Types of Frauds

Table of Contents

1. Credit Card Fraud

Credit Card Fraud is a harsh reality of digital age. If you are the owner of a credit or a debit card, there is a non-negligible chance that you may be subject to fraud, like millions of other people around the world.

Though in India, Reserve Bank of India (RBI) has done a commendable job to avoid credit card fraud. India was ranked among the top 5 countries with regard to credit card fraud, with more than one third of the people saying they had been scammed, according to the 2016 Global Consumer Fraud Report published by payments technology company ACI Worldwide.

The number of credit cards rose by a quarter to more than 38 million in the 12 months ending in May, while the number of debit cards jumped 17% to over 925 million in the same period, according to RBI data. But many of the cards continue to come with magnetic strips which store all important customer data and are more vulnerable to cloning.

The Indian central bank has instructed banks to issue more secure chip-enabled (EMV) cards, which require the customer to enter a PIN code or sign on the receipt. The deadline to completely move to EMV cards is set for the end of this year. But with large numbers of ATMs and swiping machines still not EMV compliant, meeting the deadline could be a challenge.

Steps taken by RBI

1. Two level authentication for online transactions. 1st level when you enter Credit Card details & CVV. 2nd level authentication is implementation of 3D Secure Code (Verified by VISA and Mastercard SecureCode)

2. Issuance of EMV Chip & PIN enabled Credit Cards

3. Option to select / set limit for International usage

4. Data Security standards for POS Terminals

5. SMS Alert to customer’s registered mobile no for every Credit Card transaction

6. OTP for IVR based transactions

Types of Credit Card Frauds

There are many kinds of credit card fraud, and they change as frequently as new technologies enable novel cybercrimes that it’s nearly impossible to list them all.

  • Card-not-present (CNP) frauds

This, the most common kind of fraud, occurs when the cardholder’s information is stolen and used illegally without the physical presence of the card. This kind of fraud usually occurs online, and may be the result of so-called “phishing” emails sent by fraudsters impersonating credible institutions to steal personal or financial information via a contaminated link.

  • Card-present-Frauds

This is less common today, but it’s still worth watching out for. It often takes the form of “skimming” – when a dishonest seller swipes a consumer’s credit card into a device that stores the information. Once that data is used to make a purchase, the consumer’s account is charged.

How to protect?

  • Don’t let your card out of sight. The waiters managed to steal data because unsuspecting customers would hand over their cards, which would then be secretly swiped and skimmed.
  • Register your mobile number with the bank and subscribe for alerts for your transactions. Inform your bank as soon as you notice any suspicious spending and have your card blocked.
  • Inspect an ATM before transacting and do not insert your card if you find any suspicious device connected to the machine. Entering the wrong PIN in the first attempt to ascertain if the machine is rigged or not.
  • Remember your CVV number the three digit number at the back of your card—and then scratch it from your card.

But giving up on your card for good is not the solution. Think about the benefits that cards and other digital payment methods offer. You just need to be more careful and aware.

2. Identity Theft/Fraud

Identity theft, also known as identity fraud, is a crime in which an imposter obtains key pieces of personally identifiable information, such as Social Security or driver’s license numbers, in order to impersonate someone else.
Identity theft occurs when someone uses another’s personally identifying information, like their name, identifying number, or credit card number , without their permission, to commit fraud or other crimes.

Types of Identity Theft

The following are the types of Identity Theft:

1.Criminal Identity Theft

Criminals have previously obtained state-issued identity documents using credentials stolen from others, or have simply presented a Fake ID

2.Financial Identity Theft

The most common type is financial identity theft, where someone wants to gain economical benefits in someone else’s name. This includes getting credits, loans, goods and services, claiming to be someone else.

3.Synthetic Identity Theft

Synthetic Identity Theft, in which identities are completely or partially fabricated.The most common technique involves combining a real social security number with a name and birth date other than the ones associated with the number.

4.Medical Identity Theft

Medical Identity crime is that medical identity theft occurs when someone seeks medical care under the identity of another person

How to protect yourself from Identity Theft?

