Fraud
Whereas identity theft can include fraud, fraud crimes can occur without someone becoming you by stealing all your personal information. Many fraud cases involve business crimes such as financial institution fraud, Internet fraud, fraud in the insurance industry, and international criminal activities, but fraud can just as easily happen to the average consumer. The anonymity of the Internet lets cybercriminals create any persona and even a fictitious company to fool people into thinking the fraud scheme is legitimate. Internet fraud has developed over the past several years as cybercriminals have gotten more access to people and information and become more sophisticated in their use of technology. Access to people makes fraud possible, and with the multiple ways of reaching people through the Internet, such as with chat rooms, e-mail, message boards, and Web sites, implementing fraud schemes to bilk consumers out of money and information is easy.
Fraud has been around longer than the Internet has existed, but with the advent of online communications, thousands of people can be duped at one time with the click of a mouse. The ease of use of technology makes it possible to set up a fake online e-commerce site and take advantage of people. In the U.K., a survey on cybercrime, called “Cybercrime Survey 2001,” stated that two-thirds of U.K. firms suffered a form of cybercrime in 2000. The Confederation of British Industry (CBI) led this survey and is calling on the British government to centralize efforts to combat fraud on the Internet. The British Computer Misuse Act of 1990 does not include specific language to address failure of technology due to cybercrime. In all countries, online fraud results in loss of money by consumers but also affects the online industry as a whole by sowing mistrust in online applications and merchants.
Internet fraud cases can generally be categorized in several groups:
Auction and retail schemes— Cybercriminals set up online auctions and online retail goods sites. After consumers makes purchases via credit cards, debit cards, or check, the site is shut down or counterfeit goods are sent out.
Business opportunity/“work-at-home” schemes— Business opportunities have moved to the Internet, and consumers are guaranteed to make thousands of dollars very quickly. Consumers pay an upfront fee for some materials or registration, but nothing is ever delivered or the material is worthless.
Identity theft— Using the online world to collect information about someone is easy and can be used to steal someone's identity, as discussed in the previous section.
Investment schemes— Cybercriminals try to manipulate the market by falsifying a company's information to increase the stock price and then sell the stock. The opposite tactic can be used in short selling; the criminal disseminates information that negatively impacts a company's stock price.
The Internet Fraud Watch reported the following as the top 10 categories of Internet-related fraud complaints:
Internet and online services that were misrepresented or never delivered
General merchandise that was never delivered or not as advertised
Auctions of items that were never delivered or whose value was inflated
Pyramid and multilevel marketing schemes in which profits are made from fees to join the scheme rather than sales of actual items
Business opportunities that were substantially less profitable than advertised
Work-at-home schemes that sold materials to consumers with false promises to pay for the work performed
Prizes and sweepstakes schemes in which prizes were never awarded
Credit card offers in which consumers never received the promised cards
Sales of self-help manuals that were misrepresented or never delivered
Magazine subscriptions that were never delivered or for which the scheme's affiliation with legitimate publishers was misrepresented
Many fraud schemes are now feasible with the use of the Internet. The same theme runs through all fraud schemes: A promise of some service or goods is made in order for the consumer to pay out some money. The goods or services are never delivered, and the anonymity of the online world enables the cybercriminal to easily get away unscathed.
The Department of Justice established the Internet Fraud Initiative in 1999 to address online fraud. Criminal prosecutions of online fraud have been ongoing for several years. One such example is the prosecution of three men in Philadelphia on March 2, 2000 for their alleged roles in falsely offering the sale of Beanie Babies on the Internet. The products were never delivered, or incorrect products were sent. Another online fraud case charged four people in California in 1999 for sending out approximately 50 million e-mails that falsely advertised work-at-home opportunities for people. People paid a $35 fee but never received anything in return.
As with hacker activity, the lack of global cooperation just increases the risk consumers face. Defrauding consumers in other countries is easy because they have almost no legal recourse to track and prosecute the criminal due to the lack of international laws and online fraud cooperation. In the U.S., at least a national effort is being made to track and prosecute fraud with the Internet Fraud Initiative (IFI; at http://www.usdoj.gov/criminal/fraud/Internet.htm) and Internet Fraud Complaint Center (IFCC; at http://www.ifccfbi.gov/).
