Chapter 16 Supplement Financial Crime

• In 1998, 220,262 persons were arrested for fraud crimes. An additional 70,678 were arrested for forgery and counterfeiting offenses, and 10,585 persons were arrested for embezzlement (BJS 1999, 214, table 32).

• The U.S. Department of Justice successfully prosecuted 2,613 cases of financial institution fraud in 1998. These convictions netted $62.4 million in recovered assets and $491 million in court ordered restitution to the victims of these frauds (Ibid., 305, table 3.159).

• The National Consumer League's Internet Fraud Watch reported a 38% increase in complaints of Internet fraud in 1999 with estimated average consumer loss of as much as $580.00 (NCL 16 February 2000).

• Online auction complaints were the number one Internet fraud complaint in 1999, increasing 87% over the number reported to Internet Fraud Watch (IFW) in 1998. Other frauds on the Internet were in sales of general merchandise, Internet access services, computer equipment and software, and work-at-home plans (Ibid.).

• A joint study by the Computer Security Institute (CSI) and the Federal Bureau of Investigation (FBI) found that sophisticated cybercrooks caused losses reported in excess of $120 million in 1998. Five hundred information security professionals were polled representing a cross section of business and government institutions. Nearly one third reported that their computer systems had been breached in the past year (mostly through an Internet connection) (NWCCC 26 March 2000).

• The fifth annual survey of the FBI and the CSI released on March 22, 2000, showed that 70% of systems professionals report being victimized by serious computer crimes and when equipment theft, viruses, and other pilfering are included, the figure rose to 90%. Those claiming cybercrime related financial losses reported totals exceeding $265 million (Zuckerman 22 March 2000).

• In 1997, the U.S. Department of Commerce estimated employee theft to be $40 to 50 billion annually, or $110 million a day, accounting for 20% of all business failures (Ibid.).

• Federal prosecutors filed 371 criminal indictments in health care fraud cases in 1999--a 16% increase over the previous year. A total of 396 defendants were convicted for healthcare fraud-related crimes in 1999. During this same period, the federal government won or negotiated $524 million in judgments, settlements, and administrative impositions in healthcare cases and proceedings, and ordered convicted offenders to pay over $490 million in fines, judgments, and settlements (HHS and DOJ January 2000).

The National White Collar Crime Center (NWCCC) has completed a significant research project designed to measure public attitudes regarding such white collar crimes as fraud and embezzlement, how often American households are victimized by these crimes, and what U.S. citizens think the government should do to prevent these types of crimes. Although many surveys have measured public perception of violent crime and victimization, this is the first survey to measure public views and experiences related to white collar crime. The National Public Survey on White Collar Crime (Rebovich et al. 2000) was administered between January and April 1999, to a total of 1,169 U.S. citizens. Questions included:

• How serious do you believe white collar crime is?

• How safe do you feel from white collar crime?

• Have you or someone in your household been victimized by white collar crime?

• Did you report the victimization?

• What type of person do you believe the average white collar crime victim is?

Major findings include:

• Over one out of three households had been victimized by white collar crime in the last year.

• Widely held opinions concerning the profile of typical white collar crime victims do not reflect the actual profile of such victims as found by recent research on victimization. While 60 percent of respondents believed that those victimized would be over sixty years of age, for instance, earlier victimization surveys (Titus, Heinzelmann, and Boyle 1995) found that younger adults (18 to 34 years of age) and those with some college or college degrees were more likely to be victimized.

• There is a disparity between how Americans believe they would react if victimized and how they do react when victimized (actual rate of crimes reported is much lower than believed.)

• Fewer than one in ten victimizations were reported to law enforcement or law protection agencies.

• The public wants apprehension and sanctioning of white collar criminals increased.

The information gathered from The National Public Survey on White Collar Crime (Rebovich et al. 2000) is highly significant for several reasons:

1. It is clear that the public is sensitive to the ever-increasing threat of white collar crime and strongly supports the existence and enhancement of control programs as well as stronger and more stringent punishment of those convicted of white collar crimes.

2. The results represent a challenge to the criminal justice community regarding public recognition of the behaviors that can precipitate white collar crime victimization and who should be targeted for such education.

3. Survey results are an impetus for exploring ways to increase the reporting of white collar crimes to law enforcement agencies, including developing innovative strategies to increase public awareness of the white collar crime control responsibilities of law enforcement agencies and increasing the awareness of investigators and prosecutors to keep the public informed of important white collar initiatives and the extent to which they succeed.