1.Credit Reports

Monitor your credit reports constantly for any signs of suspicious activity. Or think about freezing your credit reports. It’s not a perfect solution but it will help prevent identity thieves from opening up new accounts.

2.Protect your Information

Protect your computers and personal information your phones and tablets, your accounts and passwords, your surfing, your banking and accounts, your social network etc. These can all be points of vulnerability that crooks will quickly exploit.

3.Protect your Home

Too much personal information lying around your home could be an easy temptation to people you doesn’t know. So hide it where burglars and others can’t easily find it. And make sure you shred any sensitive financial information before you dispose of it.

4.Guard your Mail

Some thieves say that most of their crimes start with stolen mail, so make sure you don’t leave it in your mailbox for longer than you have to.

5.Social Networks

Mind what you and your kids say on Facebook and other social networks. Thieves are constantly checking out Facebook, Instagram, Twitter and other networks for personal information that might help them commit a fraud.

6.Lock down your Computer

There are dozens of free security tools, from antivirus to safe surfing that will help keep malicious software or malware from infecting your computer and stealing your information.

7.Use passwords properly

That means making them long, complicated and random; changing them regularly; guarding them

Punishment for Identity Theft in India

Under the Information Technology Act 2000 Chapter IX Sec 66C

Whoever, fraudulently or dishonestly makes use of the electronic signature, password or any other unique identification feature of any other person, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which may extend to rupees one lakh.

Identity Theft is the largest contributor to Fraud in India

  1. Every minute about 19 people fall victim to identity theft
  2. Frauds due to applicants submitting fraudulent contact information has risen by 3% contributing to 18% of all detected frauds.
  3. The mortgage portfolio has observed a 50% increase in the fraud incidence rate.
  4. Falsification of address proof is the most popular behaviour seen amongst fraudsters
  5. Hiding of adverse credit is the most common behaviour especially in the automotive loan category followed by mortgage fraud.
  6. In India identity theft accounts for 77% of the fraud cases in Q1 2015.
  7. Overall, identity theft and fictitious identity cases continue to contribute around three-fourths of all detected fraud cases.
  8. Amongst various financial products, auto loans, mortgage loans and credit cards have seen the largest number of fraud cases from identity theft represented by 85% of the total detected frauds in Q1 2015
  9. Identity theft has observed a rise from 76% in the first quarter of 2014 to 77% in the first quarter of 2015.
  10. Persons ages 25 to 64 (8%) had higher prevalence rates of identity theft than persons age 18 to 24 (4%) and 65 or older (6%)

3. Cheque Frauds in India

Cheque Fraud refers to a category of criminal acts that involve making the unlawful use of cheques in order to illegally acquire or borrow funds that do not exist within the account balance or account-holder’s legal ownership.

As per the latest figures revealed by the Reserve Bank of India, bank fraud cases in India are on the rise. In the last one year, bank frauds have almost doubled. These frauds spread over a wide array of fake activities ranging from cheque fraud to acquiring bogus loans and credit cards.

Types of Cheque Fraud

There are three main types of cheque fraud:

Counterfeit – a cheque that has been created on non-bank paper to look genuine. It relates to a genuine account, but has actually been created and written by a fraudster for the purposes of committing fraud.

Forgery – a genuine cheque, however the signature is not that of the account holder. The fraudster has forged the signature by signing the cheque themselves.

Fraudulently Altered – a genuine cheque made out by the genuine customer but it has been altered by a fraudster before it has been paid in (e.g. by altering the recipient’s name on the cheque or the amount. It is no longer a genuine cheque).

Prevention of Cheque Fraud

Reserve Bank of India has come up with a set of guidelines for banks to ensure preventive measures to lower cheque frauds. One measure aims to employ mobile technology in the form of SMS alerts to be sent out as soon as a cheque is received for clearing. Another step to scrutinize large value cheques is to alert customers via phone calls and obtain confirmations from the drawer/payer of the cheque. RBI stated that banks should exercise extra caution while clearing cheques that are above a certain threshold value.

