Spotting and protecting yourself from fraud

I spent the best part of my youth growing up in Geelong and its surroundings, which has seen more than its fair share of fraudsters and financial collapses over the years. Being a small town, the leverage of human trust through referrals and potentially lower levels of financial education plays directly into the hands of charlatans who can, for a while, take advantage and create real damage to the economic wellbeing of its residents.

Financial fraud comes in many shapes and sizes. From massive collective Ponzi schemes that operate with high profile characters and plenty of showmanship to mis-sold investment opportunities that offer high returns or ’a unique opportunity’ to snare interest (and hopefully not a lot of due diligence). The ubiquitous Nigerian prince email that purports to offer a share in millions, and more recently, a similar offer but using crypto-currency are more examples of where far-reaching internet tricksters can worm their way into your attention and entice either money or personal details from you.

Financial fraud is and always will be a risk to your wealth; thankfully, there are several ways you can identify the warning signs and protect yourself and your family from being swindled.

The first step in identifying fraud is to stop and think about the primary drivers for becoming such an enticing trap to fall into. To help clarify the levers commonly employed, it helps to understand the psychology at work behind the scenes. Many resonate with two of the main motivations that appeal to action; greed and fear.

Primal Urge that fraud preys upon: Greed

Nobody likes missing out. Through the news and social media, we are constantly bombarded with the trappings of wealth that others seem to enjoy that you feel you are missing out on. The allure of instant, or at least fast, wealth is something of daydreams and stirs many emotions for people to make snap decisions. Alternatively, you may have a family member that needs financial help, and your desire to help them is understandably strong.

Fraudsters know this; they probably feel it themselves! Many people caught in acts of fraud admit some seemingly innocuous reason for their behaviour. The key here is to try to spot the telltale signs.

If it looks too good to be true, it probably is.

Currently, a term deposit pays under 1% per annum. At the other end of the spectrum, an aggressive but broadly diversified share portfolio is expected to return 8-10% per year, over the long term. If you come across an investment that offers 20% per annum, guaranteed, you must start asking yourself why such an offer would be available to you? Why wouldn’t the provider keep these impressive returns for themselves in such a low-rate environment?

Privacy and swiftness are big red flags. The sales pitch has caught your interest, and now the push is to make you act before you either have a chance to research the offer or your need for quick returns disappears. The inability to analyse the offer (either online or otherwise) shrouds your ability to get a third party to review and provide feedback, increasing their ability to overstate returns or the likelihood of success. Creating immediacy to act (i.e. Invest now before it’s too late) further enhances the greed element as it captures the emotions of finding something new and the prospect of your financial problems being eased in one fell swoop.

As an adviser, one of the primary roles is to serve as a sounding board for ideas, that are often put in front of their clients, and share years of experience in the finance industry. Avoiding problematic areas of investment (and, in some cases, straight fraud) is crucial in ensuring success in financial planning. Here are some simple checks you can do to ensure that any organisation or investment offer is even worth considering.

  1. Website check – If you are responding to an offer over email or text message, immediately disregard if you cannot locate a website to begin your investigations. No website: ignore immediately.
  2. Australian Financial Service Licence (AFSL) – Once you have found the company’s website, the first thing you need to see is the AFSL number. No one, I repeat no one, can operate a financial service involving consumers in Australia without one or be authorised to represent one. If one is not immediately available (try the footer of the company website’s homepage), then disregard the offer. If you find one, search for it using the ASIC registers to confirm that it is legitimate. Similar for Australian Business Numbers, which you can look up for some basic information. A recently registered company is always a worrying sign.
  3. Find names. Google the company and directors’ names and look for problematic areas. An example might be an enforceable undertaking (action from a regulator for poor practices) or insolvency proceedings. There is also a list of Banned and Disqualified people and organisations on the ASIC website. Be aware that names can be changed, however, often to subvert basic checks such as these.
  4. Ask around. Friends and family are a good start. Professional and independent financial advice is better. Too much information is never a bad thing before diving into something that you may not be able to reverse or run the risk of losing the lot.

Primal Urge that fraud preys upon: Fear

Probably the more pervasive of the two, the fear factor brings with it a lot more danger and is therefore often much more effective an emotion to illicit, to force you into action.

Fraudsters can strike fear from many forms, but here are some common examples. The classic ‘fear of missing out’ is mainly attributable to the ‘greed’ urge, but it pays to recognise the combination of the two in many types of financial fraud.

Another common technique is the fear of getting in trouble. Whilst not the domain of more significant sum frauds, it is indeed alive and well in more minor, broader fraud. Contact methods include text message, email or alarmingly, direct high-pressure phone call, claiming to be from your bank or the Federal Government such as the Australian Tax Office. Often the aim is to canvass a large number of people hoping that they come across people who are either worried about their relationship with those organisations or are just gullible enough to accept their claims and try to fix them. Sometimes scammers purposefully add spelling mistakes to screen out more educated prospects and zero in on more illiterate people – really horrible stuff.

The goal of this type of fraud is to convince you to provide either funds or personal details (which in turn are highly valuable to the black market) to avoid the potential for severe action to be taken. Payments are offered through ‘cash like’ methods like store cards, preloaded debit cards or even Bitcoin! Not usually the payment methods of Federal Governments, which should sound the alarm. Ideally, if you are contacted by such an effort, hanging up and ignoring is the best path of action. 

Another example of fear being used in scams is through relationships, often beginning online. The perpetrator in a faraway place allows them to pretend to be anyone they wish. Again, the aim here is to win trust with an individual that, for whatever reason, craves attention and communication, which the fraudster delivers in an attempt to forge a bond with their target. 

Divorcees and widowers are an easy mark, as their isolation slows down discovery or review of the relationship from a friend or family member, and can end with a distressing message for money due to either travel to meet them or an emergency, that the prospect feels compelled to help out with financially. The fear factor here is usually the humiliation and embarrassment of the whole affair being found out, which means the crime is unreported (or reported very late by family), and the scammer can move to their next target unprosecuted.

What to do if you suspect a scam attempt?

Firstly, it is best not to engage. Hang up, delete emails (ensuring you do not open any attachments) and change passwords if you suspect they have somehow accessed things like online banking and other vital accounts. If you suspect your identity has been stolen, contact IDCARE (1300 432 273) for further help.

The Australian Consumer & Competition Commission has a terrific website Scam Watch that you can subscribe to (highly recommended, if not for yourself, then for family and friends). You can also report scam attempts to help keep the rest of the community informed.

Finally, the ACCC put out a wonderful and detailed handbook, called the Little Black Book of Scams, which is available in PDF to share with loved ones, and they will send out hard copies to groups for you to distribute. I make sure the members at my Rotary club get one, for example.

The first line of defence is ensuring that people know about scams and that over time the methods and schemes will adapt to avoid detection, so everyone needs to be vigilant. 

In closing, I urge you to think about the more vulnerable members of your social circles and make sure they can reach out to you to discuss any enticing opportunities before it is too late. Better it be a false alarm than suffering the potential embarrassment, humiliation and monetary destruction of letting fraud ruin their financial success.