U.S.: E-Commerce Is Fertile Ground for Fraud

Adding to the recent flurry of Internet fraud news, the U.S. Federal TradeCommission (FTC) told Congress on Wednesday it received over 25,000 Internet fraud complaints in 2000.

Testifying before the House Committee on Energy and Commerce, Eileen Harrington of the FTC’sBureau of Consumer Protection said that more than a fourth of all complaintsthe agency received in its complaint database last year related to Internetfraud.

“The Internet enables con artists to cloak themselves in anonymity, whichmakes it necessary for law enforcement authorities to act much more quicklyto stop newly emerging deceptive schemes before the perpetrators disappear,”Harrington said.

The FTC testimony came on the same daythe U.S. Federal Bureau of Investigation (FBI) announced that criminal charges had been filed against approximately 90 companies and individuals over Internet fraud cases that caused cumulative losses in excess of US$117 million.

New Method, Old Scams

Since 1994, the FTC has brought 182 Internet-related cases againstapproximately 593 defendants, Harrington said. To date, she testified, the agency has collected more than $55 million in redress for victims of Internet fraud and deception.

Out of the cases brought by the FTC against Internet fraud anddeception, over half of them have involved old-fashioned scams that have beenretooled for the new medium, Harrington said.

“Traditional scams — such as pyramid schemes and false product claims –thrive on the Internet,” Harrington said. “Moreover, the architecture of theInternet itself has given rise to new high-tech scams that were not possiblebefore development of the Internet.”

Fire With Fire

Although the FTC has been involved in policing the electronicmarketplace for more than six years, it is now using the Internet to combat the growing trend of Internet fraud, while the e-commerce marketplace is still young, Harrington said.

At the center of the FTC’s efforts is its Web-based complaint database,dubbed Consumer Sentinel.” Complaints come into the database from the FTC’s Consumer Response Center (CRC), which processes both telephone and mailinquiries and complaints.

Consumer Sentinel also includes data received from organizationssuch as the Better Business Bureau and the National Fraud InformationCenter.

The data is then offered over the Internet, free of charge, to over 300U.S., Canadian, and Australian law enforcement organizations. New featuresrecently added to the database include a “Top Violators” report function, that allows law enforcement to pull up the most common suspects and schemes byregion or subject area, and an “Auto Query” function, that lets investigators create automatic search requests.

Surfing For Trouble

The FTC has also implemented a new system for sniffing out potential onlinefraud, called “Surf Days.” On a designated Surf Day, FTC staff members scan the Internet for a specific type of claim or solicitationthat may be in violation of consumer protection law.

When a suspect site is identified, the page is downloaded and saved aspotential evidence, and the operator of the site is sent an e-mail warning. Alaw enforcement team later revisits the warned sites to determinewhether the sites have abided by the FTC’s warning.

The FTC has held 27 Surf Days, which have identifiedover 6,000 Internet sites making dubious claims, Harrington said.

Without a Trace

Despite the FTC’s increased efforts to prevent online fraud, Harrington saidthe very nature of the Internet beast presents law enforcementofficials with many challenges. Many of those challenges can be attributed to Net’s global reach, she said.

“In addition to fraud proceeds moving offshore quickly, fraudulent onlineoperators may be beyond the reach of the Commission and U.S. courts,practically if not legally,” Harrington said. “Using anonymous e-mails,short-lived Web sites and falsified domain name registrations, many fraudoperators are able to strike quickly, victimize thousands of consumers in ashort period of time, and disappear nearly without a trace.”