Civil Law

UK Finance has recently published its half yearly fraud update for the first half of 2023, its findings are based on data reported to it by its members, which include financial providers, credit, debit and charge card issuers and card payment acquirers.

The results are interesting, although perhaps not surprising to anyone who has been bombarded by scam emails and phone calls informing you, in increasingly inventive ways, that your Netflix account has been suspended, that you are being investigated by HMRC, or that you have won a fortune (once you have provided your bank details), as well as various other offers that are (almost) too good to be true.

Indeed, the report highlights the continuing prevalence of Authorised Push Payment (APP) fraud, which is the impersonation of trusted firms or individuals to cause the victim to make a payment to the fraudster.  This type of fraud resulted in a total loss of £239.3million in the first half of 2023 alone, of which £196.7million related to personal losses and £42.6million related to businesses in a total of 112,459 cases, 77% of which originated online.  Some examples of APP fraud are:

• Purchase scams – the victim pays in advance for goods and services that are never received.  Total losses of £40.9m in the first half of 2023.

• Investment scams – the fraudster convinces their victim to move their money to a fictitious fund or to pay for a fake investment often offering very high returns.  The investments are usually for items such as gold, property, carbon credits, cryptocurrencies, land banks and wine.  Total losses of £57.2m in the first half of 2023.

• Romance scam – perhaps the cruellest and most psychologically damaging of these scams, the victim is persuaded to make a payment to a person they have met usually online or through a dating website and with whom they believed they were in a relationship.  Total losses of £18.5m in the first half of 2023.

• Invoice and mandate scam – the victim attempts to pay an invoice to a legitimate payee, but the criminal intervenes to convince the victim to redirect the payment to an account that they control.  Total losses of £24.8m in the first half of 2023.

• CEO scam – the scammer manages to impersonate the CEO or other high ranking official of the victim’s organisation and asks them to make an urgent payment to the scammer’s account. Total losses of £6.9m in the first half of 2023.

• Impersonation of police or bank staff – the criminal contacts the victim, purporting to be from either the police or the victim’s bank and convinces the victim to make a payment to an account that they control.  Total losses of £43.5m in the first half of 2023.

If you are the unfortunate victim of one of these scams, how do you go about trying to recover your money?  There is a common misconception that if you make a payment to a fraudster, your bank will repay you the money.  Whilst there are some protections if you make a payment by credit card or PayPal (or equivalent), when considering any payment that you have authorised yourself, even when you have been tricked into making that authorisation, your bank will often have no legal obligation to compensate you for your losses.

Some banks have signed up voluntarily to the CRM Code which gives protection against APP fraud to personal customers, charities and micro-enterprises, provided they comply with the terms of the Code, but not all banks and financial institutions are signatories and it does not apply to larger enterprises.  There is also the Financial Services and Markets Bill 2023, which is expected to enact a framework in October 2024 which will introduce some further protections against APP fraud over the Faster Payment System.

Even if it is not liable to compensate you, your bank will generally do everything in its power to help you recover the stolen money.  However, unless it can be shown that the bank itself has been negligent or acted wrongfully, the victim may be out of pocket for any unrecovered funds, and in welcome news to financial institutions, this position has recently been confirmed by English courts in a number of cases.

However, even if your bank or financial institution cannot help you anymore, all may not be lost as there are some legal remedies available to victims of fraud to trace the payment and try to recover it.  Victims of APP fraud can seek urgent disclosure orders from receiving banks to obtain details of the fraudster and the destination of the fraudulent payments.  If any funds are found that can be shown to be a result of the scam, they can generally be recovered from the bank or financial institution that is holding them, even when held in cryptocurrency.  However, it goes without saying that the victim needs to act quickly if it is to catch the funds before they are dissipated or spirited away to an unfriendly jurisdiction.

Banks are taking some steps to reduce APP fraud such as introducing warning messages during the payment journey, which has resulted in a 35% reduction in that kind of fraud.  There has also been substantial investment in education to help school children and young adults understand the risks and avoid being victims of fraud.  However, as long as fraudsters keep finding increasingly inventive ways to convince their victims to part with their money, this type of fraud will be prevalent for the foreseeable future.

LexBlog