Australian Institute of Criminology

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Introduction

The purpose of this paper is to report findings from the 2010 and 2011 ACFT surveys, in order to provide an overall picture of the nature of consumer fraud in Australasia.

Australasian Consumer Fraud Taskforce

The ACFT, chaired by the Australian Competition and Consumer Commission (ACCC), was formed in March 2005 and comprises 22 Australian and New Zealand government regulatory agencies and departments. They have responsibility for consumer protection as it pertains to frauds and scams, including consumer protection and policing agencies at the state and federal levels. The ACFT also has a range of partners from the community, non-government and private sector who have an interest in increasing awareness in the community about scams. The aim of the ACFT is to apply a coordinated approach to reduce the number of incidents and the impact of consumer frauds and scams. In order to meet this aim, the ACFT coordinates a week-long information campaign each year, timed to coincide with global consumer fraud prevention activities.

Since 2006, the AIC has conducted annual surveys to assess consumer fraud experiences (see Smith (2007) for the results of the pilot study conducted in 2006, Smith & Akman (2008) for the 2007 survey results, and Budd & Anderson (2011) for the results of the 2008 and 2009 surveys). The surveys reported in this paper ran for approximately three months each between January and March in 2010 and 2011, which encompassed the annual Fraud Week conducted by the Taskforce.

Defining scams

The Australian Bureau of Statistics (ABS 2008: 5) defines a scam as

a fraudulent invitation, request, notification or offer, designed to obtain someone’s personal information or money or otherwise to obtain a financial benefit by deceptive means.

While the terms fraud and scam are often used interchangeably, scams are generally considered to be a fraud category, with fraud referring to matters involving dishonesty and deception. There are a range of consumer fraud activities that may be classified as scams. Seven common types of consumer frauds were explored in the 2010 and 2011 ACFT survey, namely—advance fee fraud, dating scams, financial advice scams, inheritance scams, lottery scams, phishing and work from home scams. Definitions for these scam types are provided in Table 1. Consumer scams target individuals and consumers, rather than businesses or governments (Budd & Anderson 2011).

Table 1: Common consumer scams
Advance fee fraud/Nigerian 419 scams Advance fee frauds or Nigerian 419 scams have existed throughout history and have adapted to advances in technology. Generally, these scams are communicated by email or letter seeking assistance to transfer a large amount of money overseas. These are the most commonly complained about scams in Australia, according to the ACCC
Dating/social networking scams Dating and social networking scams may exist through illegitimate or legitimate dating or social networking websites and may require payment for each email sent and received by a potential match. Alternatively, scammers may hook victims by claiming to have an unwell relative or severe financial trouble and seek assistance. Due to the trust already established, victims may be more easily duped and in disbelief when scammers no longer remain in communication after money has been sent
Financial advice scams Financial advice scams are offered through cold calling by scammers operating from overseas who pretend to share advice on shares, mortgage or real estate ‘investments’, ‘high-return’ schemes, option trading or foreign currency trading. The advice generally does not lead to increased wealth
Inheritance scams Inheritance scams are usually sent by scammers posing as a lawyer or bank purporting to act for a deceased estate and may falsely claim that a distant relative has died and through some means has left the target person a large inheritance
Lottery scams A lottery scam may be delivered by email, text message or pop-up screen on a website, falsely claiming the recipient has won a prize or competition
Phishing Phishing refers to emails that trick people into giving out their personal details and banking information; they are increasingly being sent by SMS
Work from home scams (money laundering) Working from home scams are often promoted through spam emails or advertisements on noticeboards; however, are generally not advertising real jobs. Work from home scams are generally fronts for illegal money-laundering activities or pyramid schemes

Source: ACCC 2012a, 2011a; AIC ACFT Survey 2010

The hidden nature of consumer fraud

Incidents of consumer fraud may not be reported for a number of reasons. For example, victims may not be aware that they have been scammed, not be aware of law enforcement interest, feel responsible for becoming a victim, or not know to whom the scam should be reported. Over one-third (37%) of the 2009 ACFT survey respondents reported that they had received a scam invitation to a formal agency. Of those who responded to the scam (54%), most reported it to an office of fair trading or consumer affairs agency (34%), to the business involved (26%) or to the police (14%). In addition, 42 percent of all respondents and half (50%) of those who responded to the scam told their family or friends about the scam invitation (Budd & Anderson 2011). The AIC’s 2010 and 2011 annual surveys are the first to explore reasons for not reporting victimisation.

One of the challenges currently facing criminal justice policymakers is a lack of knowledge about the extent of consumer frauds. This can be attributed to a low reporting rate, the multitude of state and federal government agencies within Australasia that collect this type of data, the way data are recorded and a lack of resources to enable victimisation surveys to be undertaken. For example, scam recipients and victims may report matters to policing agencies, state and territory consumer protection agencies, the ACCC, the Australian Communications and Media Authority, the Australian Securities and Investments Commission or the Australian Tax Office. Other organisations that may receive complaints about scams include banks and financial institutions, online trading and auction sites, as well as social media sites (ACCC 2012b).

