Impersonation Schemes: A Big Headache for Companies

This is “Fraud Happens” first guest post. ildar khakimov is a Montreal based internet enthusiast who co-founded several projects including callcenter.com

Companies suffer staggering losses when it comes to impersonation scams.

A good example can be seen in a documentary called “Yes, men fix the world”, in which two men setup fake press conferences on behalf of companies to spread false news.

It’s believed that Dow Chemicals suffered a 2 billion dollar loss as a result of the duo’s fake news announcement which alleged the company’s planned to pay out compensation for the Bhopal Disaster.

So what about the more common forms of impersonation, such as the use of fake caller IDs?

Caller ID spoofing can be even more dangerous because it’s not a single person hitting a single target, but rather a large telecom fraud machine that’s able to place thousands of calls or send millions of SMS messages pretending to be someone they’re not.

Most recent example is fake SMS giftcard scam. In 2012, many individuals started receiving messages that claim they won a free giftcard from Best Buy. The SMS was asking people to visit a specific web-site to claim a prize that didn’t exist.

People that got duped went straight to Best Buy and demanded their “winnings”. This forced Best Buy to spend company resources in order to explain consumers that they got scammed.

In addition, it’s hard to put a monetary value on Best Buy’s tarnished reputation. For example many consumers, who leave complaints on sites like callercenter.com, believe that Best Buy gave out their personal information to telemarketers and that perhaps their personal information was compromised due to company’s inefficient security measures. Even if such allegations are later proven false, the damage to the company’s image has already been done.

One such complaint goes: “[…]Walmart employees are in on it, or  Walmart’s IT security is **** and they were hacked? I paid for my purchase with a credit card, so I certainly hope that wasn’t leaked along with my phone #. One thing’s for sure: I will never step foot in a Walmart again!

Another popular fraud conducted via SMS while showing a fake caller ID is known as Smishing. It consists of a banking notification from crooks who pretend to be the victim’s bank. The SMS threatens the victim to shut down their account unless they login to a specific web-site.

Login information entered is stolen and then used by fraudsters to siphon funds to off shore accounts.

Banks often reimburse stolen funds and thus suffer financial losses from caller ID spoofing. These types of scams are on the rise. A survey of 95 financial institution by ABA show a 260% increase of such scams in 2011 compared to 2009.

In addition to that, banks have to spend millions on security to help fight smishing fraud, in an interview with USA Today, Carol Kaplan of American Bankers Association admitted: “[…]there continues to be huge gobs of investment into shoring up security.”

It’s hard to estimate how much money companies lose because of Caller ID spoofing, but it’s a very significant amount and the situation won’t change until this practice is more strongly regulated by the government.

Now the fraudsters have started spoofing caller IDs making it look like they’re calling from the U.S government to offer a free grant. Who knows, maybe now the government will take notice?

If you are interested in writing a guest post, please email me – pmccormack@connectics.biz. I look forward to hearing from you.

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9 million reasons to fight internal fraud

UPDATE: Patricia K. Smith sentenced to six and a half years. Read more here.

Patricia Smith will be sentenced today, May 8 for embezzling $10.2 million from Baierl Acura. The US Attorney recommends that she serves five to six years. I wouldn’t be surprised if she receives less time than that.

“The $10 million stolen is not an insignificant amount to Baierl, as it might be for a Fortune 500 corporation,”

– U.S. Attorney Steve Kaufman

The majority of Fortune 500 corporations can absorb seven-figure losses and continue operations. Employees may be fired for failing to detect the fraud, processes may be revised and additional technology purchased to prevent a similar loss in the future, but for the most part, the company will shrug off the loss within weeks, sometimes just days.

Does that mean that small companies will automatically close their doors if they experience a $10 million loss? Not necessarily… As we’ll see below, it is actually a little more complicated than that.

Here is another quote from U.S. Attorney Steve Kaufman.

“The defendant’s pattern of theft negatively impacted the finances of Baierl Acura each and every year from 2005 through much of 2011. Fortunately, her activity did not affect Baierl’s timely payment of its payroll, tax and business obligation and liabilities.”

“No harm, no foul?” Patricia committed a crime, but the dealership didn’t suffer that much damage, right?

