The Basic Know-How for Fraud and Scam

Advanced Up-Front Fee Scheme Overview

 

National Bank Anti-Fraud Resource Center Consumer Information

Advanced up-front fee fraud was previously referred to as either 419 fraud or Nigerian fraud, both named after Section 419 of the Nigerian Penal Code. This fraud first originated out of Nigeria but is now rampant in many other countries. Potential victims of this fraud may receive correspondence related to estate monies, contest/lottery winnings, sale of goods, found monies, or employment opportunities. While the topics differ, they all work under the same premise to scam consumers out of their money. The originator of the document may offer to transfer a large sum of money into the victim's personal bank account, which would necessitate the victim providing the con artist with personal information such as: address, telephone number, bank account number, as well as copies of a passport and/or driver's license. Other schemes may include a counterfeit check along with the correspondence. The recipient will be instructed to deposit the check into their bank account and immediately wire a portion of the money to a third party outside of the country. Many of these scams involve counterfeit official instruments such as cashier's checks, official checks or money orders.

The following steps should be taken if you have received a solicitation but have NOT lost funds:

-  Do NOT respond to the message! According to the United States Secret Service (USSS), those who respond in any manner to these messages will continue to be harassed for months.

-  Forward the correspondence to your local USSS field office http://www.ustreas.gov/usss/field_offices.shtml.

-  Forward the scam e-mail to the 419 scammer's e-mail provider's abuse center to report the abuse. Ensure that you include the scammer's message with its headers. Alert the provider that the e-mail address is being used to solicit illegal activities and that it should be shut down. Most providers have specific abuse mailboxes set up to handle such problems. Some examples include: abuse@yahoo.com; uk-lmail-abuse@yahoo-inc.com; abuse@hotmail.com; etc.

If you have already lost funds in pursuit of the above described scheme, please follow these steps:

-  STOP corresponding with the scammers immediately!

-  United States citizens and residents should contact the nearest USSS Field Office http://www.secretservice.gov/field_offices.shtml by telephone to report their loss.

-  File a Financial Loss complaint form online with the Internet Crime Complaint Center http://www.ic3.gov, which is a partnership between the National White Collar Crime Center and the Federal Bureau of Investigation.

Receipt of Suspicious Checks / Verifying Authenticity

Anytime a scam involves a cashier's check, official check, or money order from a financial institution and you believe that it could be counterfeit, you should contact the issuing bank directly to report receipt of the check and to verify authenticity. Only the issuing bank can verify the authenticity of the item. When contacting the bank, do NOT use the telephone number provided on the instrument, as this number is generally not associated with the financial institution but rather with the scam artist.

To locate a bank's contact information, you can check the FDIC's website at: http://www2.fdic.gov/idasp/main_bankfind.asp

Fictitious Correspondence from US Government Agencies

On several occasions, con artists have counterfeited the letterheads of US Government Agencies in an effort to financially scam consumers. The correspondence generally contains forged signatures of agency officials and fictitious telephone numbers. The letters are sent to potential victims via mail, fax, or e-mail.

These scams usually claim that the purported agency is holding payments owed by foreign governments or foreign organizations but that the recipient must first pay a large fee to have the funds released. Should consumers receive such correspondence, they should not respond, because the contact information contained within is generally associated with the con artist.

The OCC has issued the following Alerts, which address this particular situation:

Fraudulent E-mails Purportedly from U.S. House of Representatives, Committee on Financial Services - http://www.occ.treas.gov/ftp/alert/2007-12.html

Fraudulent Correspondence Attributed to Officials of the Office of the Comptroller of the Currency - http://www.occ.treas.gov/ftp/alert/2006-68.html

Fraudulent E-mails Attributed to Officials of the Office of the Comptroller of the Currency - http://www.occ.treas.gov/ftp/alert/2005-12.doc

Lottery Scams

A letter arrives in your mailbox stating that you have won a great deal of money in an international lottery program, one that you never entered or heard of. Along with the notification letter is an official instrument drawn on a legitimate bank. The letter will indicate that the check is to be used to pay taxes and transfer fees before the remainder of funds may be disbursed. You are instructed to call a telephone number to obtain additional information on how to proceed. During this call, the con will tell you to deposit the check into your bank account and then immediately wire out the proceeds using Western Union or Money Gram. The problem is that the check is counterfeit, a fact that won't be revealed for approximately ten days (please refer to sections: Receipt of Unsolicited Checks and Regulation CC).

