There must be few businesses in the UK ? and fewer dealers ? that have not been on the receiving end of a speculative letter from Nigeria, promising untold riches for simply handing over details of their bank account to them.
There were over 18,000 complaints to the police in the UK last year about these bogus letters. Many more ended up in the wastepaper basket ? yet still some UK businesses fell for it, one to the tune of #1.5 million. Overall, ?Nigerian letter? fraud cost UK companies an estimated #50 million in 1996.
Last year, police made over 50 arrests in connection with alleged letter frauds, both in the UK and abroad. The scam works by requesting bank details, and sometimes an advance fee, in exchange for an opportunity to receive a share of laundered cash, normally from Nigeria. Once the fraudster has got hold of the account details they are able to loot the account before the owner realises. It can be very hard trying to get the cash back once it has been siphoned off ? especially if it disappears into a bank account in Nigeria. There are signs, however, that the thieves are running out of genuine businesses to target.
At the end of last year, George Staple, head of the Serious Fraud Office, found himself on the receiving end of the standard fraud letter, purporting to need help in laundering funds stolen from Nigeria. Other letters have been addressed to the Queen, Metropolitan Police Commissioner Paul Condon and the governor of the Bank of England, Eddie George.
Despite the comic air of some of these letters, they represent a serious problem for UK businesses. Insurers put the total of all frauds in the UK at #18 billion last year. The Nigerian High Commission has been highly critical of the fraudsters, saying that they are giving the country a bad name.
There is evidence that Nigerian fraudsters have moved on from simple letter writing scams to other attempts to target the channel with fraud, and also that advanced fee fraud (of which speculative letter writing is just one part) is growing into something far more complex and sophisticated. Advance fee fraud is causing concern for the legal profession too, according to Alistair Walters, partner at solicitors Walker Martineau, especially the more sophisticated ?investment-type? scams.
Typically these work by the fraudster offering victims an investment opportunity, which revolves around a complicated financial transaction, involving say the trading of ?prime bank instruments? or the opportunity to win a contract in a far-flung corner of the world, often the ex-Soviet republics. The scam works by asking the company to supply a refundable advance fee to show goodwill, or to post a performance bond, which will often be held in escrow with a solicitor. The problem is that a small number of (often) sole-practioner solicitors are involved in the scams too. The Office for the Supervision of Solicitors has recently found more than 40 advance fee frauds involving solicitors.
Evidence that Nigerian fraudsters are branching out ? as the basic letter-writing scam finally runs out of steam ? came last November, when PC Dealer reported a successful operation by the Metropolitan Police in smashing what they believed to be a computer fraud ring, which was itself part of a much wider credit card scam. Police arrested three people in connection with a huge fraud against distributor CHS/ Merisel worth an alleged #250,000, which the distributor declined to comment on.
Those arrested are believed by the police to be part of a group of Nigerian fraudsters who have consistently targeted the channel for kit. Other distributors, including Frontline, were also believed to have been stung in the fraud. Frontline MD Graeme Watt warned dealers that the gang was ?moving around quickly, using credit cards?. Although the high- profile stings are likely to be attempted on large distributors and suppliers, smaller dealers can still be victims of fraudsters, either using bogus credit cards or ordering goods on credit from a false address(see box).
Fraud is the fastest growing crime in the world, and the fastest growing part of it is credit card fraud, fuelled by the global virtual economy. According to Brian Burke at specialist credit checker Graydon UK, the danger for resellers and suppliers has moved away from dealing with ?Phoenix? companies and well-known rogues that would liquidate their companies at the drop of a hat, and towards the problem of bogus credit card orders.
Burke confirms the existence of gangs trying to scam dealers, and says the arrival of internet trading has made it easier for potential fraudsters to get hold of credit card details, including those of US credit cards. ?It is an area where dealers have to be careful,? he warns.
Richard Tyson-Davies of the Association for Payment Clearing Services which represents credit card issuers, says that the credit card fraud most likely to hit dealers is mail-order fraud ? where goods are ordered using a stolen or bogus credit card, and delivered to an accommodation address. ?From a low base this is increasingly becoming a major problem,? he says. The banks which issue credit cards are working on ways to tighten up on this, but in the meantime it can be the dealer that is left carrying the can.
