Cyber Fraud And Recovery In Hong Kong

• Published date: 25 October 2020
• Subject Matter: Finance and Banking, Criminal Law, Technology, Financial Services, Fund Management/ REITs, White Collar Crime, Anti-Corruption & Fraud, Fin Tech
• Law Firm: Hill Dickinson
• Author: Ms Kelly Jungsun Kim, Maggie Lee and Edward Liu

Since the outbreak of the COVID-19, there has been a drastic increase in cyber fraud cases involving email wire fraud scams and phone scams around the world. Such risk of cyber fraud has been further increased when office workers are working from home where hackers are taking advantage of the COVID-19 pandemic by sending fraudulent emails and WhatsApp messages to induce victims into clicking malicious links or opening attachments.

According to South China Morning Post, Hong Kong police intercepted more than HK$3 billion (US$384 million) conned from victims of internet and phone scams both locally and around the world in 2019, which was a 150% increase on the amount stopped the previous year. The Anti-Deception Coordination Centre thwarted 1586 payments to con artists totaling HK$6.33 billion between its opening and June this year. Some of the cash was frozen in bank accounts in Europe and the US with the help of Interpol and overseas law enforcement agencies, before it could be siphoned off to accounts controlled by international fraudsters.

Common types of fraud

Cyber fraud can cause severe financial loss to business. Below are some common types of fraud:

(1) Sale contract scam/corporate scam - Fraudsters impersonate the parties to the contract by using the same email account or similar domain account. For instance, fraudsters counterfeit sellers and send fictitious email to the victim buyers, claiming that the sellers' bank account has changed and request transfer of funds to other bank accounts which are operated by the fraudsters.

(2) CEO scam – Fraudsters pretend to be the senior management officials of the companies and request employees to transfer the company funds to the bank accounts controlled by the fraudsters.

(3) Bitcoin fraud – Hackers send phishing emails to obtain the traders' email and cloud storage credentials and transfer the funds into the hackers' wallet. Some fraudsters may set up scam website, pose as a trusted investor and ask victims to transfer bitcoin upfront. Due to the decentralised, permissionless and untraceable nature of cryptocurrency exchange, it is often difficult to recover funds lost in bitcoin fraud. Generally, the blockchain analysis of the bitcoin theft by the recognised expert is required to prove the bitcoin flow.

(4) In Nico Constantijn Antonius Samara -v- Stive Jean Paul Dan [2019] HKCFI 2718, Hong Kong court has granted a Mareva injunction to cover bitcoin.

Action should be taken

Once the victims discover the fraud, they should take below actions swiftly so as to maximise the chance of recovery of the stolen funds.

Inform the banks immediately

Once the funds have been transferred to the fraudsters' bank accounts, the fraudsters will remove the funds as quickly as they can, rendering the subsequent recovery of the funds futile. Hence, victims should contact their banks about the fraud incident and request them to notify the recipients' banks and request cancellation, recall or reversal of the remittance.

Banks can alert each other to the suspected fraudulent activities. They usually freeze the recipients' bank accounts temporarily pending their internal investigation.

In some instances, the recipients' banks may be willing to return the funds provided that the victims' banks provide a bank-to-bank indemnity, but this is not always guaranteed. Most banks are reluctant to release funds retained in the recipients' bank accounts unless there is a court order or judgment compelling them to do so. In such situations, victims should seek assistance from solicitors.

Report to Hong Kong Police – 'no-consent' regime

As soon as discovering the fraud, victims should also immediately report it to the Hong Kong Police. For overseas victims, they can instruct Hong Kong solicitors to assist them to file a report with the Hong Kong police. Upon receipt of a complaint and assessment of evidence, the Joint Financial...