The IFI was approved in early 1999 and was started by the Department of Justice. The IFI is responsible for several initiatives:
Researching Internet fraud and developing estimates
Training prosecutors and agents on Internet fraud through the National Advocacy Center (NAC)
Developing investigative and analytical resources to identify and investigate Internet-related fraud schemes along with the FBI/National White Collar Crime Center
Providing and facilitating coordination among federal prosecutors and law enforcement agencies
Advising prosecutors around the country and establishing a program of public education and prevention
The IFCC is a joint project of the FBI and the National White Collar Crime Center. The IFCC is responsible for federal, state, and local law enforcement agencies that receive online complaints, analysis of online schemes and crime trends, and compiling and notifying law enforcement of such schemes. Agents and analysts from the IRS and Postal Inspection Service are included in the group.
Telemarketing Fraud
Telemarketing fraud has been around for a very long time. It mainly deals with fraud over the phone. A fraudster calls you and tries to convince you to buy some goods or services that you will never receive, as with online fraud. Trying to get you to provide money to some charity is a favorite tactic of these criminals. They make money by either never delivering the promised goods or services or delivering inferior goods and services and pocketing the difference. Getting people to pay upfront for whatever the fraudster is selling is the simplest way for them to make money. They can then disappear with your money. By making the scheme seem legitimate—such as by dropping well-known names, such as FedEx or UPS, to deliver the products or using other well-known names to compare their products with—these criminals develop a legitimate front that the consumer can believe in. Like online fraudsters creating a whole e-commerce site to seem legitimate, telemarketing fraudsters use a seemingly legitimate pitch. If the consumer falls for the scheme, the fraudster can continue contacting him for more money because they already have his trust.
Available consumer information is but a mouse click away in the online world. Legitimate and illegitimate telemarketers can easily purchase databases of consumer contact and preference information. Calling a consumer whose preferences are already known makes committing the fraud easier. Various telemarketing schemes can be used after the fraudster has your contact information. Several of these are as follows:
Charity schemes— Fraudulent telemarketers take advantage of people's sense of community and desire to help others by pretending to be from a charitable organization. Some of these organizations even donate some of the money to a real charity so as not to be completely illegal.
Credit repair— Marketers can obtain credit information on people and then try to sell them a service to repair their credit for an upfront fee. They even tell victims that they can get them a new credit card.
Cross-Border schemes— Telemarketers go after victims in other countries. The schemes used are typically advance-fee loan schemes, investment schemes, lottery schemes, and prize-promotion schemes. This reduces the risk of the fraudster getting caught. As with online fraud, the cooperation between countries is lacking for prosecuting telemarketer fraud.
Investment and business opportunity schemes— These schemes involve investing in such items as gemstones or rare coins that are sent in sealed containers that have nothing in them. They also convince the consumer that a failed or closed company is still in business, and the consumer invests money in the stock. Selling franchises that are either fake or of very poor investment value is another method of fraud.
Magazine promotion schemes— Magazine subscriptions, although they seem very cheap, can be a money-making scheme for illegal telemarketers. A tele marketer contacts a victim and tells him he has won a prize but must subscribe to the magazine to claim it. The victim spends money on the subscription, which he might or might not get.
Resources
Few government organizations deal specifically with telemarketing fraud. The Federal Trade Commission's Consumer Response Center maintains numbers consumers can call with questions or complaints about all types of consumer fraud, including tele marketing fraud. The Consumer Response Center numbers are 202-382-4357 and 202-326-3128. The National Fraud Information Center (NFIC) does take calls from consumers about fraud and assistance in combating telemarketing fraud; it can be reached at 800-876-7060. The government does not really become as involved as it does with online fraud. As a consumer, you can request to be put on a list that telemarketers can't call. The Federal Trade Commission's Telemarketing Sales Rule requires that telemarketers comply with your request, and if they do not adhere to your request, they can be faced with civil litigation. Contact the Direct Marketing Association to request your name be put on the list at 212-768-7277 (New York) or 202-955-5030 (Washington, D.C.).