Excerpts: FBI Announcement of Internet Fraud Complaint Center

(Warnings issued on types of electronic crime)(3430)



Attempting to face the "critical challenges" of Internet crime, the
U.S. government has established the Internet Fraud Complaint Center
(IFCC), according to a May 8 press packet.


"The Internet provides a boundless new medium for many traditional
frauds investigated by the FBI," said Federal Bureau of Investigation
(FBI) Director Louis Freeh. "That there are real victims suffering
significant losses remains unchanged. This center is another positive
development as law enforcement responds to yet another facet of
cybercrime."


The FBI, its parent agency the Department of Justice, and the National
White Collar Crime Center have teamed up to open the IFCC.


The press packet further explains how the Internet Fraud Complaint
Center will allow consumers online communication with law enforcement
authorities to answer questions or report questionable cyberspace
activities. The newly established center can be reached at
www.ifccfbi.gov


According to the press materials, the types of crime that are booming
in cyberspace include securities and commodities fraud; money
laundering; financial institution fraud; telemarketing fraud;
bankruptcy fraud; insurance fraud; and the theft of technology and
intellectual property rights.


Following are excerpts from press packet:



(begin excerpts)



U.S. Department of Justice, Federal Bureau of Investigation



Washington D.C. May 8, 2000



FBI National Press Office



Internet Fraud Complaint Center Press Packet



The Federal Bureau of Investigation, jointly with the Department of
Justice and National White Collar Crime Center (NW3C) today announced
the creation of the Internet Fraud Complaint Center (IFCC). The IFCC
was established to combat the growing problem of fraud occurring over
the Internet by providing a vehicle for victims around the country to
report incidents of fraud online.


"The Internet Fraud Complaint Center allows consumers who suspect
Internet fraud to share that information with law enforcement quickly
and efficiently," said Attorney General Janet Reno. "Our ability to
work with private citizens and industry is extremely important to our
efforts to fight Internet crime, and the IFCC is a major step forward
in that fight."


FBI Director Louis J. Freeh said, "The Internet provides a boundless
new medium for many traditional frauds investigated by the FBI. That
there are real victims suffering significant losses remains unchanged.
This center is another positive development as law enforcement
responds to yet another facet of cybercrime."


"The crucial difference in fraud committed over the Internet is that
the perpetrator can 'virtually' vanish, leaving consumers wondering
who or where to turn to for help," said West Virginia State Auditor
Glen B. Gainer III, Chairman of the Board of Directors for the NW3C.
"This unique partnership gives victims of Internet fraud a way to
fight back in this largely unregulated environment," Gainer added.


The IFCC is cosponsored by the FBI and the NW3C and is located in
Morgantown, West Virginia. A dedicated Web site located a
www.ifccfbi.gov gives consumers nationwide the ability to file
Internet fraud complaints online with the IFCC. Victims can go
directly to the secure IFCC Web site to submit complaint information,
making it a fast and efficient forum to file an Internet fraud
complaint. IFCC's trained personnel log complaints filed on-line,
analyze them to determine the jurisdiction of the complaint, conduct
the appropriate level of analytical and investigative work that is
necessary, and disseminate the information to the appropriate local,
state, and/or federal law enforcement agencies for criminal, civil, or
administrative action, as needed. The IFCC will adequately identify
and track new fraudulent schemes on the Internet on a national and
international level.


"The IFCC has been developed to identify, track, and assist in the
prosecution of fraudulent schemes on the Internet on a national and
international level. This partnership will allow law enforcement and
the private sector to address and eradicate this growing problem,"
Freeh said.


Freeh also noted that without the tremendous contribution from the
private sector in providing their expertise with the technical support
and guidance this project would not have been possible.


The NW3C is funded through a grant award from the Bureau of Justice
Assistance, Office of Justice Programs, Department of Justice. The
NW3C provides a national support network for law enforcement agencies,
state regulatory bodies, state and local prosecution offices, and
other organizations involved in the prevention, investigation, and
prosecution of high-tech and economic crime. It has had great success
in forming cooperative projects between local, state and federal law
enforcement agencies, and, just as important, between the public and
private sector business. Additional information on the NW3C can be
found on-line at www.nw3c.org or by calling (800) 221-4424.


