Have you ever received a suspicious-looking email from a Nigerian prince who wants to enlist your help to quietly move money abroad? This question may appear to be oddly specific, but it describes an example of wire fraud that has extracted millions of dollars from business and personal bank accounts to date. The “Nigerian Prince” scam has proven so successful that it’s now used as a catch-all term for different types of “advance fee” frauds with the same general tactics and goal: using electronic communications to defraud people of their money.
This is a classic and oft-cited example of wire fraud, a U.S. federal crime that occurs when interstate wirings (i.e. the internet or a phone) are used in furtherance of a criminal act. But wire fraud comes in many different shapes and sizes, so simply avoiding anyone who claims to be of royal Nigerian descent will not get you very far.
In this guide, we’ll start with the legal definition of wire fraud. We’ll then walk through a few different types of wire fraud to give you a better idea of what it looks like in action—and a better understanding of just how pervasive it can be.
What is wire fraud?
Wire fraud is a federal crime that happens when someone uses interstate wire communications in connection with a fraud scheme.
What distinguishes wire fraud from mail fraud and other types of fraud offenses is the means of communication used to commit it. The federal statute 18 U.S. Code 1343 specifically covers fraud committed “by means of wire, radio, or television communication in interstate or foreign commerce.”
That is a pretty broad definition! One weird thing to understand about wire fraud in 2022 is that it’s basically everywhere—it’s hard to think of a fraud these days that doesn’t involve the internet or some other form of electronic communication. As Bloomberg’s Matt Levine glibly noted in a recent column about insider trading, “wire fraud is doing fraud about absolutely anything, as long as you do the fraud using email or the phone or text messages or a chat app…So every fraud is wire fraud.”
That might be overstating things a bit, but then again, maybe not.
The key elements of wire fraud
Wire fraud may be happening everywhere and all the time, but in order for a defendant to be convicted of it under 18 U.S. Code 1343, certain elements must be satisfied:
- The defendant must have engaged in a scheme to defraud
- The scheme must have involved material misstatements or omissions
- The scheme resulted (or would have resulted upon completion), in the loss of money, property or honest services
- The defendant must have used, intended to use, or caused the use of interstate wirings (i.e. internet, phone, text messages, radio signals, etc.) in the scheme
Some of these elements may seem a bit vague, which should underscore the vast range of fraudulent activities that may qualify as wire fraud.
Different types of wire fraud
So, we’ve defined wire fraud. But you may still be wondering, What does wire fraud actually look like? Well, that’s kind of like asking what the sky looks like. Some days it may be blue and sunny, other days gray and cloudy, but there’s always something fundamentally sky-like about it.
Similarly, there are many different flavors of wire fraud that have the same general stink about them. Let’s look at some of the more common types.
Phishing (pronounced like “fishing”) is a common type of wire fraud in which a scammer pretends to be a legitimate source or institution in order to deliberately mislead a victim.
The typical objective of a phishing scam is to get the victim to provide sensitive data such as passwords, banking and credit card details, or some other form of personally identifiable information (PII). The scammer then presumably uses this data to commit fraud.
Phishing attacks can be stressful, as they’re often designed to pressure the victim into taking immediate action without stopping to think about what they’re actually doing. Though phishing commonly takes place in the form of text messages and phone calls, businesses and their employees are often targeted with phishing email scams. These scams may involve tricking the victim into visiting a facsimile of a legitimate website, where they are asked to enter their sensitive information.
Because these types of phishing scams are so common, many businesses require their employees to complete regular training to detect the common features of phishing emails. For example, many phishing emails include hyperlinks with URLs that are slightly misspelled, or dubious attachments that may include viral payloads.
Telemarketing scams may not be the most sophisticated form of wire fraud out there, but they still pose a serious threat. According to the Office of the Attorney General for the District of Columbia, telemarketing scams target more than 17 million Americans every year and extract as much as $40 billion dollars from their wallets. Yikes!
