The definition and scope of international fraud across jurisdictions

International Finance

The Scale of International Fraud

The definition of fraud

The headlines of online news sources, television news shows and print sources cry foul daily about an infinite number of scams perpetrated on the citizens of countries around the world. When it seems there could not possibly be another way to bamboozle a person someone in a foreign country or even on our own soil finds a way to demonstrate that the lengths to which a human soul will go to cheat and trick another person has not reached its limit.

Let us begin a discussion on international fraud by offering clarification on specific and important legal and academic points. In its simplest form fraud is defined as an intentional deception made for personal gain or to damage another individual. However, the reader will discover as this essay unfolds that nothing related to fraud, international or otherwise, is actually simple.

However, the word fraud actually has multiple legal meanings depending on its application in a specific case tried in court. Let us agree that although legal interpretations vary by jurisdiction fraud is a definite and serious crime as well as a civil law violation.

The types of fraud and statistics

There are numerous avenues through which one can commit fraudulent acts. Fraudsters utilize the mail, phone, wire and internet to ambush unsuspecting individuals and the types of fraud are so broad at first glance it's surprising that every individual in the country has not been victimized. While the types of fraud are nearly too numerous to list examples include such things as counterfeiting, money laundering, forgery, identity theft, shell games, investment frauds, embezzlement, child pornography and false advertising.

There's even adoption, medical, academic mail-order bride and electoral fraud -- fraud in all its forms has insinuated itself into all aspects of living and commerce and a commentary on its social meanings must keep for another time.

National and international fraud statistics are equally illusive because the types of fraud here and across the globe are so copious and the reporting agencies so varied. Other researchers echoed this sentiment as evidenced by the following statement from the first task -- to consult the official crime figures for an assessment of the incidence and prevalence of the problem and the efficiency of the authorities through arrest and prosecution rates, followed by a critical analysis of the strengths and weaknesses of the various agencies as evidenced by their success in reducing the incidence and prevalence of said crimes. However, a cursory examination revealed that as a quantitative measure of the size of the problem and as a longitudinal measure of the effectiveness of the various regimes and initiatives, the data was almost worthless. All indications were that the data was more a measure of policy and attitudes.

While not wishing to present information in a redundant and perhaps boring format, the use of double block quotes at this point is meant to demonstrate a connection between the material contained in each. The message from one validates the message of the other and vice versa. The point being made is that statistics on international crime are sketchy at best but be guaranteed that whatever figure an organization places on one of the many types of fraud -- it will be too low to be sure and exact numbers are simply impossible to determine.

Yet another researcher echoes this same sentiment

One might think that multinational data collection initiatives would be the most useful where available because they could provide relevant data on many countries. One such report entitled the International Crime Statistics is published by Interpol which would seem to be an authoritative resource at first glance. However, the data is lacking common measurement and controls in the measurement of the various crimes which causes the statistics to be considered less than trustworthy by most and virtually unusable. This Finally, on the subject of statistics perhaps now is the time to share the most dismal discovery from my research. First, there is "a large difference between the recorded number of crimes and the undiscovered or unreported number and this figure is referred to as the 'dark figure of crime' (Coleman & Moynihan, 1996).

An example

Let us examine numbers provided by a source in the United States that has only recently come into existence to address the singular issue of internet crime. The data they provide may help the reader get an inkling of the magnitude of the problem of international fraud.

Another statistical resource is the Internet Crime Center Complaint. In collaboration with the National White Collar Crime Agency and the Federal Bureau of Investigation they have compiled statistics on the number of internet crimes and their estimated costs for the past four years. Last year they logged a shade less than half a million complaints that cost a half a billion dollars.

Now, remember, this data is only for U.S. citizens so to better visualize fraud statistics multiply it by perhaps 30 different kinds of rampant fraudulent acts and again by another 100 or so nations in the international community and then the annual figures of fraud start to crystallize.

Despite this lengthy conversation on statistics let us end this section with the following statement. Finally, most commentators will agree that the actual fraud statistics are undoubtedly many times higher than those recorded by policing agencies across the globe and any estimate of a realistic figure would simply be a 'guestimate'.

Present day preventive strategies -- their strengths

Each organization will claim that the best preventive strategy to avoid being defrauded is to be vigilant against scam artists and become educated in the latest methods being used by scammers. However, realistically and in practice this strategy alone will not preclude one from 'getting taken' -- in light of the fact that major corporations with huge security budgets have been swindled there seems to be little hope for 'the little guy'.

Businesses and other establishments have now turned to fraud detection as a way to address their fraud issues. "In contrast fraud detection involves identifying fraud as quickly as possible once it has been perpetrated. In practice it must be used continuously as one does not always realize when fraud protection has failed." For instance, if credit card information has been stolen the best response is early detection so that the card can be cancelled.

"Fraud detection is a continuously evolving discipline. When it becomes known that one detection method is in place, criminals will adapt their strategy and try others." Detection tools do not lose their effectiveness, however, because new criminals are constantly entering the field unaware of prevention methods used to date by an organization attempting to protect itself against fraud. Growth in the field of fraud detection has skyrocketed as company after company has sprung up to meet the growing demand for fraud detection services.

