Fraud recovery plays a crucial role in the financial services industry, yet there are times when the funds that fintechs and banks manage to recover end up falling prey to fraudsters once again.
Chinua Achebe, the renowned Nigerian author, poignantly notes in “Things Fall Apart” that “Eneke the bird says that since men have learned to shoot without missing, he has learned to fly without perching.” This could easily apply to the necessity for financial institutions to evolve as criminals relentlessly pursue their targets. In the first quarter of 2024 alone, Nigerian financial institutions reported a staggering 11,472 cases of fraud.
When fraud strikes, banks and fintechs step in to assist their clients in reclaiming lost funds, collaborating with law enforcement and the judicial system. Court orders empower these institutions to instruct receiving banks to freeze accounts or reverse dubious transactions.
Commercial banks typically process refunds via bank drafts, while fintechs rely on their partner banks. The recovered funds are temporarily held in fraud recovery accounts before being returned to the rightful owners. Unfortunately, these accounts are not immune to hacking.
In May 2023, one African fintech suffered a loss of ₦146,188,208 ($317,200) that it had successfully recovered from fraudsters for its clients.
According to court documents, the fintech, which had deposited the recovered funds with a tier-2 Nigerian commercial bank, reported that the account was “fraudulently hacked into.” The stolen money was funneled into accounts across 26 different banks and fintechs, a common tactic employed by fraudsters to obscure the trail and hinder recovery efforts.
An excerpt from a court document reviewed by TechCabal states, “The petitioner as (a) fraud recovery agent is helpless as these monies are some of the monies recovered on behalf of clients, which they supposed to be remitted by the petitioner to the owners.
While the fintech has initiated the recovery process, its customers are becoming increasingly anxious. “The [fintech’s] clients are pressing the petitioner to retrieve their money that was recovered on their behalf, and the petitioner is unable to clarify what has happened to their funds.
The fintech company has requested the court to mandate that 26 banks and fintech firms provide access to their customers’ KYC records and to freeze their accounts from conducting any transactions, underscoring the critical role of KYC documentation. Additionally, the fintech is seeking the issuance of arrest warrants for three individuals believed to be involved in the wrongdoing.
