What is the purpose of due diligence for wire transfers?
It serves two purposes:
- To prevent scammers from stealing your coins and
- To avoid being jailed, if you value your freedom.
If you do not do your due diligence, scammers will exploit this situation by pulling the MITM trick on you. Scammers post ads on Craigslist, Backpage, eBay etc offering cars, boats, cellphones, laptops and other high-end products. When a buyer responds and agrees to buy, the scammer will (in the meantime) contact you and make an offer to buy your bitcoins. When you give the scammer your bank account information for the wire transfer and if you are not careful, this is where the scam happens:
Scammer will now give your account information to the person buying his car, cellphone, laptop etc. That person thinks it's the scammer's bank account and he wires funds as instructed.
After the money is wired, the scammer will let you know he wired the money for the bitcoins. When you check your account, the money is there but what you do not know is the money was wired to you by someone buying a car! You now release the bitcoins and you're happy you made a nice trade.
Well, happy for the next few days, that is...
That's because in a few days, the person who "bought" the car and who wired the money to your account will find out there is no car and will now contact police. And when police finds out who the account belongs to, guess who's in hot water?
That's just one scenario. Another is outright fraud. Scammers will wire you money from a hacked bank account and when the true owner later discovers the fraudulent wire, his bank will have a nice little talk with your bank... and with law enforcement too.
Another situation is when scammers wire funds originating from pending payment instruments (for example, a fraudulent cashier's check). Wires are quite quick while check clearing takes time. So you get the wire first while the check is pending. When the check is later found out to be fake, the bank will now try to recover the money and will check how the scammer spent it. Some of the money might have been wired to you so they will contact your bank. And that's when your bank will do something you will hate. They will freeze your account (and the entire money in it) often indefinitely or for a very long time while they investigate the issue. Most banks do not want problem-causing clients and the end result is usually account closure.
Due diligence allows you to verify that the person buying your bitcoins is the same person paying for those bitcoins.
