How to reduce your business’ cross-border risk
By ATB Financial 16 September 2020 5 min read
Doing business across international borders can be an important way to expand into new markets and attract a more diverse customer base. Unfortunately, it can also attract more diverse risk, including fraud and complex regulations.
For example, every state south of the border has distinct rules and regulations around international fund transfers. Failing to comply with regulations of the state (or country) you're dealing with can open your business to significant risks and punitive fines, or worse.
Ignorance is the opposite of bliss in business. Here are our top tips for reducing cross-border risk in business.
Dollars and sense
As a business owner, you likely deal with foreign exchange for two main reasons: paying for goods or receiving payments. And foreign exchange itself carries an innate level of risk, mostly due to fluctuating rates.
“Whether you run a small-to-medium-sized business or a large corporation, knowing how to manage your foreign exchange risk can be critical to your bottom line by tapping into the best rates at the right time,” says Mike Gee, director of business development at ATB.
"ATB’s FX Online helps customers transact in more than 25 global currencies, 24 hours a day, in a highly secure environment. "
Director of Business Development at ATB.
But there’s more to risk management than the exchange rate when conducting cross-border business, Gee adds.
“When someone mentions a US customer is paying by cheque, I go, ‘whoa’. Not only do cheques take longer to process and land in your account, they have more security issues than wire transfers.”
Paper vs digital transactions
Cross-border risks increase substantially when using cheques or bank drafts versus wire transfer transactions. While widely accepted, sending or accepting certified cheques or bank drafts is akin to sending cash wrapped up with a ribbon, says Aisha Kitchlew, ATB senior manager, Fraud Investigations and Cybercrime.
“Cheques carry a high risk of fraud, with the highest risk being mail intercept,” she says. “If you're sending a cheque in the mail, it’s fairly simple to redirect your address to a different address, or simply steal documents from a mailbox, deposit it or even alter it.”
And you won’t know you’ve been scammed until the intended recipient calls up asking where their payment is, or when you see the funds clear under the wrong name. Either way, by then it will be too late since the funds will already have cleared your account. Tracing the money will be difficult if not impossible.
Wire transfers carry less risk than cheques. They’re also convenient and easy to keep track of, Kitchlew notes. “A bank wire is much safer because funds will only be deposited into the bank account provided by the sender. They can’t be intercepted, redirected or lifted from your company mailbox,” she says.
Electronic fund transfer platforms like ATB FX also provide customized risk management for business owners. On your online banking platform, you can set wire transfer limits at a number of levels, including daily or weekly total limits, and limits for different authorized employees.
Note that while wire transfers are safer than a cheque or a bank draft, they still aren’t immune to fraud from internal and external parties, including business email compromise. You can reduce this risk by following a strong and detailed wire transfer policy. The policy should include authorizations, transfer limits, segregation of duties and verification of parties the wire transfer is directed to.
“A fraud actor can send an email saying you need to change the account of the transaction because it was compromised,” Kitchlew says. “They will gain access to email addresses, so it is important to follow up any correspondence with a phone call to make sure instructions that you're receiving are from an authorized individual.”
Set your cross-border transactions up for success
- Do your research—Protect your business by understanding the laws of the land before you send funds outside of Canada. In the US, for example, regulations differ from state to state. A contract expert will be able to help you understand the nuances of these details.
- Consult with a contract expert—It’s critical to fully understand the contract terms involved in any cross-border business transaction. An experienced international contract lawyer or expert at your financial institution will advise you on what to look out for and help ensure you're working with a legitimate party.
- Be aware of scamming trends—Stay on top of ongoing and emerging fraud threats. Detecting similar patterns of fraud in your business transactions allows you to nip them in the bud.
- Implement a wire transfer policy—Having a strong and detailed wire transfer policy in place that includes red flags to look for will substantially reduce your risk of fraud.
- Enable two-factor authorization—More financial institutions are implementing this to double their lines of defence.
- Verify transactions on a regular basis—Segregate duties within your company. For example, have one person set up the wire transfers and another person verify that all of the wires are of the right amount and to the right person. Follow up by verifying that the policies are followed.
- Know who you’re talking to—Ensure you're doing your due diligence, using reliable information and that you're seeking help from an expert in the area who has no interest or stakes in your business or in the transaction.
- Have written agreements—Handshakes or verbal agreements do not stand up in court. Protect your interests by always having agreements in writing from the party you're dealing with.
Cross the border with confidence
Every international transaction is different, under different rules. “Take the time to understand the party you're dealing with and the risk of international business because it is just such a wide space,” Kitchlew says.
Tap into the expertise of your experienced advisor—like the expert at the bank or your lawyer—and ask a lot of questions. Having true strategic partners and solutions in place will help mitigate your risk of overseas fraud.
For more information about protecting your business from fraud, visit the Canadian Anti-Fraud Centre, the FBI Internet Crime Complaint Center and Fraud!Org, by US-based National Consumers League.
Want to take a deeper look into mitigating cross-border risk for your business? Contact our business solutions support team at ATBBusiness@atb.com or 1-877-363-4855. We’re here to help Alberta businesses thrive, wherever they operate.