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Internet Fraud Schemes 101
Below are some internet fraud schemes
that are prevalent today. We have also provide some recommendations in
preventing fraud against you and your business. Our specialty is in helping
business prevent and deter online fraud. Our biggest recommendation in
helping prevent fraud is to do your due diligence on who you are dealing
with and use common sense.
Auction Fraud
Auction fraud describes incidents where a seller misrepresents a product
sold through an auction site. This product may be different then advertised
or is not shipped to the buyer at all.
- The seller posts the auction as originating from the USA., then responds
to the buyer (victim) with a thank you email saying he is outside the
USA for a reason such as family issues or business trip, etc. Also,
be careful of sellers who post the auction under one name, and ask for
the funds to be sent to another individual.
- The fraudster requests funds to be wired directly to him/her via
Western Union, MoneyGram, or bank-to-bank wire transfer. Once money
is wired, the seller has no recourse and has lost the money. Be cautious
of any seller asking for a wire transfer or escrow services.
- Avoid sellers who say they are authorized dealers or factory representatives
in countries where there would be no such dealers.
- Be suspect of any credit card purchases where the address of the
card holder does not match the shipping address. Always receive the
card holder's authorization before shipping any products.
Prevention Recommendations:
Make sure you check the sellers feedback rating. Also, good that can
be "faked" such as designer purses, jewelry, watches, clothes
may need closer attention. Be especially careful of sellers outside the
country, asks for wire or cash type payments, and be careful of escrow
services, make sure they are legitimate.
Counterfeit Cashier's
Check
This crime typically targets individuals that use Internet classified
advertisements to sell merchandise. The fraudster will pretend to be an
interested party located outside the United States and contacts the seller.
The seller is told that the buyer has someone in the United States that
owes him money. He will then have the associate send the seller a cashier's
check for the amount owed to the buyer.
The amount of the cashier's check will be thousands of dollars more than
the price of the merchandise and the seller is told the excess amount
will be used to pay the shipping costs associated with getting the merchandise
to his location. The seller is told to deposit the check, and upon clearance
is asked to wire the excess funds back to the buyer or someone else. In
many cases money is sent to locations in West Africa (Nigeria).
As a cashier's check is used, a bank will release funds right away, or
after a brief hold. The seller then believes the check has cleared and
then wires the money as per their agreement. Soon after, the sellers bank
advises them that the check was fraudulent and holds the seller responsible
for the full amount lost.
No legitimate buyer will provide a cashier's check greater then the amount
of the item for purchase. If the seller does indeed want to use a cashier's
check, instruct them to wire the money instead. Again, this amount should
not be more then the actual costs of the goods sold plus shipping.
Prevention Recommendations:
Inspect the check for accuracy. The only sure way is to contact the issuing
bank. To do so, go to the bank web site and find a contact number, do
not rely on the seller providing you one.
Internet Credit Card Fraud
Internet credit card fraud describes criminals using stolen credit card
numbers to purchase goods via the internet. Card numbers can be stolen
from hacking attempts, phishing, obtained through identity theft schemes,
pick pockets, or even from your local retailer. Credit card fraud is a
growing crime, especially with the proliferation of the internet. In fact
online losses due to fraud are expected to increase by 37% to an estimated
$2.6 billion in 2007. Merchants ultimately take the responsibility for
the loss as the merchant card processor deducts the money from the business
sales to cover the fraud. Often the businesses have no recourse and become
lost in the system. Credit card companies lack incentive to locate and
convict fraudsters as they take no financial loss. Businesses become frustrated
with the system and often give up while conceding the loss.
To avoid becoming a victim of credit card fraud, we recommend proper
fraud screening tools. Our company specializes in helping businesses combat
fraud through training, enforcement and deterrence.
Prevention Recommendations:
Screen your orders carefully. Ewebsecure.com offers a screening and reporting
system that will help you detect and deter fraud, saving you thousands
of dollars in time and product losses. If you have been the victim of
a credit card fraud, you can submit your complaint to the Internet
Crime Complaint Center, or consult us for our program.
Credit Card Hijacking
This can occur by identity theft, cancellation barrier, or negative option
billing.
For identity theft see below. In the instance of cancellation barrier,
the victim continues to be charged for subscription goods or services
which they no longer desire. Companies that do this do not provide a means
for the customer to cancel, or make the means difficult to find.
Prevention Recommendations:
You can contact your local credit card company to reverse the charge.
Be more insistent with the company that charges you that you will report
them for this violation if they do not cancel and reverse any over charges.
Keep an eye on your credit card bill after a cancellation is made.
Empty Box Fraud
Empty box fraud is what we call an instance where a real customer using
actual credit card, orders an item for themselves. Upon arrival, they then
claim that they received an "empty box" or that they were short
on some items.