In the meantime, the money associated with the counterfeit item will be available to you on the next business day. As such, you follow the con's instructions and wire the funds out. When the check is returned as uncollected because it is counterfeit, you have already sent the money out and will now be in a loss situation.

In addition to contacting the appropriate financial institutions as outlined in the Receipt of Suspicious Checks / Verifying Authenticity section, there are others who you should notify as well if you are in receipt of a counterfeit item and associated lottery material. They include:

-  US Postal Inspection Service - by telephone at 1-888-877-7644 , by mail at U.S. Postal Inspection Service, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100 or via e-mail at http://www.usps.com/postalinspectors/fraud/MailFraudComplaint.htm

-  Federal Trade Commission (FTC): by telephone at 1-877-FTC-HELP or by filing an electronic complaint via their internet site at www.ftc.gov

-  Royal Canadian Mounted Police (Canadian Scams): by telephone at 1-888-495-8501 or via e-mail at [info@phonebusters.com]. Their website, www.phonebusters.com , provides additional contact numbers.

-  Spanish Embassy in the US - Spanish Lottery Scam: www.spainemb.org/ingles/indexing.htm

-  Most importantly, do NOT make contact with the con artist; they can be extremely dangerous. If at anytime, you feel physically threatened, you should contact your local police department immediately.

Mystery Shopping Scam

Lucky you! You have been selected to be a mystery shopper for XYZ Company! They have even sent you a cashier's check to be used to make purchases at the chosen store locations. This sounds great! You get to shop, grade each store location, keep the merchandise you purchase, plus get paid a fee for your services. It must be real; they have even included a Code of Ethics disclosure! How can this be a scam? First of all, the check is counterfeit. You will be asked to deposit the counterfeit item into your bank account and then immediately begin your mystery shopping assignment. The majority of the funds provided to you in the counterfeit check will be wired out using a nationally-known wire service (Western Union or Money Gram), with the ploy that this is one of the merchants you are to grade.

As with the lottery scam, once the check is deemed to be counterfeit (about ten days after you deposit the item), the check is returned as uncollected, and your bank debits your account for the full amount of the check. Since you have already spent or wired the funds out, you are now in a loss situation and left to deal with a mess.

-  In addition to contacting the appropriate financial institutions as outlined in the Receipt of Suspicious Checks / Verifying Authenticity section, there are others who you should notify as well if you are in receipt of a counterfeit item and associated mystery shopping material. They include:

-  US Postal Inspection Service - by telephone at 1-888-877-7644 , by mail at U.S. Postal Inspection Service, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100 or via e-mail at http://www.usps.com/postalinspectors/fraud/MailFraudComplaint.htm

-  Federal Trade Commission (FTC): by telephone at 1-877-FTC-HELP or by filing an electronic complaint via their internet site at www.ftc.gov

-  Royal Canadian Mounted Police (Canadian Scams): by telephone at 1-888-495-8501 or via e-mail at [info@phonebusters.com]. Their website, www.phonebusters.com , provides additional contact numbers.

-  Most importantly, do NOT make contact with the con artist; they can be extremely dangerous. If at anytime, you feel physically threatened, you should contact your local police department immediately.

Money Transfer Agent

You are contacted via e-mail or telephone in response to a resume you have posted on-line. The person solicits you for a job as an international money transfer agent. They will send you official bank instruments to deposit into your personal bank account. You will then be required to immediately wire the proceeds out to a variety of international locations, keeping an agreed-upon amount for your services.

It sounds easy enough, so you agree. As such, you follow the con's instructions and deposit the checks and then wire the funds out. When the checks are returned as uncollected because they are all deemed counterfeit, you are left with a gaping hole in your bank account.

In addition to contacting the appropriate financial institutions as outlined in the Receipt of Suspicious Checks / Verifying Authenticity section, there are others who you should notify as well if you are in receipt of a counterfeit item and associated e-mails or correspondence regarding this "job opportunity." They include:

-  Federal Bureau of Investigation (FBI) Internet Fraud Complaint Center (Scams that may have originated via the internet): www.ic3.gov

-  US Postal Inspection Service - by telephone at 1-888-877-7644 , by mail at U.S. Postal Inspection Service, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100 or via e-mail at http://www.usps.com/postalinspectors/fraud/MailFraudComplaint.htm

-  Federal Trade Commission (FTC): by telephone at 1-877-FTC-HELP or by filing an electronic complaint via their internet site at www.ftc.gov

-  Royal Canadian Mounted Police (Canadian Scams): by telephone at 1-888-495-8501 or via e-mail at [info@phonebusters.com]. Their website, www.phonebusters.com , provides additional contact numbers.

