Fraudulent schemes have been around since the beginning of commerce. The first documented scam goes back to 300 B.C. when a Greek merchant called Hegestratos took out an insurance policy which acted as a personal loan. The terms of this agreement were that when a merchant borrows money, they agree to pay it back with interest when the cargo is delivered. The boat and its cargo would act as collateral in case the loan was not paid back, at which point the lender could then acquire the boat and its cargo. Hegestratos planned to sink his empty boat, keep the loan money and sell the shipment to make a profit. Like many devious plans, it failed, and he drowned while trying to escape his crew and passengers when they caught him red-handed.
Many fraud cases involve complicated financial transactions conducted by 'white collar criminals' who position themselves as legitimate business professionals, or the ludicrous promise of West African riches from a Nigerian prince. Other scams prey on our societal fear of authority, disguised as official correspondence from the IRS or FBI.
Internet fraud is the fastest-growing area of fraud because it's difficult to verify the identities of individuals and the legitimacy of faraway companies. It's easier than ever for fraudsters to divert visitors to dummy sites and steal personal financial information while hiding their actual location.
Fraudsters contact their potential victims through many methods, which include email, postal mail, or phone calls. Here’s a round-up of the most common fraudulent financial schemes and advice on how to protect you and members of your family, so you don’t end up becoming the victim of a money scam.
THE NIGERIAN PRINCE SCAM
Remember how exciting it was when you signed up for your first email address? Suddenly, you didn't have to pick up the phone to share valuable information or a hilarious meme with friends, family, and business associates. Back then, you probably looked forward to checking your inbox. But as you signed up with your new email to access iTunes, receive important bill payment reminder emails, subscribe to the occasional newsletter, or download software, you quickly realized that much of the spam in your inbox was a fallout of ending up on email lists that were shared with third parties.
Then came those suspicious (yet somehow intriguing) emails that happened to be commonly known as the “Nigerian Prince scam”—which is officially the internet's oldest hustle. Most of these involved the mention of a Nigerian prince or another member of a royal family wanting to transfer large sums of money out of the country.
Other correspondences came from the presumed director of the Nigerian National Petroleum Corporation to individuals and corporations. The man claimed that he wanted to transfer $20 million that was budgeted but never spent on to the recipient’s bank account. In exchange for transferring the funds, the recipient would be gifted 30% of the total. To start the process, the scammer asked for bank account numbers and other personally identifiable information, and if applicable, a few sheets of a company’s letterhead.
This type of transactional scam first became popular during the 1980’s when perpetrators mailed letters to households where the wife was in charge, addressed to an absent or deceased husband. After enquiring about his health, it asked what to do with the profits from an investment that totaled around $25 million. The letter ended with a phone number, presuming that the bereft wife would take steps to try and secure the funds at the expense of giving out personal banking information.
Nowadays, most of us are aware that a West African nobleman demanding $1,000 to send you back millions of dollars is a scam. But the underlying logic of these “pay a little, get a lot” schemes known as 419 frauds (the number 419 refers to the article of the Nigerian Criminal Code Chapter 38: "Obtaining property by false pretenses; Cheating") still manage to con a lot of people. Some scammers even have accomplices in the U.S. that move in to finish the deal after the initial contact has been made.
The FBI still reports annual losses of millions of dollars to these schemes.
According to Microsoft researcher Cormac Herley, "By sending an email that repels all but the most gullible, the scammer gets the most promising marks to self-select." Groups of fraudsters in Nigeria continue to make millions from these classic cons, refining their techniques and expanding their targets—and they've even gained minor celebrity status for their crafty machinations.
Many myths surround the Internal Revenue Service, and if you are one of many Americans with “audit anxiety,” you probably dread the idea of the IRS randomly showing up at your door and rummaging through your financial records to check for errors, penalizing you with hefty fines or even seizing your assets.
