Dealing with online scams
E-crime is on the rise and scammers are getting cleverer. The question is: what are the authorities doing about it?
We lose a great deal of money to investment scams, although as usual there are varying estimates as to how much.
At the lower end, research commissioned by the Association of Chief Police Officers and the National Fraud Authority estimates that, every year, 10,000 victims lose an average of £2,750.
At the higher end there are 130,000 victims who lose an average of £5,250, according to the Office of Fair Trading.
While the numbers might fluctuate each year depending on whether there are any successful large-scale scams, it seems unlikely that numbers are reducing due to efforts in preventing investment scams.
I wrote elsewhere about my unsuccessful attempts to have a probable investment-scam website investigated before it caused significant damage.
The UK does not attempt to prevent this crime
We have this incredible situation where there are about a dozen organisations dealing with scams, from police units to the Financial Services Authority to local government offices, but not a single one will use advanced warnings from the public to attempt to pre-empt and prevent online investment scams.
The Metropolitan Police's E-Crimes Unit writes: "Victims are often uncertain about how, and to whom, they should report an e-crime incident." That is not new. The shambolic system for scam victims and the fact that their individual cases are not investigated, combined with the difficulty of bringing scammers to justice and the very faint possibility that a victim will ever see his money again, is a reasonably well-known story.
The fact that the authorities find it hard to fix matters after the crime has taken place is largely understandable. This would indicate the best cause of action is to prevent the crimes instead, yet no one tries.
Why no authority prevents online investment scams
The National Fraud Intelligence Bureau (NFIB) has taken 42 million reports of crime. Its spokesperson told me that there is a small, powerful group of organised criminals that these reports will hopefully help stop.
That is a laudable goal, but I asked the NFIB why no one tries to pre-empt investment scams. The answer was that you need evidence of a crime before you can do anything about it.
And that gets straight to the nub of the problem: the authorities are constricting themselves to a police officer's approach, whereas investment scammers think outside the box.
Scams not always hard to spot
It need not be that way. There is almost always something illegal about a scam website that you can identify swiftly.
One of the most common ones is operating without the Financial Services Authority's authorisation, which takes five minutes to check against the FSA's online database. I put it to the NFIB that surely this was enough to be getting on with? The NFIB could not comment on that, because it, like every other department fighting fraud, does not have the remit to take any pre-emptive action.
From my many calls to all these agencies and departments over the past few months, I can see that investigators might not be thinking flexibly enough. They appear to have no financial experts who can identify investment scams without waiting for reports from scam victims to start coming in.
What the authorities could do
Even if the authorities did have the required knowledge and flexibility, they would still lack official powers that would make prevention a lot easier. Since most scams are set up overseas, they cannot simply search premises and arrest people.
However, the FSA told me that it has some success when it asks internet service providers (ISPs) to close down investment-scam websites - after they have already scammed lots of people, naturally - which is extremely inconvenient for the scammers.
If it was given the power to shut down probable scams after a website fails to prove its legitimacy, it would rarely, if ever, make a mistake; companies selling real investment products backed by real insurers and banks would have no difficulty proving their legitimacy.
If the FSA ever did made a mistake it could only happen to small, unknown companies. The cost of full compensation would likely be just a fraction of the losses victims suffer from investment fraud.
No new powers are needed
Even with no additional powers, with the help of ISPs you could shut these websites down pre-emptively for reasons other than scamming.
An investigator may be unable to prove a website is a scam, but scam websites inevitably have other problems: from lack of authorisation to false information, false representations, missing information, and misrepresentation of products. Any of these might justify the website being shut down in their own right.
Some scam websites manage to secure deals with online payment services. These services could be contacted and persuaded to withdraw their facilities.
Innovating even further from traditional police methods, there are ways to effectively shut down websites even if the ISP doesn't play ball. There are at least nine techniques that hackers use to disrupt websites, for example. Professional hackers could do the same.
The authorities could seek help from the private sector, too, by communicating with businesses implicated by the scams, such as Lloyds of London in my scam article.
It did not work on that occasion when I contacted it, but it might work on others, and at the very least it might help to spread the preventative message about scams further.
Someone needs to take control
For any of these methods to work, an agency would need to be given the remit to pre-empt investment scams and the permission to think outside the box, and it would need to acquire the technical and financial expertise to identify and shut down these websites.
The Home Office's budget for pre-empting and preventing terrorism, including investigating intelligence received, was £2.5 billion in 2008 and rising. The Foreign Office also has a significant counter-terrorism budget and the government has announced this month that the budget against cyber terrorism is to receive a boost of £650 million.
The budget for pre-empting investment scams appears to be £0. I think it is time this was changed.
To avoid scams, read 10 scams to avoid, and stay alert.
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