INTERNET FRAUD COMPLAINT CENTER 



INTERNET FRAUD



One of the most critical challenges facing the FBI and law enforcement
in general, is the use of the Internet for criminal purposes.
Understanding and using the Internet to combat Internet fraud is
essential for law enforcement. The fraud being committed over the
Internet is the same type of white collar fraud the FBI has
traditionally investigated but poses additional concerns and
challenges because of the new environment in which it is located.
Internet fraud is defined as any fraudulent scheme in which one or
more components of the Internet, such as Web sites, chat rooms, and
E-mail, play a significant role in offering nonexistent goods or
services to consumers, communicating false or fraudulent
representations about the schemes to consumers, or transmitting
victims' funds, access devices, or other items of value to the control
of the scheme's perpetrators. The frauds range from simple geometric
progression schemes to complex frauds. The Internet appears to be a
perfect manner to locate victims and provides an environment where the
victims don't see or speak to the fraudsters. Anyone in the privacy of
his or her own home can create a very persuasive vehicle for fraud
over the Internet. In addition, the expenses associated with the
operation of a "Web site" and the use of electronic mail (E-mail) are
minimal. Fraudsters do not require the capital to send out mailers,
hire people to respond to the mailers, finance and operate toll free
numbers, etc. This technology has evolved exponentially over the past
few years and will continue to evolve at a tremendous rate. The
accessibility of such an immense audience coupled with the anonymity
of the subject, require a different approach.


SITUATION 



Computer crimes can be broken down into two main categories: computers
used as targets where the general motivation is to impair, damage or
alter the computer system; or when the computer merely serves to
facilitate the illegal activity. Computer facilitated crimes are those
criminal activities that use computers as a way to commit a host of
crimes. Internet fraud does not have traditional boundaries as seen in
the traditional schemes. No one knows the full extent of the fraud
being committed on the Internet. Not all victims report fraud, and
those who do, do not report it to one central repository. One of the
most critical problems associated with fraud being perpetrated over
the Internet is the fact that the instances of fraud are disjointed
and spread throughout the country. The traditional methods of
detecting, reporting, and investigating fraud fail in this
environment. Victims of fraud are unsure of how or where to report
what they see or what they have experienced on the Internet. Law
enforcement agencies receive complaints in a piecemeal fashion, most
not reaching a level to advance the complaint to an investigation.
Another problem is venue. Complaints are often misdirected and lost
due to the fact that the Internet is virtual as opposed to physical.
Without some technical investigatory steps it is usually impossible to
identify the location of a Web site or the origin of an E-mail.
Computer facilitated financial scams perpetrated via the Internet and
the theft of technology and/or intellectual property by competitors,
foreign intelligence services, or those merely seeking personal gain
are rapidly growing. Internet related and computer facilitated crimes,
primarily impact the priority White Collar Crime (WCC) problem areas
of financial institution fraud, securities and commodities fraud,
telemarketing fraud, money laundering, insurance frauds, and theft of
technology/intellectual property rights.


SECURITIES/COMMODITIES FRAUD



Securities offered over the Internet have added an entirely new
dimension to securities fraud investigations. Investors are able to
research potential investments and invest over the Internet with ease
through electronic linkage to a number of services that provide stock
and commodity quotations, and critical financial information. Both the
low cost of setting up a Web site and the anonymity available, have
made the Internet especially vulnerable to crime. The Internet has
helped democratize the investment process by providing widespread
access to the most specialized information, giving the appearance to
thousands of investors of having an equal access to what was otherwise
difficult to obtain data. There is a growing problem with chat rooms,
E-mail messages sent en masse (spams), and newsletters that provide
fraudulent information related to publicly traded stocks. The North
American Securities Administrators Association has estimated that
Internet-related stock fraud is currently the second most common form
of investment fraud resulting in an estimated $10 billion per year (or
$1 million per hour) loss to investors. The Office of Internet
Enforcement-Securities and Exchange Commission (OIE-SEC) was recently
established to focus on securities fraud, particularly as it relates
to solicitations of securities utilizing the Internet. The new SEC
branch continues to receive numerous referrals from the general public
regarding these Internet frauds. After culling the referrals, as a
matter of policy, the SEC would generally make direct contact with the
firms that may be perpetrating fraud on the Internet. The FBI has had
an ongoing cooperative relationship with the SEC, and recent
collaborative efforts have solidified both agencies' desire to
identify and combat securities fraud over the Internet. Securities
fraud leads originating from the Internet that may be presented to the
FBI by OIE-SEC and other outside sources include micro-cap stock
fraud, prime bank note schemes, schemes involving investment contracts
"guaranteeing" results, Ponzi schemes, foreign currency exchange
schemes, and fraudulent unregistered initial offering matters.