  1. Keep your cheque in a safe place
  2. Destroy unwanted cheques
  3. Never sign a blank cheque
  4. Keep a record of all your cheques
  5. Check your bank statement regularly

4. Business Fraud

Business fraud consists of dishonest and illegal activities perpetrated by individuals or companies in order to provide an advantageous financial outcome to those persons or establishments. Also known as corporate fraud, these schemes often appear under the guise of legitimate business practices. An array of crimes falls under business fraud, including the following:

1. Charity Fraud

Using deception to get money from individuals believing they are making donations to legitimate charity organizations, especially charities representing victims of natural disasters shortly after the incident occurs.

2. Internet auction fraud

A fraudulent transaction or exchange that occurs in the context of an online auction site is called Internet auction fraud

3. Non-Delivery of Merchandise

Fraud occurring when a payment is sent but the goods and services ordered are never received.

4. Non-payment of Funds

Fraud occurring when goods and services are shipped or rendered but payment for them is never received.

5. Overpayment Scheme

An individual is sent a payment significantly higher than an owed amount and is instructed to deposit the money in their bank account and wire transfer the excess funds back to the bank of the individual or company that sent it. The sender’s bank is usually located overseas.

6. Re-shipping scheme

An individual is recruited to receive merchandise at their place of residence and subsequently repackage the items for shipment, usually abroad. Without the knowledge the merchandise was purchased with fraudulent credit cards, often opened in their name.

Types of Business Fraud

1. Identity Theft

Fraudsters could steal your business’s identity and use it to access your credit. People might get their hands on things like financial statements, bank statements, or your tax identification numbers. It’s also possible to have information taken from your computer.

To prevent identity theft, make sure you keep your statements and sensitive information secure. If you have physical copies, keep them locked in filing cabinets that only you can access. For digital copies, make sure you use difficult usernames and passwords, and avoid falling for phishing scams. Don’t hand your information out to anyone.

2. Payroll Fraud

Payroll schemes are twice as common in small businesses as opposed to large companies. There are a few different ways that payroll fraud can occur at your business.

Employees might ask for pay advances without paying them back. Or, employees might lie about hours worked on their timesheets. Employees could also get co-workers to clock in for them even if they aren’t at work. Do background checks on all employees before hiring. And, you should audit payroll accounts so you can catch fraudulent behavior early on.

3. Money Fraud

Because there’s so much illegal cash circulation you might come across fake bills. Money fraud can happen without you or the customer even noticing. But, counterfeit money is worthless when you go to deposit the cash at the bank.

The most common counterfeit bills are high-valued bills. If you accept counterfeit money, you won’t receive any revenue from the sale. Worse, you could end up giving real currency as change for a fake bill.

4. Return Fraud

The majority of small businesses that sell goods have experienced return fraud in one way or another.

There are different types of return fraud. Some customers might purchase a product, use it, then return it even though nothing is wrong with it. Or, you might have fraudsters who steal products from you and attempt to return them to make a profit. Return fraud can be damaging to your business. You might not be able to wipe out all return fraud, but you can limit it based on your policies.

5. Workers’ Compensation Fraud

Workers’ compensation fraud is another type of small business fraud you could come across if you have employees. There are different ways workers’ compensation fraud can occur, so you need to be vigilant. Employees might get injured outside of work and say they got the injury at your business. Or, employees could make up an illness or injury.

Tips for Avoiding Business Fraud

  1. Purchase merchandise from reputable dealers or establishments.
  2. Obtain a physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.
  3. Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn’t required to open the account.
  4. Consider not purchasing from sellers who won’t provide you with this type of information.
  5. Purchase merchandise directly from the individual/company that holds the trademark, copyright, or patent.

5. Beware of Lottery Fraud

In the recent past, there has been a spate of fictitious offers sent out to the general public. People have received phone calls, emails, SMS’s, whatsapp messages, and letters etc. telling them that they have won a lottery. They are subsequently requested to deposit money in a bank account in order to receive their winnings or have been asked to share their bank account details to remit the winning amount. Please note that such claims are false and your bank account details may be at risk.

