How to avoid such a trap? What to pay attention to when choosing a bank? In this article, we will consider the key signs of fake financial institutions and provide practical advice that will help protect your funds.
Signs of fake banks
- Lack of proper licensing and confirmation of this from the Regulatory Authority
- A legal bank must be licensed and regulated by the financial authorities of the country in which it operates;
- Fraudulent institutions may claim to be registered in offshore jurisdictions that are virtually unsupervised;
- The bank cannot provide clear licensing data or is not listed in the official databases of the financial regulator.
Here is one example from practice that our company’s lawyers have encountered.
An unnamed bank approached our company with a proposal for potential cooperation, providing information about its financial institution (data, website, license, etc.). During our lawyers’ review of the company, it was discovered that the banking license was issued to this financial institution by a regulator called “Mwali International Services Authority” (MISA for short), which is located on the autonomous island of Mwali, which is part of the Comoros Islands.
A detailed search for information regarding this regulatory institution found articles in which the authors referred to the fact that the legitimate financial regulator for the Union of the Comoros, including the island of Mwali, is La Banque Centrale des Comores (Central Bank of the Comoros), while the Mwali International Services Authority (MISA) is a fictitious structure that issues licenses to banks and financial institutions.
In particular, an official regulatory act issued by the Central Bank of the Comoros (La Banque Centrale des Comores) dated June 15, 2022, was found in official sources, which contains the following information:
“The Central Bank of the Comoros informs the public about fictitious structures claiming to issue licenses to banks and financial institutions in the Union of the Comoros.”
The list of such fictitious structures includes the “Mwali International Services Authority”.
Also at the end of this document is a list of financial institutions and electronic money institutions legally established in the Union of the Comoros.
The above-mentioned bank, which offered cooperation to our company, is not on this list.
Based on this, it can be concluded that the license issued to this bank is invalid, because it was not issued by the Central Bank of the Comoros (La Banque Centrale des Comores), which is the competent authority in this matter, but by a fictitious structure called “Mwali International Services Authority”.
Also, using a number of online platforms, it was discovered that the SWIFT code indicated in the fictitious MISA register is invalid.
- Offers that are “too good to be true”
Scammers often lure victims with unrealistic interest rates, guaranteed investment returns, or low-interest loans without a credit check. Any financial institution that offers high returns without risk should be treated with extreme caution.
- Lack of physical address or fictitious office location
A legitimate financial institution should have a verifiable legal address and registered head office. Therefore, if a bank refuses to disclose the location of its office or provides only vague contact details, this may be evidence that the bank is fake.
In October 2023, public attention was drawn to a situation where 16 addresses on a single street in Worksop, UK, were among dozens used across the country to register new companies over a single weekend. All of them were created in the name of a 23-year-old Chinese national named Rong Yan.
The fraudsters took advantage of the fact that companies can be registered at any address in the UK via the government website Companies House (the executive body of the British government that maintains the register of companies, employs company registrars and is responsible for registering all forms of companies in the United Kingdom), located in Cardiff, by anyone without any identification documents.
This situation is one manifestation of a growing problem within the UK, which consists in criminals creating fictitious companies to open bank accounts for the purpose of laundering money and obtaining loans and overdrafts that they do not intend to repay.
Fake banks use the same scheme, according to the official registrar of companies in the UK, Companies House, in the period from January 2021 to March 2022, about 30 banking institutions were registered at the address of Eaton Square, most of which were located next to each other.
In one square mile in London, there are about 200 banks with addresses on residential streets, and in other cities, such as Manchester and Edinburgh, their number reaches 400.
These are little-known banks that are not registered with the Financial Conduct Authority (FCA), the central body for supervising the financial services market in the UK.
Therefore, this example shows that even the presence of registration in the register of companies does not confirm the legitimacy of the company, because each country may have its own approach to registering companies and, as practice shows, in the UK this approach is quite loyal to persons interested in registering companies. For example, there are banks registered in the UK whose owners’ nationality is defined as “unknown.”
That is, in fact, in addition to the convenience of registering companies, this approach opens a fairly large window of opportunity for fraudsters who can register fictitious companies, including banking institutions, in order to obtain benefits through fraud.
If we talk about the UK, it would be more appropriate to focus on the FCA register and the warning lists compiled by this institution, rather than on the Companies House register.
So, this example once again demonstrates that in the modern world there are a large number of ways that fraudsters can use to obtain their benefits. Therefore, when choosing a banking institution, it is necessary to conduct a detailed analysis of it before making a decision on using the services of such an institution.
- Unprofessional website design and poor security measures
A fake bank may have a poorly designed website with spelling errors, broken links, or a lack of necessary security features.