Originator's Mailbox Provider: If the correspondence was received in the form of an e-mail, notify the originator's mailbox provider that the originator's email address is being used to solicit illegal activities. For example, Yahoo and Hotmail have the following email addresses set up: abuse@yahoo.com; abuse@hotmail.com.

-  On-line Job Search Database Service: Notify the on-line service you utilize to post your resume of this scam.

-  Most importantly, do NOT make contact with the con artist; they can be extremely dangerous. If at anytime, you feel physically threatened, you should contact your local police department immediately.

Overpayment for Goods or Services

You have advertised a car in an on-line market and are contacted by someone who is interested in making the purchase. They agree to pay the advertised amount, but, oops, they made the check out for $3,000 more than the asking price. Because you seem to be such an honest individual, they trust you with these extra funds and ask you to simply deposit the check into your bank account and wire the excess to their shipper, who is arranging for pickup of the vehicle. As it turns out, they are not so trusting. The check is counterfeit. As with the other 419 scams, once the check is returned as uncollected, the money is already gone, and you are left with a loss.

In addition to contacting the appropriate financial institutions as outlined in the Receipt of Suspicious Checks / Verifying Authenticity section, there are others who you should notify as well if you are in receipt of a counterfeit item and associated e-mails and correspondence regarding the overpayment. They include:

-  US Postal Inspection Service - by telephone at 1-888-877-7644 , by mail at U.S. Postal Inspection Service, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100 or via e-mail at http://www.usps.com/postalinspectors/fraud/MailFraudComplaint.htm

-  Federal Trade Commission (FTC): by telephone at 1-877-FTC-HELP or by filing an electronic complaint via their internet site at www.ftc.gov

-  Federal Bureau of Investigation (FBI) Internet Fraud Complaint Center (Scams that may have originated via the internet): www.ic3.gov

-  Royal Canadian Mounted Police (Canadian Scams): by telephone at 1-888-495-8501 or via e-mail at [info@phonebusters.com]. Their website, www.phonebusters.com , provides additional contact numbers.

-  Originator's mailbox provider: If the correspondence was received in the form of an e-mail, notify the originator's mailbox provider that the originator's email address is being used to solicit illegal activities. For example, Yahoo and Hotmail have the following email addresses set up: abuse@yahoo.com; abuse@hotmail.com.

Most importantly, do NOT make contact with the con artist; they can be extremely dangerous. If at anytime, you feel physically threatened, you should contact your local police department immediately.

Legitimate process

This is not a legitimate process for paying off your mortgage, installment loan, or credit card.

This Office does not maintain a list of companies engaging in such fraudulent activities. Many of these groups portray themselves as clubs or investment advisors. These schemes are not new, just the latest version of the up-front-fee scam, perpetrated with the speed and broad coverage of the internet.

If you have lost money as a result of this scheme, you should file a complaint with the local FBI office, or if you are in the same state as the originators, your state law enforcement.

You should also file a complaint with both the IC3, and the State consumer complaint organization or department of financial institutions for the state where the originators are located.

If any portion of the offering or subsequent portions of the transaction are processed through the United States Postal System (USPS), the Criminal Investigation Division of the USPS should be contacted. Specific contact information can be obtained from your local U.S. Post Office.

Fictitious/Unauthorized Banking

Banks operating without a license or charter in the US or any other country are operating in an unauthorized manner. When we are notified of a fictitious bank, we may issue an Alert. The individual Alerts can be found on our internet site. Click here to view the consolidated listing. If you have information pertaining to such an institution, please notify us via email at: OCCAlertResponses@occ.treas.gov, via mail at: Office of the Comptroller of the Currency, Enforcement & Compliance Division, MS 8-10, 250 E Street, SW, Washington, DC 20219 or via fax at: (202) 874-5214.