Prevention Recommendations:
See our article on "Avoiding Empty Box Fraud"
Debt Elimination
These type of schemes usually involve web sites advertising a legal way
to dispose of mortgage loans and credit card debts. In many cases, the
participant is to send $1,500 to $2,000 to the company individual, along
with all the particulars of the participant's loan information and a special
power of attorney authorizing the company to act on their behalf. The
company individual then issues bonds and promissory notes to the lenders
that claim to legally satisfy the debts of the participant. In exchange,
the participant is then required to pay a certain percentage of the value
of the satisfied debts to the subject. The risk here is of identity theft
because the participants provide all of their personal information to
the subject.
Research who the companies are, how long have they been in business?
Are they verified by any trust seal or third party? Are the third parties
real? Many fraud sites can fake seals or certification.
Prevention Recommendations:
Don't deal with companies outside the country. Check on the background
of the business you are dealing with, make sure they are legitimate.
Fake Postal Money Orders
Fake postal money orders can be sent to pay for goods. Once the money
order is received, the victim ships the items believing they money order
to be real.
Prevention Recommendations:
Check with USPS to determine if the order is real. You might want to
obtain a real version (get one issued for the minimum amount to your company
and keep it on hand to check for authenticity)
Employment/Business Opportunities
Employment/business opportunity schemes have arise where fake foreign-based
companies are recruit people in the United States or Canada on several
employment-search web sites for work-at-home employment opportunities.
These positions often involve reselling or reshipping merchandise to destinations
outside the country.
Potential employees are required to provide personal information, as
well as copies of their identification, such as a driver's license, birth
certificate, or social security card. Those employees that are "hired"
by these companies are then told that their salary will be paid by check
from a United States company reported to be a creditor of the employer.
This is done under the pretense that the employer does not have any banking
set up in the United States.
The amount of the check is significantly more than the employee is owed
for salary and expenses, and the employee is instructed to deposit the
check into their own account, and then wire the overpayment back to the
employer's bank, usually located in Eastern Europe. The checks are later
found to be fraudulent, often after the wire transfer has taken place.
In a similar scam, some web-based international companies are advertising
for affiliate opportunities, offering individuals the chance to sell high-end
electronic items, such as Plasma television sets and home theater systems,
at significantly reduced prices.
The affiliates are instructed to offer the merchandise on well-known
Internet auction sites. The affiliates will accept the payments, and pay
the company, typically by means of wire transfer. The company is then
supposed to drop-ship the merchandise directly to the buyer, thus eliminating
the need for the affiliate to stock or warehouse merchandise. The merchandise
never ships, which often prompts the buyers to take legal action against
the affiliates, who are the real victims.
Prevention Recommendations:
Make sure the web site you are dealing with is legitimate and secure.
Do they have a privacy policy? Are they certified by a third party?
Escrow Services
Fraud
Escrow services are usually proposed to provide confidence to a suspecting
victim. In some cases, the fraudsters create their own escrow site in
order to appear legitimate. The victim then sends money to the escrow
site, but gets nothing in return, or sends items away but does not receive
money in return.
Prevention Recommendations:
Carefully check the site you are dealing with. Have they been around
long? Do they have legitimate references?
Identity Theft
Identity theft occurs when someone obtains another's personal information
without their knowledge to commit theft or fraud. Identity theft is a
vehicle for perpetrating other types of fraud schemes. Theft's of identity
can occur in many different ways including phishing, hacking of web sites,
break and enters, or other scams listed on this board. Identity theft
is so rampant, some banks are offering "identity theft protection"
such as Bank of America.
Prevention Recommendations:
It is a growing crime, individuals should be cautious over who they do
business with and where they submit their personal information. Is this
a legitimate company? How long have they been around? Do they keep the
information secure? Are they certified by a third party? Always keep your
private information confidential. Do not disclose birthdays, social security
numbers over the phone, and know who you are dealing with. Make sure you
check your credit card statements monthly for suspect purchases.
Internet Extortion
Internet extortion describes criminal control of company databases, who
then promise to give back control if money is paid, or threaten to release
secured data in exchange for money.
Prevention Recommendations:
Keep your software and firewall up to date and identify any weaknesses
in your server.
Lotteries
Lottery criminals contact email addresses advising the recipient that
they have won an international lottery. The so called lottery company
then requests that a fee be paid so the winnings can be processed.
Prevention Recommendations:
No fees should be paid to collect lottery winnings.
NIGERIAN LETTER OR "419"
Named for the violation of Section 419 of the Nigerian Criminal Code,
the 419 scam combines the threat of impersonation fraud with a variation
of an advance fee scheme in which a letter, email, or fax is received
by the potential victim. The communication from individuals representing
themselves as Nigerian or foreign government officials offers the recipient
the "opportunity" to share in a percentage of millions of dollars,
soliciting for help in placing large sums of money in overseas bank accounts.
