Internet fraud, or Internet deception, threatens the sustainability of Internet commerce
because it undermines trust. It has many definitions although all define it as a white-
collar crime and as “any type of fraud scheme that uses one or more components on the
Internet such as chat rooms, e-mail, online auctions, message boards, or Web sites to
present fraudulent solicitations to prospective victims, to conduct fraudulent transactions,
or to transmit the proceeds to financial institutions or to others connected to the
scheme”1. And, as Chris Carroll, account executive for Database Systems of
Springfield, Inc., states, “in the most general definition, internet fraud is any use of
information transmitted over the Internet for illegal means”2.
There are several ways used by criminals commit internet fraud. The FBI has people
assigned to combat this type of fraud; according to their figures, U.S. companies' losses
due to internet fraud in 2003 surpassed $500 million USD. In some cases, fictitious
merchants post excellent prices for goods and never deliver. However, that type of fraud
is minuscule compared to criminals using stolen credit card information to buy goods and
services.3
Federal law officers define Internet fraud as any scheme involving Web sites, chat rooms,
and e-mail that offers non-existent goods or services to consumers, misrepresents scams
as legitimate, or transmits victims' funds, access devices, or other items of value to the
perpetrators' control.4
The types of Internet fraud schemes that law enforcement authorities are identifying
extend well beyond securities-based transactions to many other situations, such as
spurious investment and business opportunities, online auctions, sales of computer- and
Internet-related products and services, and credit card issuing.5
There are many types of internet fraud that happen on a daily basis; a few examples are auction and retail fraud, work-at-home schemes, investment schemes, credit card schemes, telemarketing6 and identity theft. Currently, no one law enforcement body polices the Internet’s information and users. Because of that, Internet users must use caution when traveling this “information super-highway” which is easily used by fraudsters as a ways of communication, advertisement, or news information propagating a wide range of frauds at real time speed with relative anonymity
Auction and retail fraud are very common. “Online auction scams are the most frequently
reported form of Internet fraud reported to the Federal Trade Commission, the FTC, the
Department of Justice and the National Internet Fraud Watch Information Center, the
IFW7.” These schemes involve the use of Web pages on the Internet falsely advertising
various products and services at sites such as ebay.com, Ubid.com and Yahoo auctions.
Be part of one of America's fastest growing industries! Earn thousand of dollars a month, from your home, processing medical billing claims. Ads like this are everywhere and while these ads may seem appealing, proceed with caution. Not all work-at-home opportunities deliver on their promises. “Checking out the company the your local consumer protection agency, the state’s Attorney General and the Better Business Bureau, both where the company is located as well as where the consumer lives. These organizations can tell about complaints the work-at-home program has received. The absence of complaints doesn't necessarily mean a company is legitimate; unscrupulous companies may settle complaints, change their names or move to avoid detection.8”
There are numerous organizations that offer online services for consumers to search
companies. The most common is the Better Business Bureau (BBB) Online,
www.bbbonline.org which has an eight-point reliability program which promotes the
“growth and development of safe and secure e-commerce.” Companies that participate in
the program make a commitment to a high level of ethical business practices. Just
because an e-Business is a member of the program does not guarantee customer
satisfaction. However, conducting business with companies that are members does
provide some reassurance that the company is being monitored.
Another type of fraud is investment schemes; these include telemarketing schemes.
Fraudulent investment schemes are often marketed by telephone salespersons armed with
high pressure and sophisticated selling techniques. Some swindlers surround themselves
with the trappings of legitimacy: rented office space, a receptionist, investment
counselors, and professionally designed color brochures describing the investment. All
these things may cause the business to seem legitimate but these companies use high-
pressure tactics and attack groups of people with higher dollar savings accounts. Seniors
are a prime target for fraudulent investment schemes since many have saved a good
amount of money for their retirement years. These include "pump-and-dump" schemes,
short-selling schemes, Ponzi schemes, and other fraudulent investment schemes have all
been subjects of federal prosecution.
Credit card fraud committed online is a multi-faceted crime. Stolen or forged credit card numbers are used to purchase items from Web sites. The seller ships this merchandise to the suspect; once the discovery is made that the credit card has been used fraudulently, the merchant issues a credit to the card owner and is left without either the merchandise or payment.