Fraud detection tools

Fraud detection tools fall into two categories. They may be either supervised or unsupervised. When referring to supervised detection tools one is speaking of using a database of known fraudulent or legitimate cases from which they would construct a model that would then yield a suspicious score for new cases. These require traditional statistical classification methods that have proved to be very effective and powerful tools for detection in a variety of applications.

Link analysis relates known fraudsters to other persons through the use of linking personal records and social networking methods (Wasserman and Faust, 1994). An example of this is that security agents responsible for monitoring for fraud have found that fraudsters seldom work individually and often turn to others on telecommunications networks such as Facebook to maintain contact with their nefarious organization.

For instance, once a fraudster has received illegal information about a person through a website or telephone they often retry that data even after it's been disconnected. In this way, when security agents are lurking online they can capture the ip address of the scammer and work from there to apprehend them.

Unsupervised methods are those in which there have been no observations whatsoever. Under these circumstances the policing agency would then develop a profile of the suspect or use of detection methods. This can also be done statistically.

What is searched for in data is examples of information that varies from the norm. Legitimate users of a site, credit card, etc. often develop patterns of behavior that are 'numerized' in data. The explanation of this is quite simple.

When someone is logged on and their behavior is markedly different -- such as making a large purchase with a credit card that has not been known for this type of behavior -- there is an automatic computer response -- and in this case the card might be rejected and the customer notified.

Present day preventive strategies -- their weaknesses

When fraud detection presents itself as the most widely utilized strategy to deal with illegal acts, its use is also severely limited because new fraud detection ideas are severely limited by the exchange of ideas and this just makes common sense.

There is no good reason to describe fraud detection techniques in the public domain because then criminal has access to the information needed to evade detection. What possible purpose would it serve to provide detection and intervention information to the criminal?

A second problem with fraud detection is that it involves massive amounts of information. For example, over 350 million credit card transactions were made in a single year by one international banking system and the Royal Bank of Scotland registered a billion transactions over the same time period.

Processing this data for fraud detection is herculean and the fraud value of one tenth of one percent of these transactions runs in the millions of dollars for corporations and their customers. The statistical tools capable of analyzing this type of information are complex and costly.

Countries successful in combating and preventing international fraud - how it's done

Initially, this section of the essay was intended to be uplifting and give the reader hope that there are countries across the globe that have come up with successful ways to prevent fraud altogether or at the very least decrease the number of incidences in any of the dozens of types of fraudulent activities. Unfortunately, this is not the case.

Scholarly article after scholarly article reveals that municipalities and commerce realize the magnitude of the problem. All discuss the need for prevention and most offer advice on a scale of moderate to advanced on how to protect oneself from become a victim of fraud.

But none spoke of successfully beating back the number of incidences in any one type of fraud and many ceded the real possibility that they would probably need to face the realization that at some point they were actually scammed and cheated.

While talking nicely about prevention most articles turned their attention to the topic of detection and it appears that this is the only real answer to fraud. Governments and organizations will most probably not prevent fraud so the question is how quickly can it be detected and corrected.

Those who are schooled in technology and math hold the most promise for creating programs that may help to prevent the world from becoming awash in fraud. New computer programs tailored to the specific needs of various organizations are being designed and marketed each day. Perhaps the best hope is to simply not give up but just as when a weed pops up it is ferreted out, so too will the fraud and its perpetrator.

Feasibility of international fraud collaboration

It is the opinion of this writer that it has been proven there are already a tremendous amount of international organizations in creation and their sole charge is to address the various types of international fraud. The fact that there are so many already out there demonstrates that it is feasible for countries to mesh their resources and go after fraud. Collaboration does not seem to be the answer.

Perhaps rethinking the approach might be a first step. When highly sophisticated organizations, such as Interpol, with a history in policing are struggling to keep fraud at bay then one might conclude that there is a need for a paradigm shift and the problem should be considered from a completely new and unique approach.

I would suggest that teams of police, psychologists, criminologists and others join forces to collaborate and hash out a totally different avenue for solving the problem. It would appear that the tried and true methods of police work will win the day against fraudsters.

Conclusion

International fraud takes countless forms and is constantly adapting itself to avoid detection. In the meantime, no matter how many international organizations are forged to address this problem, in all honestly they will only be able to scratch the surface of the problem -- its scale is so massive.

The researching and writing of this essay has left this writer profoundly shaken. It is disheartening to think that the internet and the latest technology which continues to shrink the world until we are truly global neighbors have opened the door for rampant crime instead. it's actually made me more wary of my neighbors!

Most businesses recognize that simply attempting to prevent fraud is not their best approach. Rather they must be -- and most are - proactive in developing methods of fraud detection that will help to limit any damage to their finances and customers.

Fraud detection may be the only response to widespread fraud. Through the use of sophisticated supervised and unsupervised techniques at least a fraction of fraudsters have been uncovered and even arrested. It appears there will be a growing need for businesses that can address the issue of fraud in individual organizations and computer programmers will be forced to create even more complicated programs with the hope of discovering fraud as it is committed and returning an organization or individual to near normalcy. Money will still be lost though -- in the millions and billions, to be sure.

Frankly, the only hope for stamping out fraud is to change the nature of human beings -- for as long as there is depravity and greed fraud in its old form and ones not yet uncovered will be here to stay.