High Yield Investment Fraud aka Prime Bank Fraud

High Yield or Prime Bank fraud can be traced back to several origins. Its roots originated in ancient history, along with the origin of interchangeable money. This is followed by a long history of advance fee fraud concerning commodities, loans, and securities. With varying degrees of sophistication, promoters have for years promised access to low interest rate loans or cheap securities in exchange for the payment of an up-front fee. High yield investment fraud is the twentieth century's version of Alchemy, the process of creating something valuable out of nothing. While ancient Alchemy tried to convert lead to gold, the modern version sells nonsense for cash.

In the 1980s, with the advent of publicly available electronic transactions, offers for the sale of world currencies, "Prime Bank Notes" and low interest rate loans grew rapidly, supplementing the offers published for years in the world's financial journals. Both sources also offered securities (or collateral) listing a number of different types, with Prime Bank Notes (PBN) being the most important. These PBNs were also stated to be issued by the world's leading banks, to further the aura of financial credibility. The PBNs came in two standard maturities and rates. There were 10 and 20 year 7.5% notes, and, 10 and 20 year 14% notes, but the 7.5% 10- year notes were the favorite, and remain so today in the form of 7.5% Medium Term Notes.

At this time, many of the longer term securities were supposed to have originated in Japan. "Japanese notes" were so named because Japanese banks were king of the hill in international banking at that time, giving them an aura of superior strength. Bank of China notes were also occasionally seen, but usually guaranteed by one of the leading international banks.

A closely related fraud, combining both situations, is the self-liquidating loan. Former Senior National Bank Examiner and founder of the OCC's Offshore Banking and Fraud Section, John Shockey, recalls self-liquidating loan proposals from the 1950's and the onslaught of the Prime Bank Frauds in the 1970's with its subsequent evolution into the current Bank Trading Programs. The current schemes supposedly use Bank Debentures, U.S. Government securities, or other highly rated securities.

In addition to PBNs, the con artists also offer, for investment purposes, the one year Standby Letter of Credit (SLC). The prices offered for these instruments are normally in the 80-85% range for the fake SLCs and in the 70%-80% range for the equally worthless 10 year 7.5% PBNs. By the standards of any time period, this is unbelievably cheap, so unbelievably cheap that little credibility was given to the possibility that investors could be gullible enough to be taken in, at first. A large number of people kept touting these instruments, and years later it was not a surprise to learn of their criminal records and that many later ended up being arrested for their activity.

One of the key drivers in the continuing life of high yield investment fraud is its ability to transform into the latest financial innovation of the day. Whether the financial news organizations talk about zero coupon bonds, the Sudan, Afghanistan, swaps, Iraq, Belgium or the United States, the countless offers for the purchase and sale of the currency or securities of the country, or the latest financial instrument in the news, will dominate the fake markets. In all these transactions, the quantities offered are fantastic, in the millions, billions and trillions of dollars. Thousands of offers for relatively unknown currencies and securities are made, but none of these transactions ever close.

Continuing the expansion of fake financial instruments available, a new instrument appeared on the scene sometime during this time that expanded the market substantially: the Prime Bank Guarantee (PBG). The PBG is similar to the PBN in terms of interest rate and maturity, but was priced higher because they supposedly had a higher priority among creditors in the event of bankruptcy.

PBGs became the first choice of the con artists. The simple fact that guarantees, like letters of credit, are not investment instruments did not stop the cons from offering them. The most popular guarantees had stated "6%, 7%, or 8% interest rates". These are commonly referred to respectively as: "106s," "107s," and "108s."

Along with the fictitious securities, came a long list of terms used to describe where and how these "investment securities" originated. While you could not find any reference to these types of "investment securities and terms" in legitimate financial circles, many people didn't care where or why they were issued. Sources were listed as "cutting houses" pursuant to a "master collateral commitment." Where was the location of such cutting houses, and if the securities were issued by recognized financial institutions, why was the source not the bank? This "inside knowledge" and sources were secrets known supposedly only to a few select persons.

"Master collateral commitments" and "contracts" were circulated, but they were very sloppily drafted, containing numerous typing mistakes, re-faxed with important information whited-out, or obvious forgeries. The quality of the paperwork did not match the multi million dollar level of the deals nor the level of sophistication of the reported originating institutions.

