Personal protective equipment (PPE) can help keep healthcare workers, essential employees, and the general public safe from potential infection during the COVID-19 pandemic. With demand far outpacing supply, fraudsters are taking advantage of the situation to perpetrate advance fee and Business Email Compromise (BEC) schemes. Government entities and health care organizations have been the primary targets of these PPE scams, although any organization who may need to procure PPE to protect employees as they return to work should also be aware of these scams.
The FBI recently issued an alert warning of a rapid rise in fraud related to the procurement of PPE: masks, protective clothing, ventilators, and other medical equipment1. They cited multiple incidents where state government agencies were deceived into remitting payments either directly to a supposed PPE supplier, or to a broker claiming to have PPE supplier relationships.
Examples of recent attacks as reported by the media include:
- A promise to deliver 39 million N95 masks through overseas brokers and suppliers, who sought advance payment without physical verification of the shipment. Had federal investigators not foiled the attempted fraud, it could have cost hospitals and government entities 78 million dollars.2
- A fraudulent attempt to sell 125 million non-existent face masks and other PPE to the Department of Veterans Affairs for payment up-front.3
- Business Email Compromise (BEC) and advance fee schemes are the most common methods of attack
The FBI warns of advance fee and BEC schemes as modes of attack:
- BEC schemes. This scam often involves spoofing a legitimate, known email address or using a nearly identical email address to ask potential victims to redirect legitimate payments to the fraudster’s bank account. Criminals also perpetrate similar social engineering techniques via phone calls.4
- Advance fee. When a scheme involves advance payment for procurement, a victim pre-pays some, or all, of the purchase amount to a purported seller or a broker; but receive either nothing or very little in return. Pre-payment has become common during the COVID-19 crisis. However, paying for materials in advance of receipt heightens the risk of fraud and nearly eliminates potential recourse.5 Buyers are particularly vulnerable as they turn to non-traditional sources outside of their regular supply chains. Cyber criminals are exploiting this by requesting advance payment and then delivering little or no merchandise.
These risks cannot be ruled out but can be mitigated by using experienced cash and trade finance professionals, advanced systems and strong procedures. With the proper payment channel, all involved parties are comprehensively verified and details of the procurement trade properly screened.
Take steps to help protect against PPE fraud scams
There are several things you can do to help reduce the risk of becoming a victim of PPE fraud, including:
- Validate and confirm any new supplier relationships before remitting payment. Use caution if you are depending on a third-party broker. Verify that the seller is a legitimate distributor or vendor for the items under contract. Offer to issue a letter of credit to your supplier and/or broker as a safer alternative to cash in advance.
- If possible, have a trusted party verify the existence and quality of the items, and take delivery of physical goods before remitting payment. Alternatively, in the event you must pay a portion of the total contract in cash advance terms, consider demanding that your supplier issues a Standby Letter of Credit in your favor to secure the cash in advance portion. Another alternative to consider would be to leverage a domestic escrow account that will release payment to the seller only upon receipt of the promised items.
- Validate any account or payment changes requested by vendors. Confirm and verify the authenticity of change requests using multiple methods, for example, by phone and email. And don’t assume the contact information provided in the request is correct. Check it against the information you have on file.
- Make sure that employees have access to the necessary files and contact information they need to follow proper processes and procedures while working remotely.
Do not assume your payment initiator has verified the requested changes and examined the payment details thoroughly. Dual control is an effective internal practice used to verify and approve payments. This serves as a second chance to spot fraudulent payments before they go out the door.
1 “FBI Warns of Advance Fee and BEC Schemes Related to Procurement of PPE and Other Supplies During COVID-19 Pandemic”. FBI press release, April 13, 2020. (Source: https://www.fbi.gov/news/pressrel/press-releases/fbi-warns-of-advance-fee-and-bec-schemes-related-to-procurement-of-ppe-and-other-supplies-during-covid-19-pandemic).
2 “Coronavirus supplies: How Feds uncovered fraud involving 39 million N95 masks” by Melanie Woodrow, April 15, 2020, abc7news.com (Source: https://abc7news.com/coronavirus-supplies-how-feds-uncovered-fraud-involving-39-million-n95-masks/6104173/)
3 “Georgia Man Arrested for Attempting to Defraud the Department of Veterans Affairs in a Multimillion-Dollar COVID-19 Scam”, April 10, 2020 (Source: https://www.justice.gov/opa/pr/georgia-man-arrested-attempting-defraud-department-veterans-affairs-multimillion-dollar-covid)
4 FBI Warns of Advance Fee and BEC Schemes Related to Procurement of PPE and Other Supplies During COVID-19 Pandemic”. FBI press release, April 13, 2020. (Source: https://www.fbi.gov/news/pressrel/press-releases/fbi-warns-of-advance-fee-and-bec-schemes-related-to-procurement-of-ppe-and-other-supplies-during-covid-19-pandemic).