4.6. Financial crimes and investments frauds

Financial crimes are crimes in which criminal organizations benefit financially. In financial crimes, usually, one party provides a financial benefit, and the other party suffers a financial loss. These are frequently committed for the personal benefit of the criminal and involve the illegal conversion of ownership of the property involved.

When we talk about ‘consumer fraud’ when someone suffers from a financial loss involving the use of deceptive, unfair, or false business practices. In the past two years, for instance, 60% of European consumers having purchased online in a timeframe of 12 months, have experienced fraud. Despite strong cybersecurity measures adopted by financial institutions (banks, payment companies etc.), fraudsters keep getting their way by exploiting the weakest link in the chain: humans and their predilection to trust their peers.

Most common types of fraud:

Phishing – Emails and phone calls, in which the fraudsters pretend to be a legitimate institution to get personal data from their victims.

Pharming – When consumers are redirected from official legitimate websites to fake ones, with the goal of stealing personal and sensitive data.

Device manipulation – Hacking of POS (point-of-sale) systems, ATMs. Smartphones or PCs to access data and/or money.

Identity fraud – Use of consumers personal data to cancel credit cards, change passwords, open accounts etc.

Social engineering – Manipulation of victims to obtain confidential information.

Money mules – Tricking innocent people into laundering stolen or illegal money through their bank account.

How to avoid becoming a financial fraud victim:

  1. Check your bank account regularly and report any suspicious activity to your bank.
  2. Keep in mind that your bank will never ask you for sensitive information (e.g. online account credentials) over the phone or email.
  3. If you think you’ve provided your account details to a scammer, contact your bank immediately.
  4. Perform online payments only on secure websites: check the URL bar for the padlock and https and use only secure connections (mobile network instead of public Wi-Fi).
  5. If an offer sounds too good to be true, it’s almost always a scam.
  6. Keep your personal information safe and secure.
  7. Be very careful about how much personal information you share on social network sites. Fraudsters can use your information and pictures to create a fake identity or to target you with a scam.
  8. Always report any suspected fraud attempt to the police, even if you didn’t fall victim to the scam.

Investment Fraud involves the illegal sale or purported sale of financial instruments. The typical investment fraud schemes are characterized by offers of low- or no-risk investments, guaranteed returns, overly consistent returns, complex strategies, or unregistered securities.

Types of investment frauds:

Pyramid Scheme is when fraudsters claim that they can turn a small investment into large profits within a short period of time. But in reality, participants make money by getting new participants into the program. The fraudsters behind these schemes typically go to great lengths to make their programs appear to be legitimate multi-level marketing schemes.

Ponzi Scheme is when a fraudster or “hub” collects money from new investors and uses it to pay purported returns to earlier-stage investors, rather than investing or managing the money as promised. The Like pyramid schemes, Ponzi schemes require a steady stream of incoming cash to stay afloat. But unlike pyramid schemes, investors in a Ponzi scheme typically do not have to recruit new investors to earn a share of “profits.”

Pump-and-Dump is a scheme in which a fraudster deliberately buys shares of a very low-priced stock of a small, thinly traded company and then spreads false information to drum up interest in the stock and increase its stock price. Believing they’re getting a good deal on a promising stock; investors create buying demand at increasingly higher prices. The fraudster then dumps his shares at the high price and vanishes, leaving many people caught with worthless shares of stock.

Advance Free Fraud is a type of fraud that plays on an investor’s hope that he or she will be able to reverse a previous investment mistake involving the purchase of a low-priced stock. The scam generally begins with an offer to pay you an enticingly high price for worthless stock. To take the deal, you must send a fee in advance to pay for the service. But if you do so, you never see that money—or any of the money from the deal—again.

How to avoid becoming an investment fraud victim:

  1. Verify the license of the person selling the investment
  2. Verify the investment is registered
  3. Beware of promises of high rates of return and/or quick profits
  4. Be suspicious of high-pressure sales
  5. Beware of unsolicited offers
  6. Ask for prospectus or offering circular
  7. Talk to a third-party person
  8. Watch out for online scams

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