In a recent report to the U.S. Department of Justice, the National Consumers League (NCL) estimated that telemarketing fraud costs Americans at least $40 billion a year. In 1992, the NCL commissioned a survey of consumers' experience with telephone-based frauds and found that 3 percent of the respondents had bought something over the phone that they later believed was fraudulent. Sixty-two percent said they would not know where to call to find out if the promotion was legitimate, and one in six said that they found it difficult to resist telephone sales (NCL 10 January 2000).

Also cited in the NCL report was a 1999 AARP survey designed to assess consumer experiences in which 17 percent of the respondents believed that they had been the victim of a serious consumer swindle, 2 percent of which were telemarketing frauds. Of the victims of telemarketing fraud who had been identified by federal and state law enforcement officials for the AARP survey, 56 percent were age fifty or older. Further AARP studies indicate that most elderly fraud victims do not make the connection between illegal telemarketing and criminal activity; they find it hard to believe that the nice voice on the phone line would steal from them, and once cheated, they find it difficult to admit that they have been robbed by illegal telemarketers (NCL 1999).

The top ten telemarketing frauds reported to the National Fraud Information Center in 1998 were:

1. Telephone cramming.

2. Advance fee loans.

3. Telephone slamming.

4. Prizes and sweepstakes.

5. Work-at-home plans.

6. Magazine sales.

7. Credit card offers.

8. Pay-per-call services.

9. Business opportunities/franchises.

10. Travel/vacation offers.

The Internet Fraud Watch (IFW) at the National Consumer League reported on February 14, 2000, that online auctions sales remain the number one Internet fraud for 1999, increasing to 87 percent. Consumers are losing the largest sums of money, however, in the purchase of computer hardware and software over the Internet. In incidents reported to the IFW, victims have generally paid for goods with checks and money orders, losing the rights they would normally have had they used a credit card. Unlike telemarketing fraud and identity theft, the average age of Internet fraud victims is substantially younger: 23 percent are under thirty; 53 percent are under forty; and 80 percent are under fifty (NCL 14 February 2000).

The ten most frequently reported types of Internet frauds as reported by IFW for 1999 are:

(1) online auctions (by far the most frequently reported scheme); (2) general merchandise sales; (3) Internet services; (4) computer equipment and software; (5) work-at-home schemes; (6) advance fee loans; (7) magazines; (8) adult services; (9) travel/vacations; and (10) pyramid/multilevel marketing schemes. The IFW program received 7,439 reports of fraud in 1998, and in 1999 the complaints increased to 10,660, averaging 890 per month (IFCC 2000).

While the passage of the Identity Theft and Assumption Deterrence Act (18 USC 1028) in October 1998 marks significant progress, there are at least 400,000 victims of identity theft a year in this country and the number is growing, according to Beth Givens at the Privacy Rights Clearinghouse, a nonprofit consumer advocacy program in San Diego. The new legislation provides no incentives to the credit industry to curb their solicitation and verification practices. Givens believes that unless the credit industry granting and reporting practices change dramatically, the rates of identity theft in the United States will remain at epidemic proportions. "Credit grantors are too eager in their competitive zeal to get new customers, and they do not adequately check the identities of applicants before granting credit" (Givens 29 August 1999).

Some indication that identity theft is a prominent consumer concern is represented by a Spring 2000 direct mail promotion from the American Express Corporation (AMEX), entitled "Is Someone Using Your Name to Open Accounts?" Through the services of a financial information company in Chantilly, Virginia, AMEX has set up a program to monitor for identity theft for its customers (available for $5.99 a month, charged directly to the AMEX card). The program provides a three-bureau credit profile; ongoing monitoring of account activity; and notification reports of any new accounts opened, negative information added, or significant changes in account status.

As commerce on the Internet grows, law enforcement agencies are observing a growing variety of fraudulent schemes that use the Internet, either to communicate false or fraudulent representations to prospective victims or to obtain valuable information or resources necessary for the success of the schemes. Common Internet fraud schemes include so-called "pyramid schemes"; entities that purport to be Internet banks that offer above-market rates for deposits; companies that promise to repair consumers' credit, but then do nothing after taking consumers' money; companies that purport to offer investments in nonexistent items; and companies that fraudulently offer to sell Internet-related good and services, or collectible goods through online auctions. Finally, some fraud schemes combine use of Internet Web sites with telemarketing "boiler rooms" to enhance direct contact with prospective victims (DOJ 9 March 2000, Appendix B).

While the U.S. Attorney General's Office has discussed strengthening the Computer Fraud and Abuse Act of 1986 to close loopholes that permit some highly destructive computer hackers to escape punishment, all of the above mentioned activities may violate one or more of the general federal criminal statutes dealing with fraud and can be prosecuted. Because these federal criminal and civil laws make no distinction between fraudulent representations over a telephone or fax machine and fraudulent representations posted on an online bulletin board or Web site, federal substantive law appears generally adequate to address Internet fraud. In addition, the Federal Trade Commission (FTC) has authority to bring civil actions against fraudulent Internet schemes under the FTC Act, which prohibits unfair and deceptive acts or practices (Ibid.).