Sophisticated scammers have found a way to capitalize on this natural suspicion of the IRS by preying upon American taxpayers by pretending to be Internal Revenue Service (IRS) collection, officers. The scammers operate by placing threatening official-sounding calls to unsuspecting individuals, threatening them with wage garnishment, frozen assets, or even imprisonment if thousands of dollars are not paid immediately. According to the IRS, over 1.5 million Americans have received threatening calls (often from India), and have lost a lot of money to these call scams.
The reality is that the IRS will audit less than 1% of Americans in any given year and they initiate most contacts with taxpayers through regular mail delivered by the U.S. Postal Service. There are exceptional circumstances in which the IRS will call or come to a home or business, such as to secure a delinquent tax return or late employment tax payment or visit a business during an audit or other criminal investigations. Even then, taxpayers will usually receive several notification letters from the IRS in the mail before anyone ever rings the doorbell.
An advance-fee scam is a common form of fraud and targets victims using various tactics depending on the scenario most likely to succeed. According to the Federal Bureau of Investigation (FBI), "An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value—such as a loan, contract, investment, or gift—and then receives little or nothing in return." If a victim makes the payment, the fraudster either invents a series of further fees or disappears.
An example of an advance-fee scam is when someone is trying to sell an item using a platform such as Craigslist. Say you are selling bedroom furniture set for $800. The scammer would pretend to be an interested buyer and ask you to hold the furniture until they found a delivery service to have it picked up. They would make sure to get your mailing address and phone number and go so far as to send an advance check for an inflated amount, such as $2,000. While you were looking at the check, wondering why they would give you more money than the asking price, they would reach out again and say it was a mistake. At this point, they would be counting on you having not immediately deposited the check that will inevitably bounce because it’s a fake, and aggressively hound you to wire the difference back to them.
If you tell them you're waiting for the check to clear first, they will go so far as to call you from several different phone numbers and even threaten you with showing up at your door because they have your address. However, once the check bounces, they have absolutely no leverage and will usually disappear if you threaten to report them to the police.
This con originated from the “Spanish Prisoner Scam” of the late 18th century when select businessmen were contacted by someone allegedly trying to smuggle a wealthy nobleman out of prison in Spain. In exchange for a small amount of advance money to bribe prison guards, the scammer promised to share the financial reward from his family as a thank-you for bringing him home.
An archived letter from 1830 is similar to the dramatic type of language that’s sent through email nowadays: "You will undoubtedly be astonished to be receiving a letter from a person unknown to you, who has a favor to ask..." and goes on to talk of a mysterious casket containing a lot of gold and diamonds belonging to a late marchioness who probably never existed in the first place.
HACKERS WHO CLAIM THEY HAVE ACCESS TO YOUR COMPUTER
The latest terrifying email scam has attackers claiming they have hacked into your computer and have access to all your personal information which they threaten to share publicly if you don’t pay for their silence (usually $1,500+ in bitcoin). The subject line includes a username and/or password that you probably have used at some point so that it appears legit. But the attacker probably got it from a publicly available database of old leaked passwords and email addresses.
This scam preys upon our primal fear of being spied upon, and we second-guess as to the security of important saved documents such as digital scans of passports, social security card, or bank account information.
As the scam develops, there's a good chance it may include credentials from a new breach. To keep yourself safe, use strong passwords combining numbers, letters, and special characters. You can also try using a password manager and turn on two-factor authentication on your important financial accounts.
FBI SCAMS AND REPORTING CYBER ATTACKS
If you search the FBI’s website, you will see an extensive list of scams, some of which we’ve touched upon, and many you’ve never heard of. The FBI would never send mass e-mails to private citizens about cyber scams, so if something shows up in your inbox that seems to be from the FBI Director or another top official, it's most likely a scam. As part of the battle against fraudulent activity, the Federal Bureau of Investigation provides regular updates to protect you, so use them as a resource when you’re unsure whether something is legit or not.
Remember to pay it forward and help keep others safe by forwarding fraudulent emails to the FBI’s Federal Trade Commission at firstname.lastname@example.org.