In addition, a simple purchase and sale, of a supposed investment security, was organized in such a way as to resemble a multibillion dollar transaction between several parties. This complex structure for a simple transaction is a key hallmark of the High Yield Investment Program scheme (HYIP). Additionally, the proposal is rarely for one transaction, with the "program" continuing to run each week until the end of the program, typically 40 weeks. The typical HYIP has the intermediary working with the broker, who then works with the program manager, who works with the mandate, who then works with the commitment holder, who works with the trader, who of course is secret and only one of the ___ (pick your number- 5,7,25) who has access to this fabulously lucrative market.

The modern program further attempts to give credibility to the transaction by stating that it is guaranteed by the United States Federal Reserve System and your investments can be checked with your Cusip or transaction number on a Bloomberg or Euroclear screen. Sometimes an additional inducement is offered by the con artist in the form of a "blocked funds account" or "blocked funds letter" structure to assure investors their money would not be stolen. While the current terminology has changed to non depletion accounts, reserved in the account, or making the funds available for scanning in the account, the underlying false assertion has not changed and investors still lose money through these schemes.

What really happens in every one of these programs is, the instant you put any money into an account or provide the information about your account to the con artist, your money will be wired offshore/somewhere to pay for your trips to check on the investment, and all of their parties, house mortgages, boats, cars, and diamond jewelry.

The history of the up-front-fee scheme in the form of HYIP, bank debenture trading programs, prime bank instruments, and self liquidating loans is based on old-fashioned greed and dishonesty. It is basically the time immemorial, "getting something for nothing," which the con artists have always been willing to provide.

The schemes have nothing to do with world monetary conferences such as Bretton Woods, the G-8, the Bank for International Settlements, the Federal Reserve, or humanitarian programs. There are no secret markets available only to the chosen few. It is fraud. The story has changed, the justifications evolve to match current events, but the end result is always the same: investors lose money.

Phishing, Spoofing & Pharming

An industry organization, the Anti-Phishing Working Group (http://www.antiphishing.org), reports that identity theft frauds known as "phishing" attacks have increased significantly over the last year. Phishing, spoofing and pharming are terms used for criminals' attempts to steal personal financial information through fraudulent e-mails and Websites designed to appear as though they were generated from legitimate businesses, financial institutions, and government agencies. These scams are contributing to a rise in identity theft, and credit card and other Internet-based frauds. E-commerce customers, including bank customers, have fallen victim to these scams.

If you receive an e-mail or pop-up message requesting verification of personal and/or financial information, chances are that someone is trying to lure you into a phishing scheme. These con artists use letterheads, e-mail and website addresses of what would appear to be legitimate companies. However, while convincing, they do not represent the entities at all. They are simply attempting to gather your personal and financial information to be used to steal your identity and ruin your name and credit. Legitimate companies will not use e-mail to obtain confidential information.

Should you receive such an e-mail, follow these steps:

1. Do NOT click on the link provided in the message nor respond in any way.

2. NEVER provide any personal information using the contact information provided in the e-mail or in the bogus website link! Instead, locate a genuine telephone number for the company and make contact with them.

3. Forward the e-mail to the Federal Trade Commission (FTC) at spam@uce.gov by attaching the message to a new e-mail. This will ensure that all original headers are included. When sending the e-mail to the FTC, copy your local internet service provider's abuse center as well as the legitimate company (if you can obtain that information). For example, eBay has an e-mail reporting box set up at spoof@ebay.com

Please refer to OCC Bulletin 2005-24 (PDF), OCC Bulletin 2004-42 (PDF), and the OCC's Anti-Phishing Brochure for further information.

Spam

What is spam? Spam is unsolicited commercial email (UCE), which is sent out in mass mailings, thus flooding the internet and user mailboxes with unwanted e-mail. Most spam mail is sent to individuals by con artists advertising a questionable product or service or touting some fabulous get-rich-quick scheme. There are generally three steps to take when you receive spam:

1. Forward the e-mail to the Federal Trade Commission (FTC) at spam@uce.gov by attaching the message to a new e-mail. This will ensure that all original headers are included.

2. Never respond to spam mail, which includes clicking on "unsubscribe" or "remove" option buttons. By responding in any way will notify the scammers that they have reached an active e-mail address, and they will continue to send unwanted mail.

3. Delete the message.

Many times, individuals who respond to spam are later victimized in a scam or through identify theft.

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