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Finance Firm Must Repay Money Lost to Cybercrime

Published

5 months ago

November 23, 2023

Financial Service Provider Ordered to Reimburse Funds Lost to Cybercriminals

The spotlight once again fell on cybercrime as the Gauteng High Court in Johannesburg ruled in favour of the Rotary Club of Rosebank, ordering a financial service provider to reimburse the club for the R3.1 million lost to cyber criminals. The court found the service provider and its officials grossly negligent for failing to verify instructions that led to the unauthorised withdrawal of funds from the Rotary Club’s accounts, as reported by IOL.

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The fraudulent transactions were enabled by hackers who gained access to the email of Mr. Franklin, the club’s then-manager. Despite the discovery of the fraudulent transactions, the financial institution claimed it believed the instructions were genuine. The court presided over by Judge Motsamai Makume, determined that the service provider breached its duty to verify the authenticity of instructions in each of the five instances, leading to the payment of the total amount to unknown entities.

The Rotary Club sought repayment from financial service provider Brough Capital Ltd and its director, ceding its claim to the Lester Connock Commemoration Fund. The court concluded that the defendants violated the agreement by not scrutinising the authenticity of the instructions, holding the financial institution liable for the incurred loss.

The modus operandi involved fraudulent emails purportedly from Mr. Franklin, instructing the defendants to transfer funds from Momentum to the Rotary Club’s bank account. The court noted irregularities in the emails, such as references to “my investment” instead of the Rotary Club’s investment, raising suspicions that a vigilant intermediary should have noted.

Judge Makume ordered the defendants to repay the R3.1 million with interest, emphasising the need for financial institutions to exercise due diligence in verifying transaction instructions, especially in the face of cyber threats.