MONEY LAUNDERING/CYBERLAUNDERING



Cyberpayments



The term cyberpayments is just one of many used to describe systems
which facilitate the transfer of financial value. Other terms include
digital currency and E-cash. These developments may alter the means by
which all types of financial transactions are conducted and financial
payments systems are operated. This new technology will change many of
the fundamental principles associated with a "cash" oriented society.
Such transactions may occur via the Internet or through the use of
"smart cards" which, unlike debit or credit cards, actually contain a
microchip which stores value on the card. The common element is that
these systems are designed to provide the transacting parties with
immediate, convenient, secure and potentially anonymous means by which
to transfer financial value. Although these systems will provide
readily apparent benefits to legitimate commerce, it may also have the
potential to facilitate the international movement of illicit funds.
These same reasons impede law enforcement from obtaining necessary
information to detect illegal activity.


Smart Cards



Smart Cards or stored value cards will make it easier for the money
launderer to transfer illicit funds without detection by law
enforcement and financial institutions. Because the cash value is
stored on the card, there is no need for the merchant to dial up a
bank or credit card company to get approval. Users can add cash values
at machines and a person may hold numerous cards.


Cyberlaundering



Cyberlaundering is the latest technique in money laundering. Money
laundering was a physical transportation of hard cash to conceal the
existence, illegal source or illegal application of income and then
disguising the income to make it appear legitimate. As the physical
world of money laundering began to erode, the tendency to use
electronic transfers (wire transfers) to avoid detection gained a
loyal following. The wire transfer system allows criminal
organizations, as well as legitimate businesses and individual banking
customers to enjoy a swift and nearly risk-free conduit for moving
money between countries. In the virtual universe of cyberspace, the
demand for efficient consumer transactions has lead to the
establishment of electronic cash. E-cash or digital money, is an
electronic replacement for cash. Digital cash has been defined as a
series of numbers that have an intrinsic value in some form of
currency. Using digital cash, actual assets are transferred through
digital communications in the form of individually identified
representatives of bills and coins - similar to serial numbers on hard
currency. Digital transfers are anonymous. Even if the cyberbanks that
accept anonymous E-cash are somehow subject to the same laws and
regulations that financial institutions in the tangible world are, the
launderer must first be caught. The reports will be virtually useless,
as the banks have no knowledge as to which funds are the launderer's.
This provides for anonymous money laundering. Structuring of
transactions so as to avoid currency-reporting requirements becomes
less risky if the funds used to structure are virtually untraceable.
In addition, the filing of currency transaction reports may be
pointless if the money can not be traced into a specific account.
However, the actual requirement that a transaction report be filed may
be nonexistent if cyberbanks that accept E-cash deposit accounts do
not fall under current federal or state regulation of financial
institutions.


FINANCIAL INSTITUTION FRAUD/CYBERBANKING



In order to remain competitive and provide a broader product line,
financial institution mergers and acquisitions are common place. The
market is even experiencing banks merging with insurance companies
(CitiBank and Travelers Insurance). In order to better serve their
customers and reduce costs, banks are offering Internet-based one stop
financial shopping supermarkets. These systems include electronic bill
payment/presentation services, financial planning, securities trading,
and insurance. The implementation of information technologies in the
financial services industry ties traditional bank frauds such as
commercial loan fraud, check fraud, counterfeit negotiable
instruments, mortgage fraud, check kiting, and false applications with
insurance fraud, securities fraud, and computer fraud and abuse. The
American Bankers Association and the banking industry at large have
identified cyberbanking, the use of emerging technologies, and the
associated related fraud as an area to focus on. They have also
identified mergers as an opportunity for fraud given the vulnerability
of the merging computer systems.


TELEMARKETING FRAUD 



The National Consumer League's Internet Fraud Watch (IFW) reported for
1999, the ten most frequently reported types of Internet frauds: (1)
online auctions (by far the most frequently reported scheme); (2)
general merchandise sales; (3) Internet services; (4) computer
equipment and software; (5) work-at-home schemes; (6) advance fee
loans; (7) magazines; (8) adult services; (9) travel/vacations; and
(10) pyramid/multi-level marketing schemes. The IFW program received
7,439 reports of fraud in 1998, and in 1999 the complaints increased
to 10,660, averaging approximately 890 per month. Many of these types
of frauds are identical to the types of frauds that are conducted
through telemarketing operations. Indeed, law enforcement authorities
report that a number of Internet-related schemes are set up to induce
prospective victims, through the use of the Internet (e.g., by
creating a Web site falsely promising get-rich-quick opportunities),
to call toll-free numbers where telemarketers can present their
pitches and persuade them to send money.


