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Wednesday, June 18, 2008


It’s always been going on, but the Internet is “fast becoming the new nexus for fraud, scams, and identity theft—and the losses appear to be mounting.” This is a quote from the April 4, 2008 Internet Crime Complaint Center (IT3), as reported in IC3 is a partnership between the FBI and the National White Collar Crime Center. The report claims that American consumers lost $239 million during 2007 in Internet-based fraud schemes, up from $198 million in 2006.

Investment and retirement scams were highest with a median loss of $3,547 per complaint; check fraud at $3,000 per; and the historic Nigerian scam at $1,922. California leads in fraud perpetrators, followed by Florida and New York; 75 percent of the perps are male. And you will likely be contacted by e-mail by the scammer, followed by Web site visitation, then telephone or instant-messaging chats.

The Nigerian, or 419, scam dates back to the 1980s when the oil-based Nigerian economy declined, and unemployed college students started hustling first businessmen in the west, then spread out to consumers in general. They started with letters, faxes, or Telex, then graduated to e-mail as the preferred way of contact. The number “419” refers to the article of the Nigerian Criminal Code dealing with fraud, according to Wikipedia. The lesson here is the simplicity it takes to create a full-blown, worldwide scam, dreamed up by students with nothing to do, resulting in losses to victims in the millions.

The bad guys are using the same means of contact that are used in the junk mail industry to sell their products and services, thus, a familiarity by the recipient if they also shop by junk mail. I don’t know what customer profile selection the Nigerian used in acquiring 163,000 names from ChoicePoint in February of 2005—the beginning of the ID theft debacle—but as a former data broker, my guess is “opportunity seekers,” called a “mooch” list. So named because of the gullibility of the people on the list who are known for responding to offers that are in fact too good to be true.

The FBI, supported by outside security analysts, says the reported crimes received by IC3 is only a fraction of what is really occurring. This is a result of both business and consumers not reporting incidents for a number of reasons, including the time necessary to do so. Still, the FTC has determined that consumer fraud in 2007 totaled $1.2 billion, averaging $349 per individual.

Chris Hoofnagle, senior staff attorney to the Samuelson Law, Technology & Public Policy Clinic and senior fellow with the Berkeley Center for Law & Technology, a known privacy expert, has found in an initial study that “many of the world's largest corporations' customer records were the most frequently pilfered for identity theft and related fraud.” But he adds that this is only a first attempt and that further research is necessary.

This is a point I have been making for three years of blogging, based on 35 years in the junk mail industry observing the negligent handling of consumers’ names and personal data. When you combine this carelessness in the business community, including health care and the government, with the explosion of Internet technology and growing sophistication of the identity thieves, you have a potential disaster in the making.

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