Types of Lottery Scams

You may get an email stating you have won a cash prize for a lottery you have never entered. Usually there is a demand for fees (courier fees, taxes, customs duty, shipping, etc.) that need to be paid before the winnings are made available.

Their quest will provoke an emotional reaction which in turn will make you send your bank details, address, credit card or personal information.

These emails may also contain viruses or unwanted software which could harm your computer.

How to Identify a Scam or Fraud

The email promises you a prize you have won in a lottery you have never participated in. (No legal lottery notifies the winners in an email)

The email asks for your personal information such as bank account, credit card number, passport number, driver’s license numbers or any such personal details.

The language used is much exaggerated but no specific details are given about the rules or how it works.

The prize is to be given after a transaction fee or some kind of payment which is never asked by legal lotteries.

How to avoid Lottery Scams?

Lottery fraud could be prevented in various judicious ways.

  1. Do not click on the links in any suspicious message
  2. Do not respond to unknown emails
  3. Don’t invest in unregulated companies/entities
  4. Report any such messages
  5. Don’t rely on hearsay – check for yourself
  6. Be careful while investing in seemingly attractive schemes offering high returns
  7. Do not disclose personal or financial information about bank accounts, credit card details, and address to any unknown email sender as it could lead to identity theft
  8. Spam filter your messages
  9. Don’t pay any advance sum of money to receive any prize
  10. Do not complete their online claim forms

How a woman lost Rs 3.55 Lakh to lottery fraud?

A few months back, a woman from Manipal, received a scratch card which was supposedly from an ecommerce site. Thinking this to be from Ecommerce site, she scratched it and found she has won a lottery of Rs 12 Lakhs. To collect the lottery, she was asked to contact the mobile number shown on the scratch card.

When she called up the number provided on the scratch card, a person picked up the call and introduced himself as a representative of that site. She was told that to receive the lottery money, she had to send Rs 3,55,800 to different bank accounts. When she asked the reasons for sending this amount, fraudsters convinced her saying, it includes a service charge, GST and other taxes.

After the victim transferred Rs 3,55,800 to different bank account numbers, she was contacted by a person called Ajay. He asked her to send money to different bank accounts to receive the lottery amount.  She got to know she was fooled by fraudsters, in the name of the lottery.

6. Telemarketing Fraud

Telemarketing fraud often involves some sort of victim compliance whether it involves the victim initiating contact with the perpetrator or voluntarily providing their private information to the offender thus, fraud victims may experience feelings of shame and embarrassment that may prevent them from reporting their victimization.

Tips to avoid Telemarketing Fraud

It is very difficult to get your money back if you have been cheated over the telephone. Before you buy anything by telephone, remember:

  • Don’t buy from an unfamiliar company. Legitimate businesses understand that you want more information about their company and are happy to comply.
  • Always ask for and wait until you receive written material about any offer or charity. If you get brochures about costly investments, ask someone whose financial advice you trust to review them. But beware not everything written down is true.
  • Always check out unfamiliar companies with your local consumer protection agency, Better Business Bureau, state attorney general, the National Fraud Information Center, or other watchdog groups. However, not all bad businesses can be identified through these organizations.
  • Obtain a salesperson’s name, business identity, telephone number, street address, mailing address, and business license number before you transact business. Some con artists give out false names, telephone numbers, addresses, and business license numbers—verify the accuracy of these items.
  • Before you give money to a charity or make an investment, find out what percentage of the money is paid in commissions and what percentage actually goes to the charity or investment.
  • Before you send money, ask yourself a simple question: “What guarantee do I really have that this solicitor will use my money in the manner we agreed upon?”
  • Don’t pay in advance for services; pay only after they are delivered.
  • Be wary of companies that want to send a messenger to your home to pick up money, claiming it is part of their service to you. In reality, they are taking your money without leaving any trace of whom they are or where they can be reached.
  • Always take your time making a decision. Legitimate companies won’t pressure you to make a snap decision.
  • Don’t pay for a “free prize.” If a caller tells you the payment is for taxes, he or she is violating federal law.
  • Before you receive your next sales pitch, decide what your limits are—the kinds of financial information you will and won’t give out on the telephone.
  • Be sure to talk over big investments offered by telephone salespeople with a trusted friend, family member, or financial advisor. It is never rude to wait and think about an offer.
  • Never respond to an offer you don’t understand thoroughly.
  • Never send money or give out personal information such as credit card numbers and expiration dates, bank account numbers, dates of birth, or social security numbers to unfamiliar companies or unknown persons.
  • Be aware that your personal information is often brokered to telemarketers through third parties.
  • If you have been victimized once, be wary of persons who call offering to help you recover your losses for a fee paid in advance.
  • If you have information about a fraud, report it to state, local, or federal law enforcement agencies.