BANKRUPTCY FRAUD 



The most common types of bankruptcy schemes on the Internet involve
petition mills, equity skimming, and credit repair operations.
Petition Mills/Equity Skimming schemes are the fastest growing and
most pervasive areas of bankruptcy fraud throughout the nation. The
perpetrators target individuals in foreclosure, eviction, or other
financial distress and offers them a "too good to be true" solution to
their problems. The victims are instructed to pay their rent or
mortgage payments to the perpetrator based on the promise that the
perpetrator will deal with their creditors and resolve the
foreclosure/eviction proceedings. Usually without the victim's
knowledge, the perpetrator files a bankruptcy case in the victim's
name to take advantage of the automatic stay. When collection efforts
cease because of the filing, the victim believes his financial
problems are being addressed and continues to pay the perpetrator.


INSURANCE FRAUD 



The most common types of insurance schemes on the Internet involve
surety bonds, phony union memberships, and providing fraudulent
insurance coverages. These fraudulent insurance operations will use
the Internet as a marketing tool to attract businesses/individuals and
will provide information, a contact telephone number and information
about the services they can provide.


THEFT OF TECHNOLOGY/INTELLECTUAL PROPERTY RIGHTS (IPR) 



The Internet and digital technology have provided an unprecedented
means for criminals to not only profit from the theft of intellectual
property, but also permanently diminish its value in the process. The
United States is the world leader in the development of creative,
technical and intellectual products. These products have essentially
supplanted tangibles such as steel and wheat as our economic
lifeblood. Many of these industries have a direct and tangible impact
on the economic well being of the U.S. According to the International
Intellectual Property Alliance, copyright piracy cost an estimated
loss of $10.8 billion to U.S. copyright industries. A rapidly growing
majority of all IPR violations are now Internet based. Tens of
thousands of Web sites are solely designed to distribute pirated
material. The potential damage to U.S. Intellectual Property owners
from this form of theft is escalating daily. Currently, industry
groups such as the Business Software Alliance (BSA) and Software
Publishers Association (SPA) actively search out piracy sites. Once
identified, BSA or SPA attempts to shut down piracy sites by
contacting the infringing site's Internet Service Provider (ISP) to
have the site taken off the Web. Often times such sites simply
reappear on another ISP weeks later. In other instances, these groups
may attempt to pursue civil remedies, but more often than not, this
too is ineffective. Without law enforcement authority, these rights
holders are left powerless to protect their valuable works from theft.
. . .


MISSION STATEMENT



To develop a national strategic plan to address fraud over the
Internet and to provide support to law enforcement and regulatory
agencies at all levels of government for fraud that occurs over the
Internet.


STRATEGY



The development of a proactive strategy to investigate Internet fraud
through the establishment of an Internet Fraud Complaint Center (IFCC)
as a central repository for complaints is essential. The IFCC is
necessary to adequately identify, track, and prosecute new fraudulent
schemes on the Internet on a national and international level. IFCC
personnel will collect, analyze, evaluate, and disseminate Internet
fraud complaints to the appropriate law enforcement agency. The IFCC
will provide a mechanism by which the most egregious schemes are
identified and addressed through a criminal investigative effort. The
IFCC will provide a central analytical repository for complaints
regarding Internet fraud and it will act as a resource for enforcement
agencies at all levels of government to include regulatory agencies.
It will provide analytical support and aid in the development of a
training module to address Internet fraud. The FBI and the National
White Collar Crime Center (NW3C) will cosponsor the IFCC. This
partnership will be mutually beneficial for both agencies in that it
will allow both agencies to share staffing responsibilities. The IFCC
will forward complaints to the appropriate local, state or federal law
enforcement agency for investigation. This will ensure that Internet
fraud is addressed at all levels of law enforcement. The IFCC will
identify current crime problems and develop investigative techniques
to address those newly identified crime trends. The information
obtained from the data collected will provide the foundation for the
development of a national strategic plan to address Internet fraud and
develop ways to lessen the impact of fraudulent activity on the
Internet.


GOALS and OBJECTIVES 



1. To develop a national strategy to address Internet fraud. 



2. To develop criminal Internet fraud cases and obtain criminal
prosecutions of those companies and individuals responsible.


3. To prevent the amount of economic loss by Internet fraud throughout
the United States.


4. To provide an analytical repository for Internet fraud complaints.


5. To receive, analyze, and refer all fraudulent activity identified
on the Internet.


6. To identify current crime trends over the Internet and to develop
investigative techniques to address those identified crime problems.


7. To track fraud facilitated by the Internet and provide analytical
support of Internet crime trends.


8. To act as an investigative resource for Internet fraud and to
develop training modules to investigate Internet fraud.


9. To develop information packets from complaints generated and
forward that information to the appropriate law enforcement agencies.


(end excerpts)



(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)