Invoice fraud; that won't happen to me, will it?

What is invoice fraud?

Invoice fraud refers to changes to an invoice so that it is not transferred to the sender of the invoice, the supplier, but to someone else.

How does that work?

There are many variations, but the most common variation is this: an original invoice from a supplier is received by a principal. For example, the principal has not done business with this supplier for some time and checks the invoice. It is correct in content. The so-called performance receipt from - in this case - the inspector on the construction site on behalf of the client is attached so that it is visible that delivery has been made. The invoice number turned out to be unknown. The invoice is paid.

After payment?

After some time, the supplier calls the client asking where the payment remains. The client informs that payment has already been made. Then the details are exchanged and it turns out that the bank account mentioned on the invoice is not the supplier's bank account. Money is missing (to give an idea: €50,000.00 in the case at hand).

Practice

The principal, of course, wants to recover the money. But then whose bank account does it belong to? Not the supplier's. He has no idea. So report it to the police. That takes several days. Very little time, very little priority. To the lawyer. Seizure? Yes, under the bank because the bank account is known. But who is the person to whom the money was transferred? The bank is not obliged to disclose that and it takes its time. Nor is the police obliged to say so. Good advice is expensive.

The intervention

However, a bank account whose account holder is unknown can be seized; a so-called seizure against an unknown person. That unknown person can even be sued in legal proceedings. This can also be done relatively quickly. With very considerable pressure - as happened to us in the case that constitutes the example - the account holder's details were indeed provided. Incidentally, litigation against residents of Eastern European countries does appear to be possible but "it takes quite a bit" before the preliminary demand is delivered in the prescribed manner.

Surprising insights following case research

The fraud appeared to be professionally set up. The bank account had been opened by a woman from Eastern Europe. She had temporarily rented an apartment in a suburban municipality. She was not registered in the population register. She reported to a bank with the request to be able to open a bank account. Why this lady managed to open a bank account so smoothly is a complete mystery. Experience shows that in the usual case, banks go through many checklists before a bank account can be opened.

Definitely in the industrial park throwing the bills in the mailbox on Friday afternoon?

Well no so. The situation is different. The supplier was able to tell the client that the invoices are collected together and put into a secure box each week by the postal company who, using secure transportation, collects this box and, apparently, takes care of the distribution of the invoices in the secure section of the sorting center. Then the bill is delivered by regular mail delivery. Clearly, somewhere in that chain the invoice was fished out. Understandably, the police did not want to communicate much about the case. If there is an investigation, this is highly professional international banditry. On the side of the criminals, they have managed to smuggle in someone within circles around mail processing, who are thus somehow able to "fish out invoices." Also notable: no name/number verification takes place at the bank - although computer-technically very possible and feasible. At some banks, meanwhile, it does. Why would that be? The conclusion: so it can happen to anyone.

Some more legalese

Is the postal company liable? No telling. Proof that the postal company would have done anything wrong is hard to come by, and postal company liability is generally limited by statutory and other rules.

Is the bank liable?

That is not easy to say either. It could be determined that the bank in any case did not cooperate optimally and also that it is remarkable that a this swindler could open a bank account very easily. Even more striking: much more money had flowed into the bank account than the amount our client paid. The money had been withdrawn from the bank account by cash withdrawals. Here we no longer understood. How could it be that several tons were withdrawn in cash? Presumably admittedly in small portions but surely someone must notice? Apparently all very normal. Not so.

So that doesn't happen to me?

This can happen to anyone. The reality is and remains that it is professional banditry. You can start electronic billing, of course, and that will certainly help, but my prediction is that electronic billing has also long been in the sights of all kinds of criminals.

Solutions?

Preventive

When making payments, always check that the account numbers are correct and match the known account numbers. It should also be checked whether the payment deviates from a variety of usual patterns. Many accounting / banking programs offer the option of not making such payments at least not until after an additional approval must be given on them. This provides an opportunity to pick out potential fraudulent invoices. If there is the slightest doubt about the invoice and/or account number, you should of course call your supplier. It is also wise to take a moment to check the Central Insolvency Register(http://insolventies.rechtspraak.nl/) to see if the supplier happens to be bankrupt.

Subsequent action? Never wait and see, by-pass litigation!

In consultation with one of our office colleagues, attachments can be made quickly and proceedings initiated. This of course costs money and the question is whether it works. Only if action is taken quickly is there a chance of also getting something back because then there is the greatest chance that there is still money in the bank account of the "fake supplier" in question.

Finally, if the false invoice has been paid has payment been made?

No. For a painful example, I refer you to the attached link(ECLI:NL:RBOBR:2015:7662) a judgment between Waterschap de Dommel and Heijmans. The Water Board paid a false invoice of a very large amount (€433,182.40) to a bank account that later turned out not to be the bank account of Heijmans. Heijmans reported that it had not been paid and still requested payment. The Water Board refused and Heijmans subsequently sued the Water Board in summary proceedings. The Water Board still had to pay the full amount. I am sure that somewhere in the world, after the first payment of €433,182.40, people danced around the campfire for a long time.

Invoice fraud: it can happen to anyone!