Business Credit Fraud from near and Far Continues to Dog Businesses

Article excerpt

Holding onto the assertion that long-established fraud methods, such as bust-outs and low-level hacking, are on the wane could prove a dangerous gamble. In fact, the Federal Bureau of Investigation (FBI) and Verifraud note fraud schemes of all sorts--simple, traditional and those more evolved--still cost businesses millions upon millions of dollars per year.

"It doesn't need to prevent opportunity for sellers;' said Gary Bares, founder and CEO of Verifraud, which runs NACM's Asset Protection Group (APG), which helps members avoid fraud schemes and identify those perpetrating them, "but people need to have their eyes open these days and perform due diligence. Small companies can literally get wiped out by a single bust-out scheme."

A 2012 fraud report conducted in conjunction with LexisNexis and Javelin Strategy & Research said that the "true cost of fraud" to victim merchants is rising, as are the types and sophisticated nature of scares, and number of attempts to defraud. In 2012, the true cost to a business exceeded $2.70 for every $1 of fraud, which is up 40 cents from the previous year, Lexis and Javelin said. They noted that those selling internationally on B2B and consumer levels are targeted by potential fraudsters five times as often as those who stay domestic, and the success rate is four times higher.

"Merchants often have no choice but to seek global or mobile markets for growth, yet this study shows that an eyes-open approach to preparing for the worst is likely to predict success against persistent and inventive criminals," the study noted.

Meanwhile, Scambook.com, an online resource that allows users (though mostly consumers) to post about fraud activity on the part of businesses, estimates that more than 3% of all emails carry some type of virus or malware. Spoofing is also on the rise, Scambook reports, meaning hackers are increasingly trying to impersonate a credible company or person only to be able to access information that can be used later for a host of crimes, especially fraud.

West Africa and Former Soviets

A large portion of fraud attempts in recent months and years emanate from locations in West Africa and Eastern Europe, mostly former members of the Soviet Union. The FBI notes that external fraud attempts often come in the form of foreign agents posing as potential customers or investors to gain access to technical information that could compromise a company. It notes that these fraudsters prey on weak online security that is tantamount to "an invitation to hackers." And while some schemes--like those of Nigerian princes asking for help in moving money out their country--are laughable to many businesses and consumers, a lot of money is lost in western nations on these every year. Bares said the "numbers game" has and continues to be a tried-and-true approach by fraudsters.

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"Out of 1,500 of these fraud attempts sent, they might end up getting 10 hits," Bares said. "Companies are still getting burned by this because it falls through a crack with a new employee, or they've never seen this type of attempt before, or salespeople haven't been trained for this. It's a reason why APG is putting out so much more now about actual companies being impersonated."

And, once the damage is done, good luck getting any assistance from governments. Both the FBI and Bares note there is little cooperation or effort to get money back for a western-based victim, especially one in the United States. It shouldn't come as a surprise. Take, for example, Transparency International's 2012 Corruption Perception Index (see pages 24-25) for two areas routinely identified as centers for such fraud activity. Kazakhstan ranked 133 out of 176 nations, while Nigeria placed an even worse 144.

"Some are kind of beyond the reach of western law," said Bares. "A lot of those are fairly lawless territories themselves. …