Identity theft is the illegal use of someone’s personal data such as name, social security
number or driver’s license to obtain money, merchandise or services by deception8.
Stealing credit card numbers, ordering merchandise online with stolen personal
information and stealing from online accounts such as paypal.com are some of the most
common forms of Internet identity theft.9
With the explosion of the Internet and e-commerce, there has been a rise in the
occurrence of Internet fraud. The National Fraud Information Center published, in its
Internet Fraud Watch 2004, that the top ten internet scams are: goods never delivered or
misrepresented through auctions, general merchandise and computer equipment/
software, Nigerian money offers, phising (emails seeming to come from legitimate
sources asking to confirm personal information), information and adult services, fake
checks, lotteries/lottery clubs, fake escrow services and Internet access services. In 2004,
the estimated average loss to victims was $895, an increase of 16% over 2003. Email has
been the common mode of choice for Internet fraud with a 5% increase from 2003
resulting in an overall 22% increase in year 2004. Internet users have to arm themselves
with the skills to be able to avoid and detect Internet fraud as early as possible before
they become victims.10
Consumers must use due diligence when conducting e-commerce. An Australian-based
company, Computer Research & Technology, recommends the KURT method of
avoiding Internet fraud, Know your company; Understand the offer; Record and check
the company out; and Time, don’t be rushed11. Just as brick-and-mortar relationships are
built through trusted transactions, consumers need to build trusted online relationships.
From knowing the physical location to knowing the return policies, consumers have to do
their homework.
Consumers conduct business transactions on a daily basis and during these occurrences,
are asked for personal information. Online consumers need to be proactive and
knowledgeable about the companies with which they are conducting business. Becoming
an educated online consumer means being knowledgeable of the company’s policies
regarding their products/services, warranties, delivery, pricing, return, cancellation, etc.
Part of investigating an online company should start with visiting the Better Business
Bureau Online. Also, consumers should not feel pressured or rushed when making their
buying decisions. If an internet company is using “high-pressure” marketing tactics, the
reputation of the company should be questioned. Also, as part of developing a record on
the company, hard copies of your Internet transactions should be kept; this information
can be used in the future to reconcile purchases.
Another important aspect in avoiding Internet fraud is not giving out valuable personal
information online including passwords, PIN numbers, account numbers, etc. Also,
common information like social security numbers, telephone numbers or birth dates
should be avoided when choosing a password.
Financial transactions should be limited to secure web sites. Transacting with an
unsecured web site increases the probability of personal information being comprised.
However, secure web sites are no guarantee. Exercising sound judgment is important.
Web site development has become quite high tech with flashy and interactive web
designs. A web site with a lot of pizzazz is not necessarily more secure or more reputable
than any other. Similar to the notion that going to an expensive fancy store would be a
guarantee that you would receive the best quality and price for an item; this is also true
when it comes to websites. According to the U.S. Securities and Exchange Commission,
fraudsters use all types of tactics to create a convincing legitimate looking web presence
on the Internet12. Some use counterfeit seals and logos that are similar to reputable
companies and product brands. Consumers must be careful and not fooled.
The Federal Trade Commission suggests remembering the ABC’s of privacy and
security. Internet users should ask: “About me. What information does the company
collect and is it secure? Benefits. How does the company use that information and what
is the benefit of it? Choices. What choices do I have about the company’s use of this
information? Can I opt-out of having information used for other purposes, and how?” 13
Internet-related crimes, like any other, should be reported to the appropriate law
enforcement investigative authorities at local, state, federal or international levels,
depending on the extent of the crime.
