Below are two common scenarios that demonstrate how fraudsters can attempt to conduct a payment scam and how to help protect your business against fraud.
Scenario 1 — Cheque Fraud Payment Scam
In this scenario, the scammer pretends to be a third-party such as a broker or insurance agency and will engage the services of a lawyer, law firm or professional service while claiming to have the authority to do so on behalf of their client. The services requested usually involve a settlement between two parties.
In reality, neither the third party (e.g., broker or insurance agency) nor the client exist.
Once the ‘settlement’ is completed, the fraudster (acting as one of the involved parties) passes the funds through the professional services firm in the form of a fraudulent cheque. The fraudster hopes that when the cheque is deposited to the payee’s account, the payee would have access to sufficient funds and wire or transfer, via online banking, the settlement figure to one of the two parties involved in the settlement. However, in reality, the funds would be going to the fraudster.
Ways to avoid being a victim of cheque payment scams:
- Exercise caution when conducting third-party payment arrangements.
- When seeking payment, request to have the funds wired and/or sent through online banking transfers rather than a cheque. Pay close attention if the client insists on paying with cheques because some fraudsters may even cite problems with wire transfers as a reason to pay by cheque. As fraudsters use counterfeit cheques during transactions, this request may deter them from proceeding with their scheme.
- If the client shows excessive interest in the clearing period for the cheque, this is a potential red flag.
- When communicating with third-parties, pay close attention to online communications. If a fraudster is using the name of a legitimate entity, there could be a slight alteration in the email address they use to communicate with you — a missing letter, digit or combination of letters that form one letter.
Scenario 2 — The Overpayment Scam
In the second scenario, the fraudster engages a company and requests a quote for services. Once a quote is sent, fraudsters will often ‘pay for the service upfront,’ which provides a false sense of comfort to the unsuspecting company.
The fraudster sends a cheque intentionally made out for more than the amount of the invoice. The cheque would be sent directly to the company via courier, or to the bank to be credited to the company’s account. Subsequently, the person who wrote the cheque advises the company of the overpayment and requests the excess funds be returned.
The cheques used in overpayment scams are fraudulent or counterfeit, and the victims return the overpayment amount before the cheque is cleared. By the time the company is alerted that the cheque is fraudulent, they’ve already lost their funds.
How to avoid being a victim of overpayment scams:
- Ensure that the cheque is cleared before returning excess funds.
- Be alert if you notice inconsistencies in where cheques are sent — sometimes directly to you, sometimes to the bank.
- Pay attention if the value of the cheques is always in excess of the agreed amount.
- Requests to return excess funds urgently may be a red flag.
- Fraudsters tend to insist on wire or online banking transfers to return the excess amount.
- It may be a sign of fraud if you are asked to return the excess funds to a third party — not the entity or person with whom you have been communicating.
As a business owner, it is essential you establish internal checks and balances when conducting transactions in order to avoid becoming a victim of payment scams. Knowing these two common payment scams and how to avoid them may help you stay safe and protect your finances.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
