In 2005, the Internet National Fraud Information Center reported consumer losses due to Internet fraud at approximately $13 million. Those losses were significantly higher than the losses reported in 2004 that were less than $6 million. The numbers of individual complaints were only 20% higher. The increase in the number of complaints does not account for the doubling of the total amount of the losses indicating higher individual losses. According to recent statistics the most expensive scams are the Nigerian Offers, with 42 people reporting losses in 2005, compared with only one person in 2000.
Congress passed the High-Performance Computing Act of 1991 – Title I: High-Performance Computing and the National Research and Education Network to set forth guidelines for the security of computer networks and the Internet in the private sector. The Act’s goals include:
• Fostering and maintaining competition and private sector investment in high-speed data networking
• Promoting the development of commercial data communications and telecommunications standards
• Providing security, including protecting intellectual property rights
• Developing accounting mechanisms allowing users to be charged for the use of copyrighted materials
• Purchasing standard commercial transmission and network services from vendors
Fraudulent Internet activity continues to climb and receive national press. Even though a number of government agencies including the Federal Bureau of Investigation (FBI) have been charged with enforcement responsibilities of private businesses new scams emerge weekly. Statistics have shown that Internet criminals use websites for 75% of Internet related crimes and the other 25% of the crimes occur mainly through the use of E-mail. Studies have shown that 37% of Internet thieves are located outside of the United States, and of the 63% located in the U.S. that California has the highest concentration at 9%.
Some of the most popular Internet Frauds are:
Internet Auction Frauds
Typically, fraudsters launch auctions on E-Bay or TradeMe or another auction house with a very low price and no reserve, mostly for high priced items like watches, computers or high value collectibles. The thieves then receive payment and never deliver the purchased item, or deliver an item that is less valuable than the one offered, such as one that is counterfeit, refurbished or used. Some fraudsters also create complete auction web stores that appear to be legitimate, but never deliver on any of the goods.
In the Nigerian schemes, the criminals organize large numbers of people to actively recruit single women from western countries through chat rooms and matchmaking sites. Then after establishing an online relationship, the fraudster promises to marry the women and to come to her home in the near future. Using a variety of excuses the fraudster then asks permission of his “future wife” to send some goods he has purchased to her before he arrives. When the woman agrees to receive the goods the fraudster makes the purchases at different Internet sites using a number of stolen credit card numbers. In many cases the correct billing address of the actual cardholder is used, but the shipping address is that of the “future wife”.
When the packages arrive, the fraudster then invents an excuse for not coming and asks his “bride” to pick up most or all of the packages. Since the woman has not spent any money, and is unable to see any thing wrong, she agrees to collect the packages. Shortly thereafter a FedEx or UPS package with pre-printed labels arrives and she is asked to apply the labels to the boxes. The goods are then shipped to the fraudster’s real address (in Nigeria or elsewhere). Soon after this occurs the unsuspecting victim stops receiving communications from the “future husband”. In addition in most cases the fraudsters create accounts with FedEx or UPS in the woman’s name and a few weeks later a huge freight bill from the shipping company arrives for her to pay because the goods were shipped from her home.
Counterfeit Postal Money Orders
According to the FBI and United States Postal Service (USPS) postal inspectors, there has been a significant surge in the use of Counterfeit Postal Money Orders. Authorities intercepted more than 3,700 counterfeit postal money orders in just three months of 2004. According to the USPS, the “quality” of the counterfeits is so good that ordinary consumers are easily fooled. In March 2005, the Federal Deposit Insurance Corporation (FDIC) an independent agency created by Congress to supervises banks, insures deposits up to $100,000 and maintain a stable and sound banking system, issued a public alert about counterfeit U.S. Postal Money Orders being presented for payment at financial institutions and for on line payments.
Phishing is a form of criminal activity that uses social engineering techniques. It is characterized by attempts to fraudulently acquire sensitive information, such as passwords and credit card details, by criminals masquerading as trustworthy individuals or as representing a reputable business in what appears to be an official electronic communication. Phishing is typically done through the use of E-mail or instant messages (IMs).
Pharming is a scamming practice in which malicious code is installed on a personal computer or server, misdirecting users to fraudulent Web sites without their knowledge or consent. These websites then gather personal data and passwords to be used for illegal purchases.
Credit Card Frauds
Every day, thousands of active credit and debit card numbers, as well as related personal data, are sold and traded on the Internet. This information is generally acquired through phishing attacks, is stolen by hackers from huge data repositories or is even obtained from employees of local merchants and then sold. The credit card numbers and personal data are then used by Internet thieves to make online purchases that are sent to a different address than the cardholder. The victim is usually not aware of these illegal purchases until their billing statement arrives.
Advance Fee Schemes
Advance fee schemes occur when a victim pays money to someone in anticipation of receiving something of greater value, such as a loan, contract, investment, or gift, and then receives little or nothing in return. The variety of advance fee schemes is limited only by the imagination of the con artists who offer them. Recent schemes have involved the sale of products or services, the offering of investments, lottery winnings, “found money,” or many other “opportunities.” Clever criminals may offer to find financing arrangements for their clients who pay a “finder’s fee” in advance. The fraudsters usually require the client to sign a contract in which they agree to pay the fee after being introduced to the financing source. Victims often learn that they are ineligible for the financing only after they have paid the “finder” according to the contract.
Attorneys who specialize in Internet consumer fraud are a valuable resource to online consumer fraud victims and in some cases are able to help individuals recoup some or all of their financial losses.