There are several main federal law enforcement agencies that investigate crimes
on the Internet; each agency has offices located in each state; the contact information
for them can be found in any local telephone directory.14
Complaints of internet fraud can be filed with the following agencies:
Federal Bureau of Investigation (FBI)
U.S. Secret Service (Financial Crimes Division)
Federal Trade Commission (Online complaints)
Securities and Exchange Commission (Securities fraud)
The Internet Fraud Complaint Center
“In 1986, Congress revised Title 18 of the United States Code to include the
investigation of fraud and fraud-related activities concerning computers that were
described as "federal interest computers," as defined in United States Code, Section
1030.15 The Secret Service has also investigated cases where computer technology
has been used in traditional Secret Service violations, such as counterfeiting and the
creation of false identification documents. Computers are being used extensively in
financial crimes, not only as an instrument of crime, but to "hack" into data bases to
retrieve account information, store account information, clone microchips for cellular
telephones and scan corporate checks, bonds and negotiable instruments that are later
counterfeited using desktop publishing methods.”16
The Federal Trade Commission has developed several enforcement priorities which
include: “shutting down high-tech Internet and telephone scams that bilk consumers out
of hundreds of millions of dollars annually, halting deceptive telemarketing or direct mail
marketing schemes that use false and misleading information to take consumers’ money
and stopping pyramid schemes and other fraudulent investment scams.”17
The Department of Justice has been dealing with Internet fraud since February 1999. The federal government expanded its initiative to combine criminal prosecution and analytical resources to identify and investigate Internet fraud.
The Internet Fraud Initiative was approved by the Attorney General on February 26,
1999. It is a national initiative of the Department of Justice with the purpose of providing
a comprehensive approach to fighting Internet fraud. The Internet Fraud Initiative works
with the Federal Trade Commission to determine the scope of the problem by exploring
methods to determine the incidence of Internet fraud. They develop and provide training
to prosecutors and agents by using the National Advocacy Center (NAC). In conjunction
with NAC they also work with the National Association of Attorneys General and the
American Prosecutors Research Institute to provide training to state and local law
enforcement agencies. The Internet Fraud Initiative monitors the development of
resources to identify and investigate Internet-related fraud schemes. They also support
the FBI’s National White Collar Crime Center by establishing the Internet Fraud
Complaint Center. The department works as a liaison among federal prosecutors and
other federal law enforcement and regulatory agencies along with state, local and foreign
law to establish standards on Internet fraud investigations and prosecutions. The Internet
Fraud Initiative is responsible for establishing programs that provide public education on
Internet fraud.
In our current world, technology and the amount of information being made available,
here are people and companies using this to put us and, actually, our lives in jeopardy,
both in the U.S. and abroad.
Consumers need to become familiar with whom one is doing business with and learn that
there are government agencies they can obtain valid information from to help attain their
investment dreams. These include the Federal Trade Commission for suggestions such as
securing your server, shutting the door on spam, and having knowledge and ways to
reduce risks to your computer systems. http://www.ftc.gov/bcp/menu-internet.htm as well
as the United States Secret Service http://www.treas.gov/usss/ntac.shtml. The Secret
Service, in collaboration with CERT/CC of Carnegie Mellon University, is developing
the Critical Systems Protection Initiative (CSPI). The goal of this program is to develop a
refined cyber security prevention and response capability in support of both investigative
and protective missions. One important component of the CSPI is the Insider Threat
Study, which will analyze the physical and online behavior of insiders prior to and during
network compromises. The insider who already has access to such systems can
potentially be the most dangerous. The U.S. Secret Service foresees the applicability of
this program in assisting private industry to evaluate and manage a potential problem
before it happens. http://www.treas.gov/usss/ntac_its.shtml
But, there are also non-governmental agencies such as Internet Fraud Watch and the
NFIC or the National Fraud Information Center (http://www.fraud.org/) and the Internet
Fraud Initiative.
The NFIC was originally established in 1992 by the National Consumers League to fight
the growing menace of telemarketing fraud by improving prevention and enforcement.
