When Appearances Can Be Deceiving: Unmasking Fraud

At last year's RiskConnect, C. Steven Baker - International Investigations Specialist with the Better Business Bureau - laid out in detail how free trial offer scams work, how they get their victim’s money and what is being done to prevent them. We were lucky enough to get further into the topic with an exclusive interview on deceptive marketing practices for the 2019 RiskConnect Magazine. His analysis has lost nothing of its relevance, that's why we have decided to republish it here for a broader audience. Baker has led a 32-year-career at the Federal Trade Commission and work as an author of in-depth consumer fraud reports for the Better Business Bureau.

Q: Confidence tricks are as old as commerce. Can you help the RiskConnect audience put the current state of fraud and deceptive marketing practices in perspective? How does this compare to any time over your career with the Federal Trade Commission?

C. Steven Baker: There’s been fraud as long as there’s been human beings. I’m sure that there were people selling defective camels or cheating on the weights of grain in ancient Mesopotamia. It’s always been there. What has changed over the last 30 years is the technology. People forget that ‘con man’ is short for ‘confidence man’ — someone able to gain your confidence to carry out the fraud. It used to be that you would meet people face-to-face for a lot of these confidence frauds. Mass marketing fraud (cybercrime, internet or telemarketing fraud) has exploded with the use of new technologies. The hallmark is the victim and the crook never meet in person.

The introduction of the internet has made it much cheaper and easier to contact victims. Much more of the fraud is also international. A former FTC chairman said we are awash in a sea of fraud. People get bombarded every day with bogus emails, robo calls or attempts to rip them off. Just take a look in your spam e-mail box. Although the frauds only work a small fraction of the time, the crooks are still ahead. Fraud complaints to the FTC have continued to go up every year. The numbers don’t always tell the whole story as people don’t know to complain. In some cases they may not even realize that they’ve been ripped off. They may feel embarrassed or that they would not get redress.

Q: Based on your long experience with the FTC and BBB, what are the things that tend to separate fraud victims from nonfraud victims?

‍C. Steven Baker: One misconception is that fraud is rare and secondly that it only happens to dumb people. Neither of those are true. Fraud is incredibly common. We are all going to be approached at some point — probably this week — by a fraud scheme. And we’re all susceptible to them. The only thing that really helps is education. I’ve been thinking recently that it’s like a magic trick. If you see a trick and then the magician shows you how they did it, after the fact it’s obvious. You know where to look. The magician moves fast, but if you know what the trick is, it becomes obvious. There are so many fraud victims that feel guilty because they think I should have known. But you didn’t have to know. These are carefully-constructed frauds. People who have had a serious, negative life event — death of spouse or divorce — seem slightly more at risk to fraud. However, another misconception is that older people are more susceptible to fraud. Fraudsters do like older people as they tend to have more money. However, FTC studies have shown that older victims are somewhat less likely to be defrauded, because they have life experience. For some frauds, we know that millennials are most at risk.

Q: If unscrupulous merchants are defrauding their customers, there’s a good chance that they are also defrauding their merchant acquirers, aren’t they?

‍C. Steven Baker: If they’re crooks, they’re willing to defraud anybody. They don’t care. Obviously keeping their costs down is important. In some mail frauds, we’ve even seen counterfeit postage. If crooks are not willing to pay postage, they’re willing to defraud banks or acquirers just as much. They will do whatever necessary to run their scams, which includes the ability to process credit cards. For all frauds, you’ve got to have a way to get paid. Bitcoin is introducing a new way to get paid. But it doesn’t work in all scenarios. It’s kind of hard to call someone and say: “You’ve won the sweepstake, pay me 5 Bitcoin to get your prize.” People aren’t going to do that. What fraudsters really prefer is credit cards because they have a reputation. People tend to trust the credit card system. No government agency or legitimate business is going to ask to be paid via Western Union, MoneyGram or a gift card. But a credit card? That’s different. The fact that crooks can process credit cards gives them an impression of respectability and a big presumption that they’re honest.

Q: Looking to the future, what trends have you seen in certain sectors or geographies that you think have the potential to become significant?

‍C.Steven Baker: I don’t think the crooks care which state or geographic area people live in. They may target the US and the UK, simply because they figure that victims have more money. The globalisation of fraud is here and is going to get worse. Plus I think that the crooks are aware of the constraints on law enforcement. If someone has fallen victim to a fraud and the person behind it and some of the records are in another country, the challenge of putting together an effective prosecution is really high. The crooks can and do recognise the countries that they are less likely to be extradited from or where the risks of prosecution are especially low. The trend is going to be more fraud worldwide. It’s also going to become more global. Nigeria is a huge one right now with a massive population. China is the same way. The crooks are very inventive. They adapt to see if new frauds are going to work. I’m sure that they keep track of what law enforcement is doing. There are also going to be new frauds that we haven’t seen yet.

For more on the topic, check out our articles on how to protect yourself from deceptive marketing, and how to get tough on deceptive marketing practices to gain more insight.

Deceptive marketing practices is also subject of the fifth book in the Web Shield ‘Fundamentals of Card-Not-Present Merchant Acceptance’ series launched at RiskConnect 2019.