Invoice hijacking fraud - Court adopts practical approach to assist in the recovery of funds

Email scams are becoming more and more difficult to spot.  Hackers replicate genuine email traffic, posing as genuine suppliers providing invoices that appear genuine.  It is often only when the supplier chases on payment, which as far as you are concerned has already been made, that the scam is uncovered.

THE COURTS

The civil courts have made clear that they will assist and, if urgent action is taken, there is a fighting chance of recovering the stolen funds.

The decision in World Proteins Kft v Muhammad Mateen and another [2019] EWHC 2030 (QB) provides a useful case study and a welcome outcome.

THE CASE

1. World Proteins had paid some €2,000,000 to a fraudster, under the mistaken pretence that it was paying a genuine supplier that was chasing payment of genuine invoices.  After cancelling certain payments, World Proteins was out of pocket for €500,000.
2. World Proteins successfully applied for a freezing injunction over the bank account to which the payments were made – thus immediately preventing the fraudster from further dissipating remaining funds.
3. World Proteins then set about recovering the funds in High Court proceedings.
4. By this point of course, the fraudster had disappeared and made no attempt to defend the legal proceedings.  World Proteins successfully applied for default judgment.

THE RECOVERY

5. Key to quickly recovering the funds is obtaining a declaration from the Court that the victim of the fraud has a proprietary interest in the funds held in the frozen bank account – that way the funds can be returned by the bank.  Historically, the Courts have been reluctant to make such a declaration without there being a trial – meaning that the claimant would have to go through the hoops of preparing a case for trial and incurring significant legal costs that it is unlikely to recover.
6. However, the Court in World Proteins gave default judgment on the relief sought, including by declaring that the funds in the frozen bank accounts were held for the claimant and were to be paid to World Proteins within 14 days.
7. The Court decided that the fraudster had been provided with the opportunity to put forward its position but had failed to do so, and that the factual basis of the scam was clear and it was “difficult to understand what possible defence to the Claimant’s proprietary claims and ensuing the [sic.] declaration the First Defendant could raise”.
8. Having made the mistaken payments on 27 February 2019, World Proteins had by 1 July 2019 obtained a judgment requiring payment of the sums held in the frozen bank accounts by 15 July 2019

THE TAKEAWAYS

1. As always, the key is acting quickly.
2. It seems fortunate that in this case World Proteins uncovered the scam within one day.
3. It obtained a freezing injunction in short order which prevented the fraudster from dissipating the funds and, ultimately, enabled it to make a quick recovery.
4. Invoice hacking is a difficult risk for businesses to manage.
5. Close communication and clearly established protocols in respect of supplier payments will minimise the risk and, if the worst should happen, ensure that any issue is quickly identified.

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