The NFIC is the only nationwide toll-free hotline for consumers to get advice about
telephone solicitations and report possible telemarketing fraud to law enforcement
agencies. In 1996, the Internet Fraud Watch was created, enabling the NFIC to offer
consumers advice about promotions in cyberspace and route reports of suspected online
and Internet fraud to the appropriate government agencies. (http://www.fraud.org/)
The National Advocacy Center (NAC) is operated by the Department of Justice, the Executive Office for the United States Attorneys. The organization was established to train federal, state, and local litigators and prosecutors in the skill of management of legal operations and advocacy. According to the U.S. Department of Justice, United States Attorneys’ Bulletin (2001, May Volume 49 Number 3) Internet Fraud, Cybercrime II, in an interview conducted by Jim Donovan with the Director of the Office of Legal Education (OLE), Michael W. Bailie, the National Advocacy Center (NAC) was established in April 1998 and is now located at the University of South Carolina, in Colombia, South Carolina. The U. S. Attorneys’ Bulletin went on to say that the NAC conducts specialized seminars on Internet fraud. The organization trains members of the Federal Bureau of Investigation (FBI), Assistant U. S. attorneys, local police and foreign prosecutors. The training program provides advice and litigation, analysis and referrals, outreach and prevention and international coordination.
The Internet Fraud Complaint Center (IFCC) was established on January 1, 2001 as a partnership between the FBI, the National White Collar Crime Center (NW3C), the U.S. Postal Inspection Service and the Internal Revenue Service (IRS). Complaints can be filed at the IFCC website (http://www1.ifccfbi.gov/strategy/howtofile.asp) which gives step-by-step instructions on the complaint filing process.
The Federal Bureau of Investigations (FBI) performs several very important roles involving the Internet. The FBI are normally the lead law enforcement agency in investigating cyber attacks by terrorists and foreign adversaries. They also protect vital information that could be taken during an attack. Additionally, the FBI provides criminal investigative services for citizens and business victimized by Internet fraud or cyber schemes. The FBI also investigates and stops sexual predators using the Internet as a means to stalk victims or potential victims.
The National White Collar Crime Commission (NW3C) is a non-profit organization that has been funded by Congress to provide support to state and local law enforcement agencies as well as any agencies that are involved in the prevention, investigation and prosecution of Internet fraud. The commission is an advisory board made up of several representatives from the federal, state, local and private sectors such as the U. S. Department of Justice’s Computer Crimes and Intellectual Property Section, the U. S. Department of Defense, the Federal Bureau of Investigation, the U. S. Treasury Department, the University of Texas at Dallas, West Virginia University, Carnegie-Mellon University and the International Association of Chiefs of Police (http://www. nw3c.org/programs.html ).
The Securities and Exchange Commission, with the Office of Internet Enforcement
(OIE), were established to combat online fraud. “The Office of Internet Enforcement,
formed in July 1998, administers the enforcement division’s Internet program. To
combat online fraud, the OIE conducts Internet investigations and prosecution, identifies
areas of surveillance, formulates investigative procedures, provides strategic and legal
guidance to enforcement staff nationwide, performs training for commission staff and
outside agencies, and serves as a resource on Internet matters for the entire
commission.”18 The SEC Complaint Center receives over 1,000 complaints daily.
“The Internet Fraud Complaint Center (IFCC) is a partnership between the Federal
Bureau of Investigation (FBI) and the National White Collar Crime Center (NW3C) and
its mission is to address fraud committed over the Internet. For victims of Internet
fraud, the IFCC provides a convenient and easy-to-use reporting mechanism that alerts
authorities of a suspected criminal or civil violation. For law enforcement and regulatory
agencies at all levels, the IFCC offers a central repository for complaints related to
Internet fraud, works to quantify fraud patterns and provides timely statistical data of
current fraud trends. .”19
The National Consumers League (NCL) was founded in 1899 to promote social and
economic justice for consumers and workers. Public education has always been one of
one of the tools that they use to fulfill their mission. Among other programs, the NCL
operates the National Fraud Information Center/Internet Fraud Watch program, at
www.fraud.org, which has a hotline and web site that provides advice to consumers about
telemarketing and Internet fraud and enables them to report scams to law enforcement
agencies.20
Detailed information pertaining to these agencies and the process for reporting Internet
and other fraud can be found on the Computer Crime and Intellectual Property Section
(CCIPS) website at http://www.cybercrime.gove/reporting.htm.
The global nature of the Internet, and law enforcement experience in conducting Internet
fraud investigations, have made it increasingly clear that law enforcement authorities
need to work in closer coordination to have a substantial effect on all forms of Internet
fraud.
