One of the most recurring types of fraud are CEO fraud cases. How does a CEO fraud work? Usually the fraudsters use a fake identity in order to persuade a company employee to proceed in an urgent bank transfer under the pretext of an order from the CEO or president of the company.
Recently, the Regional Labor Court of Saxony handed down a decision regarding the civil liability of employees in a CEO fraud case. The Regional Labor Court found that an employee can be liable for the damage caused by a CEO fraud but that the liability privilege for employees developed by German labor courts does apply in CEO fraud cases. Under the liability privilege, employees are generally only liable for damages caused to their employers if they act gross negligently.
The Regional Labor Court ruled that the employee’s breach of duty was substantial. By making the bank transfer the financial director violated internal safeguards. Nevertheless, the liability privilege applied since she acted in the presumed commercial interest of the company.
The Regional Court found that the employer was also partially liable. It is the duty of the employer to train the employees on fraud risks and to implement controls to prevent such kind of fraud. A single reference to CEO fraud in an email to the employee was not sufficient according to the court.
The Federal Labor Court will ultimately decide the case but for the time being this judgement requires companies and their management to implement safeguards to prevent CEO fraud and to inform their employees about how to detect a CEO fraud case and how to respond appropriately.