U.S. Agency Says E-Commerce Is Fertile Ground for Fraud

The Internet promises a number of benefits to consumers and the economy, but there is “a real danger” that those benefits will not be realized if consumers identify the Internet with fraud operators, a U.S. Federal Trade Commission (FTC) official testified Thursday.

“The boom in e-commerce has opened up fertile ground for fraud,” said Hugh Stevenson, associate director of the Federal Trade Commission’s Bureau of Consumer Protection, in testimony before the Senate Finance Committee on Thursday.

“The Commission’s experience is that fraud operators are always among the first to appreciate the potential of a new technology to exploit and deceive consumers,” Stevenson said.

Tech Cons

The FTC drew an analogy between fraud operators on the Internet and the fact that long-distance telemarketing and pay-per-call technology attracted con artists when those forms of communication were first introduced.

“Internet technology is the latest draw for opportunistic predators who specialize in fraud,”Stevenson said.

The FTC official told senators that it is necessary to act quickly to stem the trend “while the online marketplace is still young.”

Stevenson pointed to the ever-increasing number of Internet fraud complaints made through FTC’s Consumer Sentinel database. In 1997, there were fewer than 1,000 Internet fraud complaints. However, by 2000, that number had increased to over 25,000, roughly 26 percent of all consumer complaints logged.

“The Internet enables con artists to cloak themselves in anonymity, which makes it necessary for law enforcement authorities to act much more quickly to stopnewly-emerging deceptive schemes before the perpetrators disappear,” Stevenson said.

FTC Toolbox

The FTC’s Web-based fraud database, the Consumer Sentinel, is a central part of the FTC’s fraud program, according to Stevenson.

“The Commission is developing new methods of collecting and analyzing information about both the offline and online marketplace, drawing upon the power of new technology itself,” the FTC official told the senators.

The Consumer Sentinel receives Internet fraud complaints from the FTC’s Consumer Response Center, which processes both telephone and mail inquiries and complaints from 64 public and private law enforcement partners.

Cooperative Efforts

The agency provides secure access to the database over the Internet, and free of charge, to over 300 U.S., Canadian and Australian law enforcement organizations, including the Department of Justice, U.S. Attorneys’ offices, the Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), the Secret Service, the U.S. Postal Inspection Service, the Internal Revenue Service (IRS), and the offices of all 50 state Attorneys General.

“Because the Internet transcends national boundaries, law enforcement authorities must be more creative and cooperative if we are to succeed in combating online fraud,” Stevenson said.

Surfing Safari

Other innovations used to combat Internet fraud include “Surf Days,” where the FTC and its law enforcement partners surf the Web for specific types of claims or solicitations that are likely to violate the law.

The agency also conducts “sweeps,” in which it targets a particular type of scam for law enforcement action.

Training Wheels

The FTC has also been taking steps to train law enforcement personnel on new technology, investigative techniques and Internet case law.

In recent months, the FTC has held training seminars in seven U.S. cities, as well as Toronto, Canada and Paris, France. In addition to FTC staff, these sessions trained approximately 800 individual participants from other law enforcement agencies.

However, Stevenson testified that “law enforcement alone cannot stop the tide of fraudulent activity on the Internet. Meaningful consumer protection depends on education, as well.”

Since 1994, the Commission has brought 170 Internet-related cases against over 573 defendants. It obtained injunctions stopping the illegal schemes, ordering more than $180 million in redress, and obtained orders freezing millions more in cases that are still in litigation.