____________________________________
1 2004 National White Collar Crime Center http://www.nw3c.org/research_topics.html
2 Johnson, Julie. Internet Highway Gives Scam Artists Several Ways to Fraud. The Southwest Standard archives. Springfield, MO: Southwest Missouri State University. Volume 93, Issue 6. September 30, 1998.
3 www.en.wikipedia.org/wiki/Internet_fraud Wikipedia, The Free Encyclopedia, GNU Free Software Foundation, Inc., Boston, MA. Modified 21 April 2005.
4 Kelsey, Dick. Feds Charge 90 in Web Fraud Sweep. The ComputerUser.com, Technology, Trends & Tools. Minneapolis, MN: Key Professional Media, Inc. May 11, 2005.
5 National Consumers League, Press Release, "NCL Releases Top Ten Internet Scams," Feb. 10, 1998, http://www.natlconsumersleague.org/top10net.htm
6 Internet Fraud. Fraud Section, Criminal Division U.S. Department of Justice, Washington, DC. May 15, 2001. Retrieved from http://www.usdoj.gov/criminal/ fraud/Internet.htm#What %20Are%20the%20Major%20Types%20of%20 Internet).
7 Chiffriller, Margaret. Auction and Retail Scams. Retrieved from http://www.chiff.com/a/ fSCAMauc.htm
8 Work At Home Schemes. March 2001. Retrieved from http://www.ftc.gov/bcp/ conline/pubs/invest/homewrk.htm
9 Haantz, Sandy, NW3C Research Assistant and Aaron Naternicola. NW3C Internet Fraud Analyst. WCC Issue: Internet Fraud. Huntington, WV. Updated September 2002. retrieved May 3, 2005 from www.nw3c.com
10 National Fraud Information Center. Retrieved from http://www.fraud.org/2004-internet 20%scams.pdf
11 Internet Fraud. Computer Research & Technology, eTopics. Retrieved from http://www.crt.net.au/etopics/fraud.htm
12 Fake Seals and Phony Numbers: How Fraudsters Try To Look Legit. Retrieved from http://www.sec.gov/investor/pubs/fakeseals.htm.
13 Facts For Consumers. Retrieved from http://www.ftc.gov/bcp/conline/ pubs/online/cybrsmrt.htm. March 2004.
14 Internet Fraud. Fraud Section, Criminal Division U.S. Department of Justice, Washington, DC. May 15, 2001. Retrieved from http://www.usdoj.gov/criminal/ fraud/Internet.htm#What %20Are%20the%20Major%20Types%20of%20 Internet).
15 Internet Fraud. Fraud Section, Criminal Division U.S. Department of Justice, Washington, DC. May 15, 2001. Retrieved from http://www.usdoj.gov/criminal/ fraud/Internet.htm#What %20Are%20the%20Major%20Types%20of%20 Internet).
16 How to Report Internet-Related Crime. Federal Bureau of Investigation. Retrieved from http://www.fbi.gov
17 Federal Trade Commission for the Consumer. Retrieved from http://www.ftc.gov/bcp/ bcpmp.htm
18 U.S. Securities and Exchange Commission. Retrieved from http://www.treas.gov/ usss/financial_ crimes.shtml #complaint
19 How to Report Internet-Related Crime. Internet Fraud Complaint Center. Retrieved from http://www1.ifccfbi.gov /index.asp.
20 1999 Encyclopædia Britannica, Inc. Britannica Editors. Encyclopaedia Britannica, Incorporated, Awards & Accolades Press Company. 1999.
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The following Websites were also accessed and are used as references:
http://fbi.gov/cyberinvest/cyberhome.htm
http://www.fbi.gov/majcases//fraud/internetschemes.htm
http://www.ftc.gov/bcp/menu-internet.htm
http://www.keepmedia.com/pubs/BankTechnologyNews/2003/11/03/532467
http://www.nw3c.org/programs.htm
http://www.treas.gov/usss/ntac.shtml
http://www.usdoj.gov/criminal/fraud/Internet.htm#What%20Are%20the%20Major%20Types%20of%20Internet
http://www.usdoj.gov/usao/eousa/ole
http://www.usps.com/websites/depart/inspect/invest.htm
http://www1.ifccfbi.gov/strategy/howtofile.asp