Making banks liable would speed up designing theft out of the money transfer process
Melling Equestrian Investments conned an 85-year-old widow out of £300,000. She was persuaded to hand over the cash on the promise of a 12 per cent return on an investment in a world class horse racing development in Costa Rica.
Christine Barford had just sold a cottage and wanted income from the money, so £3,000 a month was very attractive. And Mr Melling was such a nice man.
But the racecourse did not exist. And the firm’s plush office – illustrated in glossy brochures and on its polished website – was in fact a mailbox in a shop in London’s West End.
The firm’s director, Hugo Melling, did not return my calls. Which is not surprising as the fraud is part of a plot in the BBC Radio 4 soap opera The Archers.
However, this realistic and carefully researched theft raises many questions that people who have lost money ask.
What did Christine’s bank do when she transferred £300,000 to a thief? The bank may have known she had sold a cottage and thought that the money was to be invested.
The script does not tell us but, earlier this year, Money Box reported on the case of a London businesswoman, Alex, whose bank allowed thieves to take 33 separate payments in 24 hours totalling £183,000.
The payments were completely uncharacteristic and to new payees but the bank did not stop them or contact her. That is the kind of event banks should be flagging and stopping.
A couple of weeks ago, the Payment Systems Regulator published its own report into one sort of scam – so-called “authorised push payment scams” – where an individual is persuaded to transfer money to the thieves or allow them to take it believing they are in fact protecting the funds from crooks.
It said £101m was stolen by push payment scams in the first half of 2017: half of it from 17,000 individuals, the rest from businesses. Every transaction inevitably begins with a bank transfer of one sort or another. Usually a very out of character one involving a lot of money to a new payee.
One proposal to stop such scams is the introduction of “confirmation of payee”. When that is in place, before an online transfer is made, the customer will be asked if they are sure they want to pay Melling Equestrian Investments £300,000, for example. In this case, of course, that would not have made any difference. Christine would have said yes.
Confirmation of payee is due to be available from next summer, though it may not be taken up by every bank until 2021. It will certainly help with accidental mis-keying of an account number. But the essence of many frauds is that the victim does want to transfer the money to the crook.
A thief will initially get the victim to transfer their money to a UK bank account. That arouses less suspicion than sending money to Costa Rica, which might wake even the sleepiest bank to question what was going on. In Alex’s case, another UK bank allowed crooks to open more than a dozen accounts which were then used to receive the money from her account.
Banks respond to accusations of allowing crooks to open accounts by saying they follow the FCA’s Know Your Customer guidelines and the thieves passed all the checks. In other words, the criminals are better at hiding their intentions and perhaps their real identities than the banks are at discovering them.
In The Archers, Christine still hopes her money will be recovered. “They can do all sorts of things nowadays; track money everywhere, freeze people’s accounts.”
Money moved through the banking system does leave a trace everywhere it goes. Victims like Christine and our listener Alex reasonably hope their bank can track it and seize it. The truth is, criminals are quicker and cleverer at hiding it than the banks are at finding it.
Money is moved from account to account, to different banks, then to other countries, ending up in one with lax banking rules and no extradition. Data protection and privacy laws, as well as the slow pace of bank investigations, usually mean that even if its movement is eventually traced, the money is – as Christine was warned -long gone.
Christine was foolish and gullible. But she was an 85-year-old woman from a small village in Borsetshire who was not used to dealing with money, up against smooth, experienced, sophisticated thieves. No contest. Or as her friend Peggy told her: “These con men are so very convincing”.
Indeed they are. In the 12 months to June, the latest Crime Survey of England and Wales found that nearly half of all crimes – five million out of close on 11 million – were frauds. Separately, Financial Fraud Action says that recorded fraud across all payment systems totalled £769m in 2016. Another £1.4bn attempted fraud was stopped. The system lets through more than a third.
The Payment Systems Regulator is consulting on a “contingent reimbursement” model, which would make banks responsible for losses where they “have not met the required standards – provided the victims have taken appropriate care”. It rejected extending the credit card model where banks are liable for all losses unless the victim is complicit in the crime or has been “grossly negligent”.
Banks let crooks open accounts, allow fraudulent transfers and usually fail to follow stolen money to its final destination. If there is negligence, it is surely with the banks. Making them liable would speed up designing theft out of the money transfer process, just as car theft has been designed out of vehicles.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programme. You can follow him on Twitter @paullewismoney