INTERNET FRAUD COMPLAINT CENTER

On May 8, 2000, the Federal Bureau of Investigation, jointly with the U.S. Department of Justice and the National White Collar Crime Center, announced the creation of the Internet Fraud Complaint Center (IFCC). The IFCC was established to combat the growing problem of fraud occurring over the Internet by providing a vehicle for victims around the country to report incidents of fraud online (FBI 8 May 2000). The IFCC mission statement is: "To develop a national strategic plan to address fraud over the Internet and to provide support to law enforcement and regulatory agencies at all levels of government for fraud that occurs over the Internet."

Internet fraud is defined as any fraudulent scheme in which one or more components of the Internet, such as Web sites, chat rooms, and e-mail, play a significant role in offering nonexistent goods or services to consumers, communicating false or fraudulent representations about the schemes to consumers, or transmitting victims' funds, access devices, or other items of value to the control of the scheme's perpetrators (IFCC 2000). Consumers can go to the secure IFCC Web site <www.ifccfbi.gov> to file complaints directly online. IFCC's personnel analyze the complaints to determine jurisdiction, conduct appropriate investigation, and disseminate the information to the appropriate local, state, and/or federal law enforcement agencies for criminal, civil, or administrative action.

The IFCC is a major step forward in the fight against Internet fraud, an area of white collar crime that remains largely undefined in terms of scope and magnitude. No one knows the full extent of the commission of Internet fraud--not all victims report the crimes, and those who do report, do not report it to one place. The IFCC represents the development of a proactive strategy to combat Internet fraud through public education and awareness, the availability of a central repository for the reporting of Internet fraud complaints, and the aggressive analysis, investigation, and referral to law enforcement of criminal complaints of Internet fraud.

COMPUTER CRIME AND INTELLECTUAL PROPERTY SECTION

The cornerstone of the U.S. cybercrime program is the Computer Crime and Intellectual Property Section (CCIPS) at the U.S. Department of Justice. CCIPS was founded in 1991 as the Computer Crime Unit and was elevated to a Section in 1996. The CCIPS staff consists of two dozen lawyers who focus exclusively on the issues raised by computer and intellectual property crime. Section attorneys advise federal prosecutors and law enforcement agents; propose and comment upon legislation; coordinate international efforts to combat computer crime; litigate cases; and train law enforcement groups. Other areas of expertise possessed by CCIPS attorneys include encryption, electronic privacy laws, search and seizure of computers, e-commerce, hacker investigations, and intellectual property crimes (Reno 2000).

IDENTITY THEFT

At the National Summit on Identity Theft, on March 15-16, 2000 the U.S. Treasury Department announced four new initiatives to help combat identity theft:

• Skimming and counterfeit check databases will be used to identify common suspects and defendants of identity theft and to address criminal trends prevalent in financial crimes today. The U.S. Secret Service developed the databases in partnership with the financial industry.

• A computer-based training module developed by the Secret Service that focuses on financial crimes and the relevant statutes, including identity theft, will be made available to federal, state, and local law enforcement officials throughout the U.S.

• A pilot program developed by the Secret Service and Citicorp to help identify suspicious activity in electronic commerce will attempt to develop a protocol for the identification of identity theft and other schemes used to commit bank fraud, credit fraud, and money laundering within electronic commerce and the immediate notification of law enforcement authorities.

• Forums and mini-conferences will be held to maintain a dialogue between the private and public sectors.

• Fact Sheets from the Privacy Rights Clearinghouse (Identity Theft). The Privacy Rights Clearinghouse, in collaboration with the California Public Interest Research Group (CALPIRG), has developed several fact sheets and publications on identity theft. In addition, CALPIRG has developed an invaluable information guide with names, addresses and contact telephone numbers of institutions, government and criminal justice agencies, banks, and credit bureaus that it makes available to criminal justice professionals to include in their local guides to identity theft prevention and response protocols. Fact sheets speeches, case studies and referrals to victim support groups are available from the Privacy Rights Clearinghouse, 1717 Kettner Avenue, Suite 105, San Diego, CA, 92101 (619-298-3396 <http://privacyrights.org> and CALPIRG, 926 J. Street, Suite 713, Sacramento, CA 95814 (916-448-4516) <http://www.pirg.org/calpirg>.

