ACH Fraud: Threats to Bank Transfers

ACH fraud refers to the unauthorised use or manipulation of the Automated Clearing House (ACH) network to debit or credit bank accounts fraudulently. This activity often involves exploiting stolen account details, synthetic identities, or phishing attacks to initiate illicit transactions.

It is a form of cybercrime where fraudsters exploit stolen credentials or hacked accounts for financial gains, potentially resulting in identity theft or monetary loss.

ACH fraud typically occurs when fraudsters gain access to bank account information through methods like phishing, social engineering, or data breaches. They use these credentials to initiate unauthorised debits or credits, often targeting weaknesses in verification processes or taking advantage of batch delays in ACH processing.

ACH fraud has risen with the increased use of digital banking and payment systems. The FBI reports billions in annual losses linked to business email compromise (BEC) and payroll fraud, which often exploit ACH systems. Common targets include businesses and vendors processing high-volume payments.

ACH debit fraud involves unauthorised withdrawals from a victim’s bank account, such as stealing payroll or siphoning funds from businesses. ACH credit fraud, on the other hand, involves fraudulent transfers where stolen funds are deposited into mule or fraudulent accounts, often as part of money-laundering schemes.

Key red flags include unusual or high-frequency payment retries, new bank account details immediately linked to transactions, mismatches in account owner data, and transfers to unknown or unverified beneficiaries. Sudden changes to a vendor or employee bank account information should also raise suspicion.

Banks use a combination of rule-based systems and advanced fraud detection software involving behaviour analysis and machine learning. These tools flag anomalies in transaction patterns, detect irregular amounts, and leverage account verification to assess risks before payments are cleared.

ACH fraud detection is the process of identifying unauthorised or suspicious transactions within the ACH network. It utilises mechanisms like transaction monitoring, real-time alerts, and risk evaluation models to identify potential fraud early and minimise its impact.

ACH fraud prevention involves implementing measures to block unauthorised or fraudulent transactions before they occur. This includes strict access controls, multi-level authentication, real-time monitoring, and meticulous validation of bank account details and transactional data.

Businesses can prevent ACH fraud by implementing strict controls over who can initiate payments, validating bank details regularly, and reconciling accounts daily. They should also educate employees on recognising phishing or fraud attempts and employ multi-factor authentication for payment approvals.

To protect a business from ACH fraud, establish strong internal controls, such as dual approval systems for payments. Invest in fraud monitoring solutions, enforce access control policies, and regularly review and update internal processes to address emerging fraud tactics.

Pre-funding risk can be reduced by validating account details before initiating payments, ensuring real-time authentication for high-risk transactions, and setting velocity controls to limit the frequency of debits from accounts. Maker-checker procedures further deter unauthorised activities.

An ACH fraud filter is a security feature that banks and businesses use to screen ACH transactions. It allows only pre-authorised debits or credits to process, while flagging or blocking any unauthorised activity outside predefined parameters.

Liability for ACH fraud depends on the transaction type and applicable regulations. For consumer transactions, banks usually bear liability if the fraud is reported promptly. For business accounts, liability terms typically depend on the contracts between the business and its bank, emphasising the importance of having fraud detection measures in place.

ACH fraud recovery involves requesting a reversal or return of an unauthorised transaction through the ACH network, based on reporting timelines. Working with the bank promptly, providing evidence, and freezing compromised accounts are crucial steps. However, recovery success depends on how quickly the fraud is detected.

If you suspect unauthorised ACH activity, immediately notify your bank or payment provider to halt further transactions. Also, conduct an internal assessment to determine the breach source, tighten account access controls, and monitor for other suspicious activity. File necessary fraud reports with financial authorities if applicable.