Wire fraud is a multi-billion-dollar problem. Fueled by advancements in technology—and in fraudsters’ schemes—it’s become a nightmare for regulators, financial institutions, and regular consumers alike.
But what exactly is wire fraud, and how does it happen? Let’s delve into the dark side of the digital world. Here’s how fraudsters steal money through electronic transfers and how to fight back.
What is wire fraud?
Wire fraud is any form of financial fraud committed with the use of electronic communications. This can include wire transfers, as the name implies. But those who commit fraud using the internet, phone calls, text, social media, and email are also committing wire fraud.
Because the scope of wire fraud is so large, there isn’t one typical way it happens. It can take the form of investment scams, phishing emails, business email compromises, and many more.
Where wire fraud differs from other common forms of fraud is that technology is essential to facilitating the crime. Another key difference is that wire fraud is often carried out on a larger scale. That can have a significant impact on businesses, individuals, and even governments. Wire fraud schemes can involve many victims, large sums of money, and fraud players from around the world.
What are the elements of wire fraud
The four elements essential to wire fraud that the U.S. Department of Justice outlines are:
1. Intent to defraud
The perpetrator must have had the intention to deceive someone or some entity in order to obtain money or property.
2. Creation of a fraud scheme
Acting on intent, the fraudster must have created or voluntarily participated in a scheme to defraud another out of money or property.
3. Foreseeable use of interstate wire communication
It must be reasonably foreseeable that the fraudster would use some form of wire or telecommunication that crossed state lines. This can include a bank or internet service provider.
4. Actual use of interstate wire communication
The fraudster must have actually used some form of telecommunications or interstate wire to complete the fraud.
These elements make up the wire fraud definition regulators follow.
What is considered wire fraud?
Some of the most common wire fraud schemes are:
- Investment scams – Fraudsters use email or phone calls to offer fraudulent investment opportunities. These often promise high returns or guaranteed profits.
- Business email compromise – Fraudsters gain access to an employee’s email account. Then they use it to transfer sensitive information or funds to themselves.
- Phishing scams – Fraudsters send fake emails appearing to be from legitimate entities. They use fake forms to capture the victim’s personal or financial information.
- Online auction fraud – Fraudsters create fake online auction sites or item listings. They collect payment from buyers but don’t deliver the auction items.
- Identity theft – Fraudsters steal someone’s social security number or bank account information. Then they use it to send money to themselves.
Examples of wire fraud
There have been many high-profile cases of wire fraud over the years.
Financier Bernie Madoff built a massive Ponzi scheme that defrauded investors out of billions of dollars. He used wire transfers to move money around from different accounts to pay investors in the scheme and cover up the fraud.
In the Enron scandal, executives at the company used wire transfers to hide losses and inflate earnings. This led to the collapse of the company and criminal charges of wire fraud against several executives, among other charges.
Elizabeth Holmes, founder of Theranos, received an 11-year prison sentence for wire fraud and conspiracy to commit wire fraud. Her med tech startup solicited nearly #1 billion in investments. But this was based on fraudulent claims about the effectiveness of her technology. This intent to defraud, combined with using telecoms constituted all necessary elements.
OneCoin was a fintech scheme that promised investors huge returns on their investments in a new cryptocurrency. But the company never actually created a real cryptocurrency. By soliciting investments into it, they committed wire fraud.
Operation Varsity Blues was a high-profile case in which wealthy parents and college coaches were charged with wire fraud for their involvement in a scheme to get their children into elite colleges through bribery and other fraudulent means. Many of the administrators who accepted bribes as part of the scandal pled guilty to wire fraud.
What are the penalties for wire fraud?
Wire fraud is a federal crime that can result in imprisonment of up to 20 years. The exact penalties vary depending on the specific circ*mstances of the case. The amount of money involved, the number of victims, and the defendant’s criminal history all play a role.
Convictions may also include significant fines. The largest possible are $250,000 for individuals and $500,000 for organizations. Fines may be higher depending on the specific circ*mstances of the case. Those convicted of wire fraud may also have to pay restitution to their victims.
In certain cases, the government may also seek to seize any assets acquired through wire fraud. This can include money, property, or other valuables.
Is wire fraud a felony?
Yes, wire fraud is a felony under U.S. federal law. Those convicted of wire fraud face imprisonment, fines, restitution, and other penalties. Wire fraud can also be a state-level crime in some jurisdictions. State-level wire fraud penalties for offenses vary depending on that state’s laws and regulations.
How to catch wire fraud
Most financial institutions rely on rules-based systems for catching wire fraud.
Monitoring accounts for unusual activity or patterns of transactions is one key way they detect potential wire fraud. Monitoring tools follow pre-determined scenarios and flag transactions that meet them. Fraud prevention software can then trigger these alerts automatically. Once flagged, an analyst will review account activity.
Institutions also assess the risks of transactions and accounts. This ensures they’re consistent with normal business practices. If risk assessments show potential fraud, an analyst can then do a manual review. Employees receive training on how to identify and report potential fraud as well.
Financial institutions file Suspicious Activity Reports (SARs) when they detect suspicious activity. The reports allow collaboration with law enforcement and regulators to investigate potential fraud.
Machine learning and AI have made the biggest impact on wire fraud detection. This new technology empowers institutions to go father in detection.
Preventing wire fraud with AI
Unsupervised machine learning can detect patterns of fraud traditional rule-based systems can’t. This helps spot fraudsters constantly changing their tactics to fool rule-based scenarios.
Behavioral analysis tools identify anomalous patterns that show potential fraud. This includes analyzing signals like device fingerprints, IP addresses, and user interactions. Each gives deeper insight into suspicious activity.
Graph analysis detects connections between seemingly unrelated accounts and transactions. It reveals suspicious networks that may be involved in fraudulent activity.
Advanced AI solutions, like DataVisor’s, offer real-time detection as well. DataVisor’s platform analyzes transactions in real-time to detect fraudulent as it occurs. This enables quick intervention and prevention of further fraud.
As a cloud-based platform, it also provides scalability, flexibility, and speed in detecting and preventing fraud. This enables organizations to monitor and analyze large volumes of data in real-time, preventing fraud in a timely and effective manner.
To learn more about how DataVisor’s platform detects and prevents wire fraud by analyzing user behavior and connections between accounts, book a time to chat with a fraud expert.