In my first blog post, I discussed the untold story of small business fraud. I noted that opportunities for the business to expand disappear while the fraudster lines their pockets with ill-gotten gains. In some respects, that is one of the saddest outcomes of fraud within a small business. It robs these businesses of their future.

As this case shows, some businesses can continue operations while a fraud scheme is running. However, the lack of cash puts the business on a different course – they just don’t know it…

With less cash in the bank, hiring decisions are delayed, bonuses canceled, and expansion plans shelved. What would Baierl Acura have done with the $10.2 “extra” dollars? We’ll never know. What we do know is that the business had earned that money. Here is a novel thought… the dealership could have kept the money in the bank and earned interest! They had the right to invest it as they saw fit. Patricia Smith did not have the right to use the money as she saw fit.

So what did Patricia do with the money?

We know that she bought real estate, cars and took luxury vacations, including a VIP trip to the Vatican.  AUSA Kaufman can help answer the question.

“A large portion of the money also was wasted on gambling activity, both by herself and by at least one family member,”

Given that Smith had assets, how much of the $10.2 million does the government expect to recover?

$1 million… 10% of what she embezzled.

At the end of the day, the dealership waves bye-bye to $9 million ($9.2 to be exact) and well as the future that might have been. And we’re left with yet another sad ending involving internal fraud at a small business.

UPDATE: Patricia K. Smith sentenced to six and a half years. Read more here.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com

A billion dollar industry and it ain’t legal (Hint: it used to be a secret)

All is not right with economies in the Western world. The US remains in a malaise while several European economies teeter on the brink of the abyss. The UK just entered a “double dip” recession and as a major trading partner for the US, we’ll surely feel the impact here in the coming months. There are many reasons for the current economic crisis. Without doubt, risk taking on Wall Street and the reckless spending that it helped fuel and support is largely to blame for where we find ourselves today. That’s history. Done. We can’t change it, we can only learn from it.

I am far more concerned with how we move forward. How does the US economy dust itself off and lead the world to better times? If there was a “magic bullet” we would have used it by now. I guess time will tell whether the decisions being made today in both the public and private sector will hurt or help.

One thing I can tell you is that US businesses are making the recovery far more difficult than it needs to be. Don’t believe me? Would you believe Pamela Passman, the president and chief executive officer for The Center for Responsible Enterprise and Trade (CREATe.org)—a Washington-based non-profit industry group focused on responsible business practices?

“Failure to address the challenge of trade secret theft costs industry billions of dollars each year and can have devastating reputational, financial, and legal impacts for individual companies and the global economy as a whole.”

CREATe.org just released a report entitled Trade Secret Theft: Managing the Growing Threat in Supply Chains‘. The report claims that trade secret theft costs industry billions of dollars annually and serves as a critical impediment to innovation, job creation and sustainable economic growth.

What does the US economy need today? How about innovation, job creation, and sustainable economic growth! US companies are literally allowing one element of the solution to the country’s economic woes to slip through their fingers into the hands of foreign competitors – many of which reside in China. Chapter 3 of the CREATe.org report states that “The weak rule of law in many countries makes it all but impossible for multinational corporations to address trade secret theft after the fact”.

Once a trade secret is gone, it is gone for good. No second chances.

Many companies sound concerned, but what are the really doing to combat the threat? Passman states the following,

“Over the past several months, we have engaged with representatives from more than a hundred multinational corporations and have been struck by the deep and pervasive concern over trade secret theft. We heard universal agreement about the need for broader awareness of the challenge and better practices and systems to help address the issue internally and externally with suppliers and business partners,”

Sorry folks, talk is cheap in this situation. In many cases, the companies that “lose” trade secrets have only themselves to blame. This is not a new problem! There is plenty of evidence available from law enforcement and non-profit agencies such as CREATe to show that trade secret theft happens on a regular basis. Goodness knows how many instances are covered up and never hit the business press.

I sincerely hope that CREATe report triggers action. The US is an intellectual property powerhouse but we can’t keep giving the stuff away. In my next post, I’ll highlight some basic steps that companies can take to protect their trade secrets. No magic bullets, but certainly more than many companies have in place right now.

As it relates to intellectual property theft prevention, “the ball” is firmly in the court of US companies. Let’s hope no one steals it before they realize that they have it.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.

paul@mccormackwrites.com