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Why Identity Theft Needs To Be Taken Much More Seriously

Nobody can imagine the problems identity theft causes, until it happens to them. The loss of your identity to a fraudster can cause immense hardship and it can be hard to find a sympathetic ear when seeking redress. What could be worse is that you might find yourself the target of ill-conceived punishments and even attempts to recover hard earned wealth from you by regulators trying to solve another person’s crime!

Take John for example, whose name has been changed for obvious reasons. He struggled through school, but when the opportunity to take up a modestly paid job in the city arose he left home with high hopes. Struggling to make a living, he found it hard to make ends meet funding his one room bed-sit in a less than salubrious part of the capital. The meager sums he earned would be withdrawn from his local bank to pay his rent and bills leaving a small chunk of cash to be eked out over the next few weeks for food and living.

You can imagine John’s surprise when he attempted to withdraw his money one day to find the account had £50,000 in it. He took out his earnings as usual and the next day he returned and took an extra £250 from the cash machine wondering where the money had come from. He tried again the next day but the balance had returned to almost zero. He received an extra shock a few days later when the police turned up at his flat to ask him where “the £50,000” had gone! Looking at John and around his flat it was obvious that he was on his uppers.

To cut a long story short, money had been stolen from another person and paid into John’s account. It was then paid into the crook’s account, who then sent the money abroad to an account held in Africa. It was not easy to prove that the crook stole the money in the first place, and at first it seemed as if John was to blame. What is more, as a result of the inevitable delays to the police investigation the crook was able to disappear along with the money.

As the police investigation plodded on it was revealed that other money had been stolen from different victims, passing through other bank accounts and were dispersed by the crook. Evidence showed that two different persons had attempted to apply for passports in John’s name. It was clear that there was a gang of at least three fraudsters who had been at work and who had now disbanded to no doubt start again somewhere else under different guises. The problem was the police were left with a number of victims who had lost several hundred thousand pounds between them and nobody, other than John, to blame. So, with no evidence of any gain and only proof that the money had passed through his accounts, they charged John with theft of the lot.

Whilst this matter proceeds through the courts, hopefully to a result that is fair for John and returns the police attention to the real crooks, John’s life has been destroyed. Not many people can maintain a normal life with a criminal court case hanging over their heads. In other matters luckier victims simply have their credit card’s hacked, but where the organised fraudster begins using innocent buffers to hide the trail of money or divert the authorities attention while he makes his escape, innocent lives can be thoroughly disrupted. As can be seen with John’s case, the authorities can often be somewhat belligerent when seeking the correct redress.

A typical tale was recounted by a speaker at a North West Fraud Forum a year or so ago. The speaker was MP Rosie Cooper who had experienced the problem of identity fraud herself. This prominent politician highlighted the hopelessness of the authorities response to her problem and the frustrations she had faced trying to “clear her name”.  The police did not want to know and the banks that had allowed the fraudster to operate were less than helpful.  Regaining your creditworthiness after such an attack can be difficult if not impossible.  This article I wrote at the time explains the problem in a little more detail.

Identity fraud statistics

The biggest area of identity fraud is when criminals obtain enough details with which to open some form of credit account in another’s name and obtain goods or money. Whatever the amount lost, a large proportion of it goes unnoticed.

Fraud statistics are unreliable because the problem is hidden, only being measured when a fraudster is caught.  Much fraud is unreported and much carries on unnoticed and undetected.

CIFAS, the UK retail fraud prevention service, reported a steady increase in identity theft cases reported by its members to a level of 113,250 during 2011.  Official government figures from the National Fraud Authority put the loss to identity fraud at around £1.9 billion per annum (2010), and believe this form of fraud to be the one that is most rapidly increasing.  Given that a fraudster can buy a complete identity online for as little as £210, this is hardly surprising (Finextra 2011).

Surveys carried out in 2011 on behalf of Fellowes indicate that 7% of the UK population have been victim of an identity fraudster at some point, and according to the Consumer’s Association 14% of households have suffered (a comparable result).

When I give a talk about fraud and ask the audience to provide a show of hands if any have had credit card or bank statements showing fraudulent transactions taking place, dozens of arms are normally raised.

Ways in which identity fraud can cause losses

Given the growth of the Internet for online banking and transactions, the growth of the use of paperless currency and the increasing reliance on technology generally to conduct our finances, the problem of identity fraud can only thrive.

The fraudster can take money from your account, or use it to money-launder or provide a barrier to detection as in the case of John. Alternatively the thief can establish a line of credit in your name. Credit cards and other documents can be cloned using sophisticated equipment available cheaply to buy on the Internet.  As mentioned above, complete identities can be obtained – if one can be obtained for £210 and the average return is around £1,100 as some commentators suggest, then as a business proposition the margins look good!

Some ways in which identity fraud can be combated

We all know the value of shredding our unwanted documents and correspondence – or do we? It is good practice to shred everything that does not require filing or archiving. General rubbish should not contain any document with your name, your business name and obviously any other details, no matter how insignificant they may seem. Criminals will target bins, obtaining a small detail here, another there, until a profile of the victim has been obtained. This profile can be used to dig deeper, until there is nothing that is not known about the person. You do not need to throw away details of your bank, its balance and your Internet log in codes to open a crack in the door to your life big enough for the fraudster to insert his foot.

Personal security over your login details and other codes is critical.  The advice is to never write these down.  However, this can be a problem because most people these days have numerous accounts for banking, shopping and other leisure activities.  Unless the same code is used for each account, the average person will end up with dozens if not hundreds of different passwords and log in details. Not writing these down is not an option.  Therefore, these details, along with actual credit cards (showing valuable security codes on the back) should be guarded carefully.

Some sources say that one or a couple of different passwords should be used, and never written down.  However, if the crook should discover these he will have access to all the accounts!  All documents, passports, driving licences and even lists of passwords should be locked away when not in use, preferably in a secure safe or if not, a robust drawer out of sight.

Some fraudsters, especially those operating online, will actually ask you for your personal information including access codes to bank accounts.  “Phishing” is a massive problem whereby a false website or an email seemingly sent by a reputable source such as your bank, will request various details from you.  In fact, a bank or other organisation who operates online will never ask you to confirm your passwords in this way. You should never click on a link in any email directing you to a banking website and it is good practice to confirm the homepage (by entering the actual domain address into your browser) and then save this as a “favourite” on your browser toolbar for future use.

Diligence and a natural level of skepticism can massively reduce identity fraud, which like all frauds is fuelled by the complacency of its victims.

Identity fraud from the perspective of a forensic accountant

As a forensic accountant specialising in fraud it is surprising how few cases like John’s are seen. There is very little in such a case that involves complex accounting issues or voluminous financial transactions, and therefore it should be more the area for a police investigator experienced in such matters. The hope is that in most cases logic prevails and that sooner or later the misdirected allegations are found to have little substance and dismissed.

I have seen cases of identity fraud first hand and am alert to the ideas of cloned identities and freely available false documents that can be obtained for very little money, and am therefor able to view the evidence of a case and express any lack of sense behind the allegations being made. It is a sad fact that the authorities in general are unable to do the same and it is down to the perception of a capable barrister, solicitor and forensic accountant to mitigate the often overzealous attempts of the regulators to find justice in such cases. Care must be taken however to spot the wise crook who might attempt to divert blame by insisting he is also the victim of an identity fraudster!