• Identify Theft: Ways to Prevent It from Happening to You and Identity Theft: What to Do When It Happens to You. The Office of the Prosecutor in Union County, NJ has developed two excellent free brochures, one that instructs the consumer on how to prevent identity theft, including keeping personal information private, shredding credit card and other financial information, watching for mail theft, and ordering credit reports. The second brochure advises how to respond quickly and thoroughly to identity theft when it occurs, including filing police reports, reporting to the appropriate financial and credit institutions with numbers to call, and contacting the federal and state agencies that issue documents of identification, i.e., passport, social security number, and driver's license. Union County Prosecutor's Office, County Administration Building, Elizabethtown Plaza, Elizabeth, NJ 07207 (908-527-4505).

• Identity Theft Survival Kit. Written by Mari Frank, an attorney and victim of identity theft, as a guide to assist other victims, the kit includes the book From Victim to Victor, attorney-written form letters on diskette, six audiotaped interviews with experts on procedures to follow to effectively extricate oneself from credit complications resulting from identify theft, and interviews with other victims. The Identity Theft Survival Theft can be purchased from Porpoise Press, 28202 Cabot Road, Suite 215, Laguna Niguel, CA 92677 (800-725-0807) <http://www.identitytheft.org>.

• The National Fraud Information Center (Telemarketing Fraud). In 1992, the National Consumers League (NCL) created the National Fraud Information Center (NFIC) to advise consumers on how to spot possible frauds and report them. Professional counselors at the NFIC provide feedback to callers on reports of possible telemarketing scams, make referrals to the appropriate law enforcement agencies, and give reassurance to victims of fraud that they are not alone. In the case of elder victims, the center also advises friends and relatives who are concerned about elder fraud. NFIC distributes free materials on different types of telemarketing frauds. NCL also offers a twenty-minute video (available for a small fee) of personal stories told by fraud victims and helpful advice for seniors and their families. National Consumers League, 1701 K Street, NW, Suite 1200, Washington, DC 20006. National Fraud Information Center Hotline (800-876-7060).
• Be-Wise: How to Shop Safely Online (Internet Fraud). The NCL has released a brochure to educate consumers about shopping safely online. The Be-Wise: How to Shop Safely Online brochure is available on NCL's two Web sites: <http://www.nclnet.org> and <http://www.fraud.org> or by calling 800-639-8140.

• <http://www.cybercrime.gov>. CCIPA at the U.S. Department of Justice has launched a Web site that provides material to consumers and law enforcement on Internet-related cybercrime. Materials on the subject include how to report a crime, prosecuting hackers, intellectual property piracy and counterfeiting, international aspects of cybercrime, and the legal issues related to e-commerce, freedom of speech, the search and seizing of computers, encryption and privacy rights.

Chapter 16 Supplement References

Federal Bureau of Investigation (FBI). 8 May 2000. Press Release.

Givens, B. 29 August 1999. Identity Theft: How it Happens, Its Impact on Victims, and Legislative Solutions. Los Angeles CA: 25th Annual Conference, National Organization for Victim Assistance.

Internet Fraud Complaint Center (IFCC). 2000. <www.ifccfbi.gov>.

National Consumer League (NCL), National Fraud Information Center. 1999. Help for Elderly People Targeted by Fraud. Citing AARP survey, 1999. <http://www.fraud.org/

elderfraud/elderbroch.htm>.

National Consumers League (NCL). 10 January 2000. Report Concerning Telemarketing and Internet Fraud. Washington DC: Author.

National Consumers League (NCL). 14 February 2000. "Graph: Age Range for Consumers Contacting IFW for 1999." Internet Fraud Watch. Washington DC: author.

National Consumers League (NCL). 16 February 2000. Internet Fraud Watch, press release. Washington DC: Author.

National White Collar Crime Center (NWCCC). 26 March 2000. Released FBI statistics. Morgantown, WV: National White Collar Crime Center.

Rebovich, D. J., J. Layne, J. Jiandani, and S. Hage. 2000. The National Public Survey on White Collar Crime. Morgantown, WV: National White Collar Crime Center.

Reno, J. February 16, 2000. Testimony by the Attorney General before the United States Senate Committee on Appropriations.

Titus, R., F. Heinzelmann, and J. M. Boyle. 1995. "Victimization of Persons by Fraud." Crime and Delinquency 41: 54-72.

U.S. Department of Health and Human Services (HHS) and U.S. Department of Justice (DOJ). January 2000. Health Care Fraud and Abuse Control Program Annual Report for FY 1999. Washington, DC: Authors.

U. S. Department of Justice (DOJ). 9 March 2000. Internet Clearinghouse. <http://www.

usdoj-crm/mis/mdf>.

Zuckerman, M. J. 22 March 2000. "Criminals Hot on Money Trail to Cyberspace." USA Today.

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