BNZ is under fire for refusing to reimburse two victims who were duped into sinking nearly half a million dollars into elaborate investment scams, despite claims the Australian-owned financial institution failed to act on crucial red flags.

The victims say the bank’s stance is heartless and unfair, while a Massey University banking expert believes BNZ’s actions arguably contributed to the customers’ predicament and she’s surprised the bank has refused to acknowledge some responsibility.

BNZ is defending its refusal to pay out, saying it was acting on the customers’ express instructions when it transferred the money to scammers and therefore has no liability for their loss.

North Shore real estate agent Carla O’Neil lost $100,000 in February. She clicked on a fake website comparing bank term deposit rates before being contacted by a man with an English accent who claimed to be a Citibank portfolio manager. He convinced her to invest her life savings. Less than $20,000 could be recovered.

And Whangārei health worker Borja Ares lost $330,000 after clicking on a similar website in May. He was also contacted by a man claiming to be a Citibank investment manager who convinced Ares to invest proceeds from the sale of his family home. Just $19,000 was recovered.

O’Neil told the Herald the financial loss was devastating, while Ares said he felt he’d failed his wife and children. Ares has complained to the Banking Ombudsman who has agreed to investigate his case, and O’Neil is preparing a complaint.

It’s not the first time a BNZ customer has lost money in a Citibank-branded scam. Nelson firefighter Cath Mulalley lost $325,000 last year, with only $60,000 recovered.

A Herald investigation has uncovered a raft of high-profile scam cases in which victims have lost everything they have.

It’s estimated that offshore scammers are siphoning hundreds of millions of dollars out of New Zealand each year. The worsening situation has sparked calls for banks to invest in better security systems to protect customers. Police admit foreign scammers are almost impossible to identify and that stolen money is unlikely to be traced.

Carla O'Neil, 45, believed she had done proper due diligence and that the investment opportunity was legitimate. Photo / Michael Craig

O’Neil and Ares both complained about BNZ’s handling of their cases and its failure to identify the transactions as suspicious.

They claimed:

The Citibank scam was known to the New Zealand banking industry since at least last year and BNZ should have been on notice.

• In both cases, BNZ was aware the money was not going to a Citibank account, but to another New Zealand bank, which should have been a red flag.
• BNZ should have known that Citibank does not offer this type of retail investment in New Zealand.
• Ares’ case came just months after O’Neil’s $100,000 loss in the same scam, meaning BNZ should have been on watch for this fraud.
• Despite BNZ claiming to have state-of-the-art fraud prevention measures, it failed to detect either scam.

The victims also claim BNZ had a duty to protect its customers and should therefore take some financial responsibility for the fraudulent losses.

A BNZ spokeswoman told the Herald the bank investigated both fraud cases and found it was not liable.

“We appreciate this is not the outcome either customer will have been hoping for.”

Both scams involved the customers unknowingly engaging with a scammer during an online search for financial services, the spokeswoman said.

The money transfers were “initiated and authorised by the customer”.

In O’Neil’s case, information and paperwork she presented showed no evidence the planned transaction was a scam. Term deposit transfers were common across the banking industry, and it was not unusual for legitimate financial service providers to have accounts at New Zealand’s main banks.

In Ares’ case, while he mentioned his intention to invest with Citibank, he told bank staff the money was being transferred to his own account at ASB.

“These investment scams prey on people’s trust in reputable brands and mimic investment firms and banks closely. No organisation is immune from impersonation.”

BNZ urged customers to exercise extreme caution and do their research before investing money, and to contact investment firms through their official New Zealand-based websites, never via unprompted online contacts, emails or phone calls.

Ares said, in his view, BNZ was avoiding responsibility and “victim blaming”.

“I think it shows greatly the lack of heart they have. I consider them extremely heartless. They have all the power.”

O’Neil said neither BNZ nor the FMA had warnings about the Citibank scam on their websites at the time she was tricked, despite banks knowing about it since last year.

“I’m not the first one that’s been caught by this scam.”

She said a simple way to protect customers from scammers was for banks to match the recipient account name with the intended recipient, which New Zealand banks were not currently required to do.

“New Zealanders are soft targets because we don’t have the security in place. It’s bananas,” she believed.

Claire Matthews is an associate professor at Massey University business school. Photo / Supplied

Massey University banking expert professor Claire Matthews said she was surprised BNZ was not taking some responsibility for the victims’ losses.

“I think it would be reasonable to say, ‘Perhaps we didn’t ask as many questions as we should have’ and make some partial reimbursement. But the customers must take some responsibility.”

Matthews said banks invested heavily in security systems to try to detect scams. They provided advice to customers on their websites and had beefed up fraud investigation teams due to the rise in online financial crime.

While the UK was introducing rules to force banks to refund authorised payments when customers had been scammed, this could make people less careful when conducting online transactions, she warned.

Scammers could also see their offending as a “victimless crime” if banks were required to bail out duped customers.

Matthews said banks faced a difficult balancing act between being vigilant to help their customers avoid being scammed, while not being overly intrusive in customers’ normal transactions.

She said the Banking Ombudsman could investigate the bank’s actions and order a partial reimbursement if failings were identified.

Lane Nichols is a senior journalist and deputy head of news based in Auckland. Before joining the Herald in 2012, he spent a decade at Wellington’s Dominion Post and Nelson Mail.