TACKLING PUSH PAYMENT FRAUD

Rahman Ravelli | View firm profile

SyedurRahman of Rahman Ravelli outlines push payment fraud and the value of pursuinginjunctions in such cases

Push payment fraud – also known as authorised push payment fraud or APPfraud – is a crime that has developed and flourished in tandem with theinternet and modern banking practices. It is a means by which individuals aredeceived into sending money to another. They believe that other person to begenuine and so they authorise a payment to them. That money is then swiftlymoved in and out of various accounts – many of which are often abroad – makingit hard for the deceived individual to retrieve it.

Push paymentsinvolve someone who intends to pay money (the payer) obtaining the accountdetails of the person or company they wish to pay money to (the payee) andinstructing their bank or other payment service provider to send money to thatpayee. Push payment fraud occurs when those looking to perpetrate the fraudattempt to persuade a payer to arrange a transfer from the payer’s account totheir account. This can be done in a variety of ways but it will usuallyinvolve those committing the fraud posing as an individual – such as a friendor relative – or a business to whom the payee would be expecting to pay money.It is a type of fraud that has become common due to the hacking of emails anduse of personal data, such as that on social media, which gives those lookingto commit fraud the information they require to successfully impersonatesomeone who is known to the payer who may be expecting a payment.

A freezing order isan injunction that prevents someone from disposing of or dissipating assets. Theyare most commonly obtained when a claimant or potential claimant wants to makesure that the assets of a potential defendant – such as the contents of bankaccounts, shares or property – are not disposed of or made difficult to locatebefore any court judgement can be enforced.

While they can be avital tool in ensuring a defendant does not hide or dissipate any assets thatare the subject of legal action, a court will only issue one if variousconditions are met.

In order for afreezing order to be issued:

· the applicant must have a substantive cause ofaction against the respondent (the potential defendant)

· the applicant must have a good arguable case

· there must be a real risk of the assets being dissipated

· it must be just and convenient to grant the freezing order, taking intoaccount the applicant’s conduct, the rights of any third parties who may beaffected by it and whether it would cause legitimate and disproportionatehardship for the respondent.

World Proteins Kft v Persons Unknown [2019]

In this case, theclaimant company received two genuine invoices and a number of genuine emailsregarding outstanding payments, which were from one of its regular suppliers. Butthe email account of the supplier was hacked by an unknown individual who then sentfake emails claiming to be from the supplier. These fake e-mails included a chainof the previous emails relating to invoicing, claimed that the supplier now hada new bank account with Barclays and requested that outstanding payments of€1.5M and €500,000 be made to that account.

The company madethe payments. When it realised it had had push payment fraud perpetratedagainst it, the company was able to recall the transfer for the €1.5M. But itwas not able to recall the €500,000 – so it issued an urgent claim for the€500,000 and applied for a freezing injunction for bank accounts of those thatcommitted the fraud. Following the case of CMOC v Persons Unknown[2017], the court granted an urgent interim freezing injunction. The companyhad met the elements required for the freezing injunction, as there was anobvious fraud, an arguable case against the person unknown and an obvious andreal risk of dissipation of the money. The name of the person committing thefraud was unknown initially but could be identified as the beneficiary of thebank account. And any future issues regarding identification of that person –such as for notifying them of the injunction and its penal notice – would applyequally on any kind of injunction, so there could be no reason not to extend thisto freezing orders. Granting of injunctive relief against persons unknown isalso logical when it comes to push payment fraud, as those committing areusually unknown because they are hackers.

The Barclaysaccount, which still contained €350,000, was frozen once the injunction wasgranted. Disclosure of bank records led to the identification of the personperpetrating the fraud and his UK address, meaning he could be added as a knowndefendant to the substantive claim. A few weeks after the freezing injunctionhearing, the High Court granted default judgment in the claimant’s favour. Allsums held by the respondent as a result of his fraud had to be returned to theclaimant within 14 days. This outcome was a direct result of the freezing ofthe assets and the identification of the person who committed the fraud. Thefreezing injunction (and ancillary orders) against persons unknown had been aprecursor to the matter being resolved via default judgment.

Significantly, theHigh Court made a number of points which will be of significance to claimantsin the future:

· The principles as set out in Goldcrest Distribution Ltd v McCole &Ore [2016] EWHC 1571 were emphasised, in that it would not be right for thecourt to hold that declaratory relief could never be given on default judgment.The better rule is that declarations should not be given without interpartes argument except in the clearest of cases.

· ‘The clearest of cases’ could include cases that were less clear-cutthan the instant scenario.

· The default judgment application had been properly notified to therespondent and he had not replied to it – and it would be disproportionate andunnecessary to expect the claimant to jump through further legal hoops before obtainingan order to be recompensed.

· Even if the funds had been mixed with other monies this did not rebutthe presumption that those funds did belong to the applicant – and an argumentagainst this would have to be proved by a respondent.

This case (and theearlier CMOC case) can be taken as a clear indicator of both the courts’ understandingof push payment fraud and the scope they have for offering a remedy to thosewho have had it committed against them – even when there is the issue ofinitial anonymity and the appearance that a payment has been made voluntarily.Swift injunctive action can, therefore, be a useful tactic even when theidentity of the respondent may not be known.

Those who work inor regulate the financial services industry are increasingly aware of theproblem of push payment fraud and are taking steps to tackle it. But those whofeel they have been targeted by those who perpetrate it should conduct aninternal investigation to identify how it has been able to happen. Once a pushpayment fraud has been confirmed, the police and / or the appropriate regulatorshould be informed, along with any interested parties or relevant professional bodies.

It should always beremembered that it can be worth requesting an order from the court requiring a disclosureof assets to be provided by those suspected of the fraud. Using the civil lawto “put right the wrong’’ can be an effective tool. Issues such as negligence,breach of contract, breach of trust or unjust enrichment could provide thegrounds for civil action. Seeking advice on asset tracing and recovery shouldalso be considered, as it may often be the most effective route to recoupingany losses cause by push payment fraud.

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