What is Third Party Fraud?
This is a fraud committed by people outside an employee employer relationship. They can be committed against individuals, businesses, companies, the government or any other entity. Third party frauds are not as common as occupational frauds, but on average each fraud is for a larger amount.
Some third party frauds are not meant to remain hidden forever. Some only remain hidden long enough for the fraudster to make their get-away. The fraudster may not care if the fraud is eventually discovered as they do not have a continuing relationship with the victim and they cannot be found.
What are advanced fee frauds?
It is a fraud aimed at getting the victim to pay an amount of money (the fee) in advance of getting a product or service. Essentially the fraudster tries to get the victim to pay a deposit or application fee for something. The product or service is then never supplied, or supplied at a lesser ‘quality’ than expected. Usually the fraudster never attempts to collect the balance of the money under the transaction, they only aim to obtain the upfront ‘fee’.
The fee can be paid as part of any transaction to supply any type of product, service, a loan or other benefit. As long as the fraudster can convince the victim that the product or service will be provided at some time in the future – even only hours away – and he can obtain a payment before delivery, the fraud can be committed.
What time period is necessary?
If the fraudster is only targeting one victim at a time, he may only need enough time to ‘disappear’ before the fraud is discovered. If he is targeting a number of victims, the delivery date of the ‘goods or services’ may be some time in the future. This extended time period gives the fraudster time to collect many fees from many victims before the fraud is discovered and he needs to disappear.
One version of the fraud is the Nigerian 419 fraud, where monies are paid to the fraudster to allegedly be used as commissions or bribes so that other ‘large amounts of money’ can be paid to the victim. Versions of this fraud appear as commission paid to obtain loans from overseas. In these cases, the fraud will run as long as the victims can be convinced to continue to send money to the fraudster.
Who commits these frauds?
The typical “con-man” performs these frauds. “Con-man” is short for a person that performs a “con” or “confidence trick”. The goal is to gain the victim’s confidence and trust and make them believe that the fraudster and the offer are legitimate and that the product or service or loan will be delivered as promised. These fraudsters can be of any age, sex, class, race or religion. Con-man is not an accurate term, as many of these frauds are committed be females.
How are these frauds committed?
Fraudsters target people or businesses with a difficulty or problem and offer a solution to that problem. They will also target a business and offer some service at a reduced price. Victims will be told that the solution or offer will take some time to put together. The fraudster will ask for some money to be paid up front (in advance) for deposits, commissions, fees, bribes, stamp duty or other costs that seem appropriate to the types of good or service being offered. Most people are used to paying deposits, so this request may not seem unreasonable.
The victims, who generally want the solution offered, will either be encouraged to pay the fees in advance, or will be maneuvered and manipulated into a position where they will offer to pay the fees to speed up the process. Businesses may be used to paying deposits as commercial practice in large transactions or application fees to obtain loans.
The money sought as the fee can be significant, even if it is not large compared to the amount of benefit promised. The fraudster will try to get as much money as possible from the victim. This money is taken by the fraudster, who then generally disappears.
What is the aim of the fraud?
The aim is simply to get money out of a victim. This is done by telling them lies about what the fraudster can do for them and what the money is to be used for.
FOR EXAMPLE
Example One
A small business is approached by a salesperson selling advertising space in a new local business directory that will be released in a few months. The advertising sounds cheap compared to the perceived value. The sales person only wants 50% of the fee now and the balance after the directory is distributed, and then only if you are completely satisfied.
Glossy material is provided to show what this directly would look like, and names of other businesses that allegedly will be advertising in it will be dropped so that the business owners thinks that his competitors will be advertising. The business owner takes up the deal, supplies the art work and, importantly, the cheque for the 50% deposit. A few months later, there is no directory and the sales person is gone.
This is the advance fee fraud as it is commonly known. Something is offered, with only part payment required now and the balance after delivery, but nothing is provided.
Example Two (Actual Case)
A business was in trouble and the owners advertised to sell the business so that they can pay outstanding debts. They were approached by a person that offered to buy the business from them for a price that was more than the business was really worth. (Fraudsters often search for and target people in financial difficulty.)
As the owners were in financial difficulty with unpaid creditors making demands, they were relieved when the offer to buy the business was received. The purchaser met with the owners and generally became very friendly with them in a short period. (This is a common tactic to build trust.)
The purchaser advised that they would be able to settle the contract as soon as money became available from an overseas lender. After a long delay – designed to make the victims anxious – the purchaser said that she was having difficulty paying the fees needed to get the loan processed, stating that the settlement of another property she was selling had been delayed. (This is another common tactic – creating an urgency and a problem that the victim can solved by handing money to the fraudster.)
The purchaser said that she needed to get funds to get the loan processed. As the victims were desperate to have the loan processed and to sell the business, they offered to lend the money needed for the fee to the purchaser. They mortgaged their unencumbered business to borrow the money and paid it into an overseas account at the purchaser’s request. (The ultimate position for a fraudster is to have the victim offer to pay money, and make it seem like their idea.)
The purchaser has been un-contactable since the money was paid.
LESSONS TO BE LEARNED
Confidence tricksters can be anyone selling any product or service for a good price, or proposing a solution to vulnerable and desperate people. If the victims are desperate, they will be open to many schemes that they would not otherwise consider and may do almost anything to try to get the needed solution – include pay money up front.
Fraudsters are practiced at making bad ideas look like they were originated by the victim, by guiding the victim to conclusions that they want them to reach. They can create a position where a desperate or gullible person will offer to give the fraudster money to get a solution to a problem, or a profit on a ‘deal’.
Fraudsters prepare a story to tell the victim. People should look behind the gloss and hype of the story as this may show the actual position. Conducting searches and demanding proof of the proposed deal may expose – or at least raise serious doubts about – its fraudulent nature.
Always ask:
- Is the deal too good to be true, because it may not be true.
- Is the person offering to solve your problem just too friendly or doing too much for you in an attempt to gain trust?
- Why do they need the money now? Why can’t they find the money for fees etc. themselves?
- Who would be worse off if the proposal was a fraud and the benefit was never received? What will you lose and what are the chances of that happening?
- Are they happy for you to get an independent person’s opinion? If not, what are they trying to hide.