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August 25, 2014


Forty Years and Still Scamming

I suspect that a lot of us have received a letter or an e-mail supposedly from another country's government official or banker informing us that there were some unexpected riches coming our way. We could become millionaires, these strangers tell us, by claiming a prize from a lottery that we don't remember entering. Or they say we just might become millionaires by helping them transfer money out of their country, since they can't because of some sort of bureaucracy or regulation. Before tossing these letters or e-mails into the trash, did you ever linger for just a moment wondering if these riches could actually be coming to you?

A large number of people, particularly in the United States, think the scam is legitimate and are willing to invest up to tens of thousands of dollars to claim their share of the pot of gold. Sadly, they find not only that there is no gold, but also that there isn't even a pot. This type of fraud is classified as an advance fee fraud because the scam involves the victim having to send money in advance, to cover fees or taxes, before they can receive their share of the bounty. The advance fee fraud is one type of 419 Nigerian fraud, so called because early versions originated in Nigeria, where criminal code 419 describes the fraud. 419 fraud began in the 1970s with letters—often with counterfeit postage marks—that targeted small business owners, requesting their help in handling new oil wealth.

Over the next three decades, the solicitations grew at such a tremendous pace that in 2002, the Department of Justice got a court order to allow postal employees to open every letter from Nigeria that was handled through the United States Postal Service's mail facility at John F. Kennedy Airport. They found that more than 70 percent of these letters contained some sort of fraudulent scheme solicitation.

As law enforcement's focus on Nigeria intensified, the 419 groups moved to other countries. These groups reportedly have major operations in at least 150 countries and the involvement of more than 800,000 people. Ultrascan Advanced Global Investigations (UAGI), an Amsterdam-based association focused on disrupting the operations of criminal networks, stated in a preliminary 2013 report that U.S. victims lost $2.3 billion in 2013—more than in any other country.

As with other types of criminal activity, the techniques that advance fee criminals use have become more sophisticated, evolving alongside technological advances. They've moved their method of solicitation from mail to faxes and then to e-mails. And now, instead of just sending mass mailings or e-mails, many of the criminals are tailoring e-mail messages, lacing them with personalized information obtained from social networks and professional and dating websites. For lottery-themed advance fee schemes, the UAGI estimates that 3 percent of the targets respond and make at least one advance payment.

Even more interesting, the report refutes some common misconceptions about the victims usually being lower income or with less education and desperate for some sort of financial windfall. In fact, a number of high-income professionals are taken in by some of the more sophisticated schemes involving high-dollar ventures including real estate development and medical equipment. The report also notes that, for victims losing more than $200,000, 85 percent of them had recently experienced some sort of life-changing family trauma such as a death, divorce, or major illness.

Education by financial institutions remains the most valuable tool to defend against these schemes. These institutions should use in-house media and other methods, such as public service announcements, to alert consumers to these scams, particularly those that appear in the FIs' service areas. I know of some institutions that train their frontline staff to watch for such unusual transactions, particularly by the elderly, as a supplement to their anti-money-laundering education. Financial institutions and consumers should report advance fee fraud attempts immediately to the local Secret Service or FBI office for investigation.

Photo of David LottBy David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

August 25, 2014 in consumer fraud, consumer protection | Permalink

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