It is noted that the Australian Government is planning to undertake a feasibility study in relation to establishing a national reporting facility for crime that takes place online, such as consumer frauds that are distributed using email, websites and other social media (DPMC 2011). Smith (2008) argued that a national reporting centre would allow for the development of an improved response in relation to prevention and intervention. It would also allow for the collation of information domestically, which could then be shared with the international community. Data collected by a national reporting centre could be used to raise awareness of victimisation, enable resources to be allocated more effectively and appropriately, evaluate intervention and prevention strategies, compile intelligence that can be used for policing and prevention activities, provide feedback to those who have detected and reported matters, enable information on new crime methodologies to be shared with others at risk of similar types of activities and compile statistical data for trend identification, data mining and analysis (Smith 2008).

Opportunities for fraud

Levi and Smith (2011) discuss the impact that the global financial crisis may have had on the nature and extent of fraud. Although not focusing primarily on consumer fraud, they note that opportunity often plays a role in scams. For example, with the increase in unemployment following the global financial crisis (by 1.3 percentage points in Australia), there is greater opportunity for employment scams (Levi & Smith 2011). Similarly, the recent strength in the Australian dollar may lead to greater consumer fraud exposure as shoppers turn to the internet to buy goods from overseas. The high value of the dollar would also make Australians an attractive target to scammers.

The development of new technologies also provides opportunities for scammers. For example, there have been recent media reports about the use of malicious quick response codes (images which, when scanned by a smartphone, link to a website or other digital content) being used by scammers. Examples of scams that may be distributed using quick response codes include the installation of malicious applications that send premium SMS without consent, obtain personal information or direct users to a phishing website (Shanklin 2011; Vuong, 2011). The ability to differentiate between legitimate and malicious quick response codes is particularly problematic and scammers may even use stickers to cover authentic codes with their own.

Scammers have also been found to take advantage of opportunities that may initially conceal their intentions. For example, dating websites provide a forum for strangers to contact each other and it is not unusual to receive a message from someone that is unknown to the potential victim. The victim may be groomed for some time before the scammer requests financial assistance. In 2011, dating and romance scams were one of the least reported to the ACCC, making up just 2.5 percent of complaints, however, this scam type was the most likely to result in financial loss, with 48 percent of complainants reporting they had lost money (ACCC 2011b). The ACCC has attempted to address the risk of romance scams by launching guidelines for dating websites. These guidelines include providing scam warnings and information, vetting and checking procedures to detect fraudulent profiles and effective complaint handling mechanisms (ACCC 2012c).

The popularity of goods and services also provides opportunities for scammers. For example, phishing attempts use the name of popular banks and financial institutions, social media sites and auction sites. In 2011, a joint warning was issued by SCAMwatch, Microsoft and the Australian Communications and Media Authority that there has been an increase in scammers calling individuals and claiming to be from a popular software vendor’s computer support centre (ACCC 2011c). Typically, these scams involve obtaining remote access to a victim’s computer, during which the scammer will claim that there is a virus or other problem that requires technical support at a cost. A victim may also have malicious software installed by the scammer, resulting in further inconvenience and cost.

Cost of consumer fraud

It is difficult to estimate the cost of consumer fraud (also known as mass marketing or personal fraud), particularly due to the inconsistent way scams are reported to various organisations.

One way to overcome the limitations of relying on official data to determine the extent of scams is to conduct victimisation surveys. The ABS conducted a Personal Fraud survey in 2010–11, in which approximately 26,405 respondents were surveyed. The ABS estimated that in the 12 month period prior to interview, 6.4 million Australians aged 15 years and over were exposed to a scam and 514,500 became scam victims, representing 35.8 and 2.9 percent of the population respectively. Scams included in this survey (and the victimisation rate) were lotteries (0.6% of Australians victimised), pyramid schemes (0.2%), fake offers from a bank (0.4%), fake offers from a business (0.8%), chain letters (0.1%), requests to send details (0.4%) and other scams, such as door-to-door sales and fraudulent repair work (2.9% each; ABS 2012). Overall, $1.4b was estimated to have been lost due to scams as well as other personal frauds, such as identity theft and credit card fraud, over the 12 month period (ABS 2012).

Ross and Smith (2011) surveyed Victorians who had been identified by the Australian Transaction Reports and Analysis Centre as having sent money to Nigeria in the 12 months to 31 March 2008. Of the 59 percent of respondents who were identified as being victims of advance fee fraud, the average amount sent overseas was $12,000. However, costs were not only financial, with 43 percent of victims reporting emotional trauma, 40 percent reporting a loss of confidence in other people and 12 percent experiencing marital or relationship problems as a result of victimisation. Financial hardship was also reported by 54 percent of victims (Ross & Smith 2011).

The ACCC is one of the Australian Government agencies that collect reports of consumer fraud from the public. These reports are accepted by telephone or online at the SCAMwatch website (www.scamwatch.gov.au). Scam reports are used to assist in monitoring scam trends and identifying new or emerging scams so that appropriate action, such as public education, can be undertaken (ACCC 2012d). The total amount reported to the ACCC as lost due to scams during 2011 was $85.6m (ACCC 2012a).