Insurers’ recalcitrance to providing coverage for the “Business E-mail Compromise” (BEC) scam is a topic we’ve frequently discussed. On Monday, the Ninth Circuit heard oral argument in a BEC coverage action, Taylor & Lieberman v. Federal Insurance Company, a California case we’ve previously described.
The fraudster in that case sent spoofed e-mails in 2012 to an accounting firm purporting to be from one of the firm’s clients. At the “client’s” request, the accounting firm executed two wire transfers from the client’s bank account, over which the firm had power of attorney, in amounts just under $100,000 each to banks in Malaysia and Singapore. The firm finally detected the scheme when it called the client for confirmation after receiving a third e-mail requesting another transfer of $128,000 to Malaysia. The accounting firm was able to recover most of the first wire transfer but nothing from the second, resulting in a $100,000 loss to the client’s account, which the firm restored.
Your company’s controller receives an email instruction from your CEO to wire funds to complete a time-sensitive and confidential deal–seems like a clear directive to execute, but it’s not. It’s an increasingly common scam known as the “Business E-mail Compromise” (BEC).
In a BEC scam, as we previously described, fraudsters send spoofed e-mail to trick employees into making unauthorized transfers of funds, generally through wire transfers. The employee, usually a controller or other individual responsible for wiring money, receives an e-mail which appears to be from a high-level company executive, company lawyer or advisor, or even a trusted long-standing supplier or vendor. The e-mail pressures the employee to transfer company funds to a bank account, often offshore, urgently and secretly. The scammers may attempt to add credibility by sending the targeted employee spoofed e-mails from multiple trusted accounts or by plying the employee with fraudulent telephone calls, websites, and documents on formal letterhead. As discussed by our White Collar defense colleagues, victims of the BEC scam have reported to the FBI and international law enforcement agencies over $1.2 billion in exposed losses, much of which occurred in 2015 alone. While being victimized by a BEC scam can be costly, some of these losses may be covered by insurance.