Payment of taxes, bribes to government officials, and legal fees are often
described in great detail with the promise that all expenses will be reimbursed
as soon as the funds are out of the country. The recipient is encouraged
to send information to the author, such as blank letterhead stationary,
bank name and account numbers, and other identifying information using
a facsimile number provided in the letter. The scheme relies on convincing
a willing victim to send money to the author of the letter in several
installments of increasing amounts for a variety of reasons.
Prevention Recommendations:
Never forward money to anyone. Do not believe outrageous claims and elaborate
stories. For more information, see Nigerian Fraud Is Alive And Well
Online Dating Fraud or Romance Scam
Victims are usually befriended by people outside the country local for
a relationship. They can only show photos (usually very attractive photos)
and communicate via chat or email. When the relationship matures to the
point where they want to visit, they ask for large sums of money for travel,
after which they disappear.
Prevention Recommendations:
Never send money, if you really believe this person to be legitimate,
ask to visit them. Or have them consider you purchase the tickets and
send it to them. Their response may expose their true intentions.
Phishing/Spoofing
"Phishing" is the act of attempting to fraudulently acquire
sensitive information, such as passwords and credit card details, by masquerading
as a trustworthy person or business with a real need for such information
in a seemingly official electronic notification or message (most often
an email, or an instant message). It is a form of social engineering attack.
Phishing has been used by fraudsters using spam messages pretending to
be large Banks (Citibank, Bank of America) or PayPal. These fraudsters
copy code and graphics from legitimate web sites and use them on their
own sites to create a real looking web pages. These pages are so well
done that most people cannot tell that they have navigated to a scam site.
They then hope unsuspecting victims will go into the "fake"
site and submit critical log in information which will be subsequently
used to commit fraud on their account.
Prevention Recommendations:
Criminals that spoof or phish usually send emails pretending to be a
legitimate company. They hope you will click on the link and enter your
private information on a "spoof" web site and use it to defraud
you. If you are unsure, log into your web site from the domain name address,
NOT from the link in your email.
Ponzi/Pyramid
Ponzi or pyramid schemes are investment scams in which investors are
promised abnormally high profits on their investments. No investment is
actually made. Early investors are paid returns with the investment money
received from the later investors. These early investors sometimes will
invest more due to the success, and tell their friends. The system eventually
collapses as not enough new money comes in. The later investors do not
receive dividends and lose their initial investment.
Prevention Recommendations:
Be aware of what is too good to be true is.
Reshipping
The "reshipping" scheme requires victims to be in the United
States or Canada, to receive packages at their residence then repackage
the merchandise for shipment, usually abroad.
"Reshippers" are being recruited in various ways but the most
prevalent are through employment offers and conversing, and later befriending,
unsuspecting victims through Internet Relay Chat Rooms.
Victims are asked to post help-wanted advertisements at Internet job
search sites who then ask job seekers to complete an application. The
applicant then discloses private information which will then be used to
obtain credit cards in their name.
The applicant is told he/she has been hired whose job it will be to forward,
or "reship", merchandise purchased to the company's overseas
home office. The goods received were all purchased using fraudulent credit
cards.
Another method of reshipment, involves the victim being befriended in
an internet chat room. After becoming a new "friend" or "love",
they are asked to forward business shipments to his or her outside country.
They often provide a reason that they cannot execute a shipment for legal
reasons and ask for help. After the victim agrees to do this, items start
being shipped to the victims location in large quantities after being
obtained by stolen credit cards.
Prevention Recommendations:
If you become one of these "victims", and start to receive
numerous packages, do not ship them forward and report them to police.
Work At home Schemes
Fraudulent schemes often use the Internet to advertise purported business
opportunities that will allow individuals to earn thousands of dollars
a month in "work-at-home" ventures. These schemes typically
require the individuals to pay anywhere from $35 to several hundred dollars
or more, but fail to deliver the materials or information that would be
needed to make the work-at-home opportunity a potentially viable business.
Often, after paying a registration fee, the applicant will be sent advice
on how to place ads similar to the one that recruited him in order to
recruit others, which is effectively a pyramid scheme.
Other types of work at home scams include home assembly kits. The applicant
pays a fee for the kit, but after assembling and returning the item, it’s
rejected as sub-standard, meaning the applicant is out of pocket for the
materials. Similar scams include home-working directories, medical billing,
data entry at home or reading books for money.
Prevention Recommendations:
You should not have to a pay up front fees for a kit. Check on the legitimacy
of the company you are dealing with.
Other resources for internet fraud include:
FBI Internet
Fraud
Internet Crime Complaint Center
Fraud.org
Paypal
- Fraud Prevention Tips for the Paypal service
United
States Secret Service - Financial Crimes
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