?The question of who is liable in this type of fraud depends on the merchant agreement? says Tyson-Davies ?But it is not unusual for the loss to be charged back by the card issuer to the merchant.? Dealers would be advised to check the small print of their agreement to see who would be liable. Tyson-Davies adds that there are a number of variations on the mail-order scams, including fraudsters intercepting deliveries destined for legitimate customers and addresses.
He says the fears of credit card details flooding the internet are not causing a problem, but adds: ?We would advise users not to put their credit card details on to the internet unless it is a secure commercial site.? Typically, secure sites run by banks and other card issuers would have some kind of encryption technology to shield card details from fraudsters.
Malcolm Tarling of the Association of British Insurers says that its members are aware of a number of frauds that were being perpetrated against business in the UK, including the Nigerian letter scam. But, he adds, the most important fraud prevention measure for a dealer is fidelity insurance, which covers the company against pilfering by staff. ?It is not necessarily covered by standard business insurance policies,? he says.
Although the majority of high-profile frauds are committed by outsiders, it is an unhappy fact of life that a large number of smaller thefts and frauds are carried out by employees. One large accounting firm, HLB International, has just teamed up with the Metropolitan Police in an initiative aimed at raising business awareness of fraud. HLB is focusing on internal fraud and is giving businesses advice on how to vet job applicants and who should and should not be entrusted with the company cash.
Welcoming the HLB initiative, fraud squad officer Tom Craig said that a number of large accountancy firms were less keen to get involved in giving anti-fraud advice because of the liability implications.
Although the more laughable letter scams are running out of steam, insurers and credit card issuers are clearly worried. Fraudsters are keeping themselves ahead of the law by moving around, using bogus credit card details.
The police have had some successes, notably in the North London bust last November, but the danger is that more criminals are drawn to fraud because it as an easy option.
All dealers can do is make sure they have fidelity insurance and are aware of their liabilities under their credit card agreements. Until then, as Shaw Taylor used to say, ?Keep ?em peeled.?
Scams: The Successful, and the Not So Successful
In April 1996, three men were found guilty at Manchester Crown Court of a #1 million scam which involved false computer contracts. Ringleader Peter Stokes conned backers into giving him cash by claiming that his dealership ? Premium Automatic Systems ? had lucrative contracts to supply PCs to Salford Council ? when it did not.Stokes and accomplices Anthony Lorenzo Deslandes (who posed as a council official responsible for buying PCs), and Michael John Rowley, defrauded 25 investors of a total of #1.06 million.
The biggest loser, Salford businessman Les Hampson, had paid #153,000. After the case DC Brian Urmson, who headed the police investigation, branded Stokes a Walter Mitty character, who committed the fraud to get the cash to run bona fide businesses. Urmson said that Stokes was ?arrogant? and wanted to run his own legitimate computer training and phone chatline companies. After the scam was discovered, Stokes temporarily admitted himself to a psychiatric ward at Leigh Infirmary, rather than face the victims of his crime.
In 1994, police warned dealers that the bogus ?Waltham School of Microtechnology? was faxing orders to resellers asking for kit to be sent to a bogus address in East London. The scam came to light after Surrey dealer Information Technology Communications responded to an order by sending out three Twinhead notebooks to the ?school?.
Police believed that the fraudsters ? and a connected bogus company called Lightstar Enterprises, also based in Leyton ? struck up to 20 times with the scam, leaving dealers out of pocket. The fraudsters had used false headed paper to fax orders to 30 dealers.
A desire by notebook manufacturers to get into the movies cost them, when a bogus film company targeted them, claiming that it wanted to use their product in an advert for a US airline.
?Max Scher? of the ?Syndicate Film Company? conned 10 leading manufacturers out of a total of 10 top-of-the-range colour notebooks, worth a total of #25,000, in early 1994.Victims of the scam included Compaq, Toshiba, NEC, AST and Apple, all of which sent expensive kit to a North London address, but later found that the address was bogus and that the airline had never heard of the film company.
Speaking at the time, Andy Bass from Toshiba said that the company was embarrassed to have been caught out, and that its ?good nature had been taken advantage of?.
Another manufacturer claimed that the thief must have had good industry knowledge and might even be a dealer or ex-dealer. Suppliers were warned to check with the company that was purportedly paying for the advert before rushing to hand over kit in order to get product placement.
Sources at one of the suppliers said that the scam had forced them to tighten up their product loan policy.
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