Therefore, when you are on a banking institution’s website, you should check it for:
- Secure connection (HTTPS instead of HTTP);
- Domain legitimacy (official banks use .com, .gov, .org, not suspicious .xyz or .top domains);
- Appropriate support contacts and regulatory disclosures.
5. Frequent name changes and lack of transparency
Fraudulent institutions may frequently change their business names to avoid detection. If you notice inconsistent use of different bank name variations in documents or on a website, this is not direct evidence that the banking institution may be fraudulent, but it is something that may give you cause for concern and prompt you to investigate the banking institution more thoroughly before doing business with it.
6. Bad reviews online and warnings from regulators
Check consumer complaints and review sites such as Trustpilot, the Better Business Bureau (BBB), or financial watchdog sites.
Many fake banks have numerous reports of frozen accounts, unauthorized transactions, or fraud.
Of course, the presence of bad reviews on the Internet from users of a particular banking institution cannot be perceived as 100% confirmation that it is not worth doing business with such a bank, but the presence of such reviews gives some “food” for thought. At the same time, the presence of official warnings from financial regulators is direct evidence that it is not worth cooperating with the banking institution that was indicated in the relevant warning.
Returning again to the situation with the bank that had an invalid license (see p. 1), the Central Bank of the Comoros issued an official document dated June 15, 2022, stating that the institution that issued the license to the unnamed banking institution to conduct the relevant banking activity did not have and does not have the appropriate authority. Therefore, the license is invalid.
So, the warning from regulators is probably the clearest proof that one should not do business with the banking institution mentioned in the warning.
7. Pressure tactics and urgency
Scammers force customers to make quick deposits, sign contracts without proper research, or invest immediately because of a “limited time offer.” At the same time, a bank with a good reputation will never rush you into making financial decisions.
Ways to verify the legitimacy of a banking institution
- Checking government and financial regulator websites
Every legitimate bank must be registered with the financial regulatory authority of its country and have an appropriate banking license issued by the relevant authority.
However, as noted above (see paragraph 1), there are situations where certain institutions may pose as financial regulators with the authority to issue licenses, when in reality this is not the case.
An incomplete list of official databases where you can search for the bank you need:
- USA – Federal Deposit Insurance Corporation (FDIC);
- United Kingdom – Financial Conduct Authority (FCA);
- European Union – European Supervisory Authority (EBA);
- Canada – Office of the Supervisory Authority of Financial Institutions of Canada (OSFI);
- Australia – Australian Public Procurement Regulatory Authority (APRA);
- View reviews about a banking institution
You can check customer reviews of banking institutions on websites such as:
3. Verification of ownership and affiliation
Verifying the ownership and affiliation of an online bank is a wise step before entering into a financial relationship. Fraudsters often try to recreate the image of well-known banks. Consumers can cross-check bank statements with information available on the official websites of the parent company and regulatory authorities to confirm affiliation.
4. Checking the bank’s transparency by examining its documentation
Legitimate banking institutions value transparency and provide clear and comprehensive documentation. This includes terms and conditions, privacy policies, and fees. It is important for consumers to carefully review these documents to ensure they are clear, accurate, and free of ambiguous terms. Transparent documentation demonstrates the institution’s commitment to building trust with customers and indicates that it is unlikely to engage in deceptive practices.
5. Availability of comprehensive contact information and customer support
Open and transparent communication is a hallmark of legitimate banks. A legitimate institution provides accurate and accessible contact information, including phone numbers, email addresses, and physical addresses. To assess the legitimacy of an online bank, it is advisable to test the responsiveness of its customer service. By asking questions, potential customers can assess the level of professionalism of the bank, the speed of response, and the willingness to help them. The lack of accessible customer service or delays in response should raise concerns about the legitimacy of the bank.
As Conclusion
Fake banks are one of the most dangerous fraud schemes that can lead to significant financial losses. Scammers masquerade as legitimate financial institutions, offering favorable conditions for attracting funds, but their real goal is to deceive and steal customers’ money.
To avoid falling into the trap, it is important to always check the legitimacy of the bank through official registers, pay attention to suspicious signs such as lack of a license, unrealistic offers and a weak level of site security. Also, do not neglect the reviews of other users and check the availability of deposit insurance.
Moreover, based on the above example from the practice of our company, the presence of a license does not always indicate the legitimacy of a banking institution, because the license itself may be issued by an inappropriate authority or have other signs indicating its invalidity.
Based on this, we can say that in the modern world, along with a large number of banking institutions whose services you can use, there are a large number of risks of losing your funds. Therefore, before choosing the bank you would like to use, it is necessary to analyze a fairly large number of various factors listed above and make an informed decision.
Contact the lawyers of Manimama Law Firm for help and we will be happy to assess the needs of your business model, provide recommendations, and organize support for opening a corporate account according to your needs.
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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
