Most organizations today feel a sense of security with their internal systems because of the cybersecurity protocols their IT departments have implemented. Firewalls, anti-malware software, and regular security updates are all part of the defense strategy to keep internal networks safe. However, these defenses are often focused solely on internal systems, offering little protection against the vulnerabilities that arise when sensitive transactions involve external parties.
In this post, we’ll explore how relying on cybersecurity alone creates dangerous gaps when handling transactions involving numerous external parties and advisors. The problem isn’t just about cybersecurity—it’s also about verifying identities and securing interactions outside your organization.
Cybersecurity Isn’t Enough: Identity Verification is the Real Problem
Many organizations believe that cybersecurity protocols are their main defense against fraud, but it only protects internal systems. When you engage in transactions that involve numerous external parties—such as advisors, consultants, vendors, or legal counsel—the risk escalates. These external participants may not follow the same practices as your organization and any inconsistency in the security protocols of those participating leaves a gap for bad actors to exploit.
For instance, a single financial transaction can involve a multitude of different people from numerous organizations; including banks, law firms, financial advisors, underwriters, and more. Each of these parties has their own set of systems and security standards; largely communicating via email. The more participants involved, the greater the exposure to fraud. If even one party is using an unsecured email system, the entire transaction can be compromised, creating an exponential risk of a Business Email Compromise (BEC) attack.
The Risk Increases with External Parties
Transactions are rarely confined to just one organization. In most financial and legal closings, you’re dealing with multiple external parties, all of whom may have varying levels of cybersecurity. While your internal IT team might be able to protect your internal data and communication, you can’t control the systems of the banks, lawyers, vendors, and advisors you’re working with. Here’s why that’s a problem:
- Varying Levels of Security: You may have taken the necessary steps to implement cybersecurity measures, but others in the transaction might not. For example, a law firm involved in the deal might use an outdated email system with weak encryption, making it easy for attackers to intercept communications or impersonate individuals.
- Email Spoofing and BEC: Attackers exploit the weakest link in the chain, often compromising or spoofing an email account from one of the participants. If they gain access to one person’s email, they can impersonate that person and send fraudulent instructions to the entire group, such as directing wire transfers to a fraudulent account. In transactions involving dozens of people, it’s almost impossible to ensure that everyone’s email is equally secure.
- No Unified Method of Governance: When dealing with external parties, there’s no unified system to ensure that everyone follows the same secure practices. The lack of a singular security standard means gaps in security are inevitable and attackers make their living exploiting those gaps.
The Role of Identity in Fraud
Beyond cybersecurity, the core issue in many fraud cases is identity verification (or lack thereof). Even if your IT systems are secure, how do you ensure that the email you just received is from the person that claims to have sent it? Impersonation is a common tactic in BEC attacks. Cybercriminals will often pose as someone familiar and trusted, using subtle email address changes or compromised accounts to deceive victims.
When a transaction involves multiple parties, the need for identity verification becomes magnified. Without a reliable way to confirm that everyone involved is who they say they are, you open yourself up to a greater risk of fraud. A single email from an imposter can direct funds to the wrong place, causing significant financial loss.
Emails Aren’t Secure Enough for Transactions
The reliance on email in financial and legal transactions is one of the biggest risks for organizations today. Even with training and awareness programs, people still rely on email to exchange sensitive information and wire transfer instructions. But email, as a communication tool, was not built for this kind of sensitive use case.
In complex transactions, emails are passed around between dozens of participants—sometimes over 50 people in a single deal—who exchange everything from contract details to wire instructions. The larger the group, the more vulnerable the transaction becomes. You might have a strong security system in place, but it only takes one compromised account from another party to give attackers an entry point.
Consultants and Advisors: Carrying a Heavy Risk
Advisors and consultants, who often act as intermediaries in transactions, frequently handle sensitive information such as financial records, contracts, and wire instructions. Unfortunately, this makes them very appealing targets for cybercriminals and puts their reputation at risk with each transaction.
- Sensitive Data Handling: Advisors and consultants manage large amounts of sensitive information, often via email. If their email accounts are compromised, attackers can access the data within and use it to manipulate transactions.
- Prime Targets for BEC: Consultants and advisors often work with high-profile clients and large sums of money, making them prime targets for BEC attacks. A cybercriminal who gains access to a consultant’s email can manipulate multiple transactions at once, affecting an entire industry or region.
- Ransomware Attacks: If a consultant’s system is compromised, it can lead to a ransomware attack, potentially exposing an entire network of sensitive information. A single advisor being hacked could expose financial records and contracts across all their clients, creating a widespread impact that could cripple multiple businesses at once.
Why Training Alone Isn't Enough to Prevent These Risks
Employee training is essential, but no amount of training can eliminate the risks associated with dealing with so many external parties in a transaction. Even with regular cybersecurity awareness training, people make mistakes. In the heat of a deal, when emails are flying and deadlines are approaching, it’s easy for someone to overlook a minor detail, like a subtly altered email address or a suspicious request.
Even if you train your team to spot phishing attempts and suspicious emails, you have no means to ensure your external partners. That’s why the focus needs to shift from trying to fortify email accounts to using secure platforms specifically designed for transactions.
Mitigating the Risks: Secure Platforms and Identity Verification
Given the complexities of modern transactions, it’s clear that relying on email for communication is no longer viable. The solution lies in adopting secure platforms that verify the identities of all participants and ensure that sensitive information—like wire instructions—is shared in a secure, encrypted environment. Here’s how organizations can mitigate the risks:
- Use a Unified Secure Platform: Instead of relying on email, use a secure platform that brings all participants onto the same playing field. These platforms use encryption and multi-factor authentication to ensure that everyone involved in the transaction is verified and that sensitive information is protected.
- Verify Identities Across All Participants: Identity verification should be mandatory at every step of the transaction. Using secure platforms that validate the identity of all participants can prevent impersonation and stop attackers from slipping into the chain of communication.
- Secure Transaction Solutions: Solutions designed specifically for handling closings and transactions, like BaseFund's Secure Closing product, offer a more secure and efficient alternative to email. These platforms ensure that sensitive data is transmitted securely and that everyone involved in the transaction follows the same security standards.
Conclusion: Securing the Entire Transaction Process
The real problem in transaction security isn't just about cybersecurity or training—it’s about verifying the identities of everyone involved and ensuring that the entire transaction process is secure from start to finish. When multiple external parties with varying security standards are involved, the risks multiply exponentially. Cybercriminals know this and are adept at exploiting these gaps to commit fraud.
Organizations need to move beyond the traditional reliance on email and adopt secure platforms designed for transaction management, like BaseFund’s Secure Closing product. By bringing all parties onto the same segmented secure information facility and verifying identities at every stage, organizations can significantly reduce the risks of fraud and ensure that their sensitive financial transactions are protected.
