Many tax advisors tell their self-employed clients -- including those who are "consulting" while looking for work -- to open separate business bank accounts to make it easier to separate business and personal expenses for tax purposes.
Don't do it.
This common tax advice could turn into a banking nightmare that puts every dollar in your business account at risk. Just ask
Bao, who runs a small import-export business, had
Had the money been stolen out of a personal account, the bank's response would have been dramatically different. Federal law would have required the bank to reimburse Bao.
But, unbeknown to many, business and personal accounts are governed by completely different rules. Those rules protect individuals from online hacking but can leave small-business owners to twist in the wind.
Normally that would merely be worrisome. But it's far more frightening now because technology and law enforcement experts believe there is a huge wave growing of sophisticated criminal enterprises that target small-business bank accounts.
Over the last year, the FBI, the
"We're seeing increasingly sophisticated attacks," Austin said. "But there's been very little recent investment on the banking side. Banks need to do more to protect their customers."
To understand the scope of the problem, Guardian Analytics recently teamed with the
Bao provides one such example; he detailed his experiences in a lawsuit he has filed against BofA.
Bao runs his import-export business with his wife,
The bank had them follow a series of security protocols and assured them their money was safe. But last summer, just weeks before BofA was set to implement a new security system, two fraudulent wire transfers were posted from Bao's account -- one for
Bank officials recognized that the transfers didn't match Bao's regular pattern and called to verify their authenticity. Huang was the "authorized agent" on the account, according to the lawsuit, but she was out of town at the time and so couldn't respond immediately to the bank's call. Consequently, the bank wouldn't tell Bao what the problem was, and it allowed the transfers to go through.
When Huang reached the bank later in the day she declared the transactions fraudulent. By then, BofA was able to recover only the second transfer, for
Bao asked BofA to reimburse him, but the bank said the loss was his problem.
The reason: Bao was a business customer, so his account was governed by the Uniform Commercial Code. That essentially allows the bank to lay out the conditions under which clients will -- or won't -- be reimbursed for a loss.
Austin of Guardian Analytics said the most common source of online banking fraud was a virus infecting the victim's computer. Typically, he said, the business owner is taken in by a "spear-phishing" attack that could be so sophisticated that the victim is unaware of it.
Most consumers have received some sort of phishing e-mail, claiming to be an "account maintenance notice" from a bank or an "alert" from
Spear-phishing attacks, on the other hand, are professional looking, personalized and so clever that victims may not even realize they've been targeted.
"If you are a small businessman and you get a tax lien notice that has your name in the body of the e-mail and your e-mail in the subject line and it's got a return address from your local county, you are likely to click on that," said
What can you do to protect yourself? If you have a very small business you'd be wise to do your banking through a personal account, where the legal protections are superior.
However, if you have a bigger enterprise that needs sophisticated business banking services, you need to be exceptionally careful when responding to e-mails.
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Personal Finance - Banking Laws Leave Business Customers Vulnerable to Internet Fraud
(c) 2010 Kathy Kristof