funds to you. Funds stolen through email fraud and sitting in a Hong Kong bank account can only be returned to you through a Hong Kong court order.

Q. Assuming money transferred as a result of an email scam is in Hong Kong, how can I get the money back from a Hong Kong bank account?

A. You will need to retain a lawyer in Hong Kong. Contacting a lawyer immediately gives you the greatest chance of recovering the monies stolen as a result of the email fraud. First, a Hong Kong lawyer can take immediate steps to freeze any money sent to a Hong Kong bank account. These steps may include giving legal notice to the receiving bank so as to trigger anti-money laundering obligations or applying through the Hong Kong courts for an order to freeze the bank account and prevent the fraudsters from withdrawing the funds. Such an application, if granted, will result in a type of order called a Mareva injunction. A Mareva injunction can be supported by a request for information about the bank account, including the balance on the account and details of the activities on the account. 

Once funds are frozen, a lawyer can begin proceedings to return those funds without an overriding concern that the fraudster will withdraw the funds from the bank resulting in an empty judgment.

Act Quickly

In email frauds, the faster and more decisively a business victim acts, the greater the chance that the business can recover the funds transferred to the fraudsters. Every moment of delay gives the fraudsters the opportunity move the funds beyond reach.

There is often a temptation for businesses to conduct an internal investigation into the email fraud or to wait for the bank or the police to take action before contacting lawyers. For example, the business may wait to see if it was able to successfully stop, recall or reverse the wire transfer made as a result of the scam before contacting lawyers. As noted above, this is a mistake, often fatal to the ability to effect any recovery of the funds transferred.

The police have no duty to take prompt action. After they take a report from you, their resources may not permit them to follow-up immediately.

While the receiving bank may ultimately freeze the receiving bank account to comply with anti-money laundering laws, this may take some time. The receiving bank is unlikely to freeze the account simply because it has received a recall request from the transferring bank.

Understanding how the fraud was committed is not essential at the outset to recovering monies transferred. Though such an understanding can help to prevent future fraud and may be useful in court proceedings to recover the monies, the key is to freeze the monies in the hands of the receiving bank as soon as possible. Otherwise, the fraudsters will dissipate the monies and there will be nothing left which can be recovered without extensive asset tracing.

Time is of the essence and every moment of delay increases the risk that the monies transferred as a result of the email scam will be gone as the fraudsters transfer funds out chunk by chunk. Where the funds have been wired to a bank account in Hong Kong, IMMEDIATELY contact a Hong Kong lawyer with experience in asset recovery, providing full details of the scam including all fraudulent emails, all internal emails relating to the wire transfers and attachments to those emails.

How We Can Help

The Hong Kong process to freeze bank accounts and recover the funds stolen through an email fraud is a legal one, which means that you will need to hire a Hong Kong lawyer to drive the process.

We can liaise with the Hong Kong police and the Hong Kong banks and if necessary, make court applications to freeze bank accounts. We can apply to court to obtain information about the bank accounts to which funds were sent in preparation for further proceedings to recover the funds. Once funds are frozen, we can prepare court documents to commence proceedings to recover funds.

The Hong Kong courts will be concerned to see that their powers are not abused to freeze bank accounts or reverse a wire transfer without consideration of the impact its orders may have on others and without assurances as to the fact that there was in fact a fraud.

We have the experience to prepare and issue pre-action correspondence with the receiving bank and to prepare and file the court applications and supporting documents quickly to maximize the chance of recovery.

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