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Risk Insider: Greg Bangs

Social Engineering Schemes: 3 Ways to Mitigate Risk of Big Losses

By: | June 19, 2018 • 2 min read
Gregory W. Bangs is chief underwriting officer of global crime at XL Catlin. Over the last 30 years, he’s been underwriting insurance and developing new products in the U.S., U.K., Hong Kong and France. He can be reached at [email protected]

One of the oldest forms of crime — the con — is causing massive losses for businesses and individuals. The basic tactic in these increasingly sophisticated schemes is social engineering, in which criminals persuade victims to help the fraudsters obtain access, data or money.

Topping the list in financial losses in the Federal Bureau of Investigation’s 2017 Internet Crime Report is what the FBI calls “business email compromise/email account compromise.” In 2017, BEC/EAC incidents took $676.2 million from 15,690 victims. “Confidence fraud/romance,” was second on the list, generating $211.4 million in losses from 15,372 victims.

The FBI and other federal authorities in June announced the culmination of a six-month coordinated operation to stop international BEC schemes. Operation WireWire resulted in 74 arrests, the seizure of $2.4 million and the recovery of $14 million in fraudulent wire transfers.

Since the FBI’s Internet Crime Complaint Center began tracking BEC/EAC, victims have reported losses totaling more than $3.7 billion. Because many crimes go unreported, these numbers on social engineering fraud may be only the tip of the iceberg.

Social engineering fraud tends to fall into three main categories, each of which can harm a business’s balance sheet and reputation:

Vendor impersonation. Vendor impersonation has become a frequent loss as fraudsters persuade victims to divert recurring payments to new bank accounts or pay bogus invoices. These scams succeed when unsuspecting recipients don’t verify details or check existing records.

Executive impersonation. Less common than vendor impersonation but with much higher stakes, executive impersonation is a highly sophisticated con game, often using data stolen through phishing or other means to earn trust and create plausible scenarios, such as a foreign subsidiary’s acquisition requiring the release of funds. Common elements in these scams include urgency and pressure to avoid displeasing senior management. Numerous companies have been defrauded of tens of millions of dollars through this crime.

Since the FBI’s Internet Crime Complaint Center began tracking BEC/EAC, victims have reported losses totaling more than $3.7 billion. Because many crimes go unreported, these numbers on social engineering fraud may be only the tip of the iceberg.

Client impersonation. These losses have tended to be smaller, but they also are rising. The scams typically target professional services firms and involve overpayments by fake but official-looking checks. Fraudsters ask the firm to remove their retainer and send back the remainder.

Fraud risk mitigation

Variants exist for nearly all types of social engineering, and criminals adapt their tactics, but businesses can mitigate the risk. Three key elements are:

  • The first line of defense is training employees to recognize potential frauds, whether phishing emails or calls from someone purporting to be a vendor, client or company executive.
  • Creating a convenient way to report suspicious activity, such as sending dubious emails to a folder the IT department investigates, can reduce the chance that employees will inadvertently help criminals.
  • Computer security solutions continue to improve. For example, some tools let corporate systems set apart Internet browsers in a “sandbox” so malware cannot infect the network. Two-factor authentication with a time-sensitive passcode sent to a user’s cell phone reduces the risk of fraudsters obtaining access to data with only a computer password.

Social engineering attacks are likely to continue, but smart risk management can help businesses stay ahead of the criminals.

More from Risk & Insurance

More from Risk & Insurance

The Profession

Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]