Ways to recognize Telemarketing Fraud

At its core, telemarketing fraud is a pretty simple crime: someone calls the victim, makes a false statement, and the misrepresentation causes the victim to give money to the caller. This definition can cover a large variety of scams. Sometimes, victims are told that they won a prize in a foreign lottery and their personal information is required to receive the prize.

In another example, the scammer calls the victim, claiming to be from an anti-virus software company, and convinces the victim to allow the caller to access his or her computer in order to rid it of a fictional virus. Once the scammer has the victim’s personal information, he can use it to access the victim’s bank accounts.

7. SIM Swap Fraud

SIM swap fraud (also known as Port-Out scam or SIM splitting) is a type of account takeover fraud that generally targets a weakness in two-factor authentication & two-step verification, where the second factor or step is an SMS or a call placed to a mobile telephone.

SIM swap fraud is a relatively new, sophisticated form of cyber fraud that allows hackers to gain access to bank accounts, credit card numbers, and other personal data. The SIM swap cases were reported in the US and Europe in 2013 and now it’s in trend in India. People have lost more than Rs 200 crores in these SIM swap scams.

How SIM Swap works?

Fraudsters obtain banking account details and your registered mobile number through phishing or through Trojans/Malware

Under the pretext of losing the mobile handset, new handset or damaged SIM card, fraudster approaches mobile service provider by creating a fake identity of genuine customer

Post customer verification, mobile service provider will deactivate old SIM card which is in customer’s possession and issue a new SIM card to the fraudster. There will be no network on customer’s handset. Now, customer will not receive any SMS, information such as alerts, OTP, URN etc. on the phone

With the banking details stolen through phishing or Trojan/Malware fraudster will access and operate your account and initiate financial transactions which you will not be aware of and all the SMS for alerts, payment confirmation etc. will go to the fraudster

Things you should know

  • There are two parts to this fraud. To deal with the first step is to follow the basic online security hygiene against phishing.
  • Remember, phishing is a kind of e-mail fraud technique in which the fraudster sends out genuine-looking emails or website links in an attempt to gather your personal and financial information.
  • As far as step two goes, don’t give away your details to anyone whatsoever. If you see no service on your SIM, contact the service provider at the earliest. If your SIM has been deactivating at midnight, you can’t do much about it really.
  • Like it or not, there’s nothing much you can do from your side, apart from being more vigilant.

How to protect yourself from such Frauds?

  1. If your phone is out of network continuously for a few hours specifically on weekends, then you have to take it seriously and be alert and complain the same to a mobile operator.
  2. Never switch off your mobile for long periods to avoid unwanted calls. Instead, try not to pick them. Otherwise, activate DND (Do Not Disturb) facility for your SIM.
  3. Regularly check your bank account statement.
  4. Register for both email as well as SMS alerts.
  5. Do not share your 20 digits SIM number mentioned on the back of your SIM with anyone
  6. Do not display your mobile number on social media websites.
  7. In these times, any online authentication or new guidelines while issuing duplicate SIM card has become need of the hour to stop SIM Card SWAP frauds.