In a typical telemarketing scam, a scammer will call a victim and claim that their financial information has been compromised and their identity must be confirmed immediately. (Note the same pressuring tactics common in phishing scams.) The idea is to create a sense of panic and/or urgency that causes the victim to give up their PII without much thought.
Other types of telephone scams also exist, and you may have even been targeted by a few yourself. A good general rule is to never give out sensitive data to a stranger over the phone, and to immediately notify your financial institution in a separate communication so they can confirm if the call is fake or legitimate.
These types of scams are more common in the business world, and they may be something to watch out for if your company sells products or deals with vendors and suppliers online.
In one common type of overpayment scam, a client or customer will send payment (typically via check) for a product in an amount that’s much larger than what the product actually costs. They will then claim they have erroneously overpaid and request an immediate refund—ideally, before the business realizes that the original payment was fraudulent to begin with.
HR accounting scams
Another type of wire fraud is related to phishing but specifically targets the HR and accounting functions of businesses.
In these types of scams, HR departments are contacted by scammers posing as employees. They typically will ask to change their direct deposit banking information or mailing address for payment, so that the employee’s payments are rerouted to a bank account that isn’t theirs. Oftentimes these bank accounts will be offshore or not located in the employee’s home state, which is a key tell to watch out for.
The email may even come from someone posing as a payroll director or business higher-up, and it may feature the same tell-tale sense of urgency we noted in some of the previous examples.
You might think of insider trading more as a type of securities fraud than as a type of wire fraud, but the distinction between the two is perhaps not so clear-cut.
The U.S. Securities and Exchange Commission (SEC) defines illegal insider trading generally as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.” It is easy to see how this might work with securities such as stocks. But what if a fraudster uses “material, nonpublic information” and breaches their duty of trust and confidentiality to profit from some other type of asset?
If they use electronic communications to do so, you might call this wire fraud.
That is the argument that the Department of Justice and FBI recently made when they charged Nathaniel Chastain, a former product manager at the NFT marketplace OpenSea, with wire fraud. Chastain was specifically accused of using confidential information about what NFTs were scheduled to be featured on OpenSea’s homepage for his own financial gain. His scheme involved buying a batch of somewhat obscure NFTs, counting on a bump in their value and popularity once they were featured on the homepage, and then selling them for a profit.
So, as you can see, wire fraud can come in all shapes and sizes. And it’s not always clear what constitutes wire fraud—especially when novel digital assets such as NFTs are involved.
Penalties for committing wire fraud
We can all more or less agree that wire fraud is bad. But how bad is it, really, in the eyes of the law? In other words, how steep are the penalties that may apply to those accused of committing wire fraud?
As it turns out, pretty steep! Wire fraud is a federal crime and may be punishable with:
- Up to 20 years in prison and/or fines of up to $250,000 for individuals and $500,000 for organizations
- In special cases where the fraud targets a financial institution or is related to certain government benefits such as disaster relief, up to 30 years in prison and/or a fine of up to $1,000,000
Keep in mind that a person doesn’t have to actually get away with wire fraud for these penalties to apply. Under 18 U.S. Code 1343, “[intent] to devise any scheme or artifice to defraud” is enough to warrant prosecution.
Protecting your data and funds is Levro’s top priority
If you run a global business with vendors, suppliers, and employees located across the world, chances are that you need a secure, reliable way to transfer money domestically or internationally. And chances are that you may encounter a fair number of scammers attempting to defraud you of your money.
The good news is that Levro can help with both. Our multi-currency bank account leverages security best practices to keep your business’s data and funds secure. These practices include:
- Requiring strict compliance from all vendors involved in the flow of funds.
- Leveraging regulatory sponsorship via our network of financial institution partners, and aligning our compliance, anti-money laundering, security, and KYC/YKB requirements with those of industry-leading organizations.
- Holding all client funds in safeguarded bank accounts, including USD funds held in FDIC-insured institutions
- Requiring access controls such as multi-factor authentication for account sign-in
- Sending email alerts to users for key events such as outgoing payments, currency conversions, and approvals