Three major banking fraud types… and what to do about them

Global Head, Banking Fraud Product Management, BAE Systems Applied Intelligence Read time: 3 mins
It’s important to understand the major fraud types likely to emerge over the coming months and what can be done to minimise risk
Three major banking fraud types blog image Around the world, governments are currently spending big to prop up national economies quickly. In the US, the CARES Act has released around $2 trillion to businesses: the biggest rescue package the country has ever seen. Meanwhile in the UK, there are several initiatives which help SMEs access loans of up to £5 million, and similar schemes are in place across Europe and elsewhere.


This money is vital to taking the economic sting out of the current crisis, and has made financial institutions into the gatekeepers of much-needed government business loans. But banks also have a responsibility, to ensure only those deserving have their loan applications approved.

Three major fraud types to look out for

It’s therefore important to understand the major fraud types likely to emerge over the coming months, and what can be done to minimise risk… 

1.    Classic shell company fraud

In some cases we are seeing classic shell company fraud attempts, where firms are created with the sole purpose of obtaining SMB loans. A recent example of this involved two businessmen from New England being charged for allegedly applying for over $500,000 in loans for businesses that weren’t operating prior to the start of the pandemic, and which had no salaried employees.

2.    Faking it for cash

Another involves business owners inflating the number of employees and the value of their salaries in order to extract more money. They could also lie about criminal records, fail to disclose liabilities or debts, alter tax returns, and engage in other fraudulent activity to secure access to all-important loans. This behaviour has resulted in recent arrests, with some high profile cases seeing business owners accused of spending $millions of critical loan funds on themselves.

3.    The professionals in action

Professional fraudsters (rather than real business owners) are also likely to make the most of current opportunities. Some may use phishing emails to harvest credentials and hijack business bank accounts in order to siphon funds away from the intended recipient. Meanwhile others may prefer to impersonate a legitimate business in loan applications, using forged documents with changed bank account details. 

How to fight it

Unfortunately, traditional fraud filters are not always set-up to deal with this potential surge in scam applications. But there are things financial institutions can do to protect themselves.
One of the best places to start is by reaching out to any government-level contacts for additional intelligence. This is arguably easier done in Europe than the US, where state and federal government siloes may cause extra delays. Things like employee count lists are not normally shared with banks, but datasets like this can go a long way to improving visibility into potential loan applicants. Now may be the time to reset some of those essential baseline profiles on which fraud models are built.
Fintech or fraud prevention players, which specialise in delivering intelligence feeds that profile what “normal” looks like, can also help banks to better spot suspicious activity. Link analysis capabilities, meanwhile, are useful in helping to join the dots between malicious activities, to uncover and predict future fraud.
Collaboration is also important inside banks. Risk and Compliance should be working closely with IT Security so that any early warning signs of malicious behaviour are spotted and shared. The key here is to automate without losing accuracy or auditability. That means any workflow capability must be able to handle the large volume of applications coming in, and risk-based decisioning tools should be transparent in explaining why particular applications are rejected. 
While we continue to work in challenging times, a bank’s ability to spot fraud is becoming ever more crucial. To learn more about the major fraud types and how to mitigate the risk they pose, get in touch with our banking experts today.
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About the author
Lukayn Hunsicker is Global Head, Banking Fraud Product Management at BAE Systems Applied Intelligence

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Lukayn Hunsicker Global Head, Banking Fraud Product Management, BAE Systems Applied Intelligence 4 June 2020