$1.66M in Limbo After FBI Seizes Funds from Cyberheist

A Texas bank that’s suing a customer to recover $1.66 million spirited out of the country in a 2012 cyberheist says it now believes the missing funds are still here in the United States — in a bank account that’s been frozen by the federal government as part of an FBI cybercrime investigation.

robotrobkbIn late June 2012, unknown hackers broke into the computer systems of Luna & Luna, LLP, a real estate escrow firm based in Garland, Texas. Unbeknownst to Luna, hackers had stolen the username and password that the company used to managed its account at Texas Brand Bank (TBB), a financial institution also based in Garland.

Between June 21, 2012 and July 2, 2012, fraudsters stole approximately $1.75 million in three separate wire transfers. Two of those transfers went to an account at the Industrial and Commercial Bank of China. That account was tied to the Jixi City Tianfeng Trade Limited Company in China. The third wire, in the amount of $89,651, was sent to a company in the United States, and was recovered by the bank.

Jixi is in the Heilongjiang province of China on the border with Russia, a region apparently replete with companies willing to accept huge international wire transfers without asking too many questions. A year before this cyberheist took place, the FBI issued a warning that cyberthieves operating out of the region had been the recipients of approximately $20 million in the year prior — all funds stolen from small to mid-sized businesses through a series of fraudulent wire transfers sent to Chinese economic and trade companies (PDF) on the border with Russia.

Luna became aware of the fraudulent transfers on July 2, 2012, when the bank notified the company that it was about to overdraw its accounts. The theft put Luna & Luna in a tough spot: The money the thieves stole was being held in escrow for the U.S. Department of Housing and Urban Development (HUD). In essence, the crooks had robbed Uncle Sam, and this was exactly the argument that Luna used to talk its bank into replacing the missing funds as quickly as possible.

“Luna argued that unless TBB restored the funds, Luna and HUD would be severely damaged with consequences to TBB far greater than the sum of the swindled funds,” TBB wrote in its original complaint (PDF). TBB notes that it agreed to reimburse the stolen funds, but that it also reserved its right to legal claims against Luna to recover the money.

When TBB later demanded repayment, Luna refused. The bank filed suit on July 1, 2013, in state court, suing to recover the approximately $1.66 million that it could not claw back, plus interest and attorney’s fees.

For the ensuing year, TBB and Luna wrangled in the courts over the venue of the trial. Luna also counterclaimed that the bank’s security was deficient because it only relied on a username and password, and that TBB should have flagged the wires to China as highly unusual.

TBB notes that per a written agreement with the bank, Luna had instructed the bank to process more than a thousand wire transfers from its accounts to third-party accounts. Further, the bank pointed out that Luna had been offered but refused “dual controls,” a security measure that requires two employees to sign off on all wire transfers before the money is allowed to be sent.

In August, Luna alerted (PDF) the U.S. District Court for the Northern District of Texas that in direct conversations with the FBI, an agent involved in the investigation disclosed that the $1.66 million in stolen funds were actually sitting in an account at JPMorgan Chase, which was the receiving bank for the fraudulent wires. Both Luna and TBB have asked the government to consider relinquishing the funds to help settle the lawsuit.

The FBI did not return calls seeking comment. The Office of the U.S. attorney for the Northern District of Texas, which is in the process of investigating potential criminal claims related to the fraudulent transfers, declined to comment except to say that the case is ongoing and that no criminal charges have been filed to date.

As usual, this cyberheist resulted from missteps by both the bank and the customer. Dual controls are a helpful — but not always sufficient — security control that Luna should have adopted, particularly given how often these cyberheists are perpetrated against title and escrow firms. But it is galling that it is easier to find more robust, customer-facing security controls at your average email or other cloud service provider than it is at one of thousands of financial institutions in the United States.

If you run a small business and are managing your accounts online, you’d be wise to expect a similar attack on your own accounts and prepare accordingly. That means taking your business to a bank that offers more than just usernames, passwords and tokens for security. Shop around for a bank that lets you secure your transfers with some sort of additional authentication step required from a mobile device. These security methods can be defeated of course, but they present an extra hurdle for the bad guys, who probably are more likely to go after the lower-hanging fruit at thousands of other financial institutions that don’t offer more modern security approaches.

But if you’re expecting your bank to protect your assets should you or one of your employees fall victim to a malware phishing scheme, you could be in for a rude awakening. Keep a close eye on your books, require that more than one employee sign off on all large transfers, and consider adopting some of these: Online Banking Best Practices for Businesses.

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