Online Fraud Reaches Record Highs

Losses of a quarter billion in 2008 blamed on bad economy.

by staff writer
- Apr 06, 2009

Complaints of online fraud reached record highs in 2008, with the value of losses rising 11 percent from the year before and the volume of complaints rising 33.1 percent, according to a recent report by the Internet Crime Complaint Center.

The center, a partnership between the FBI and the National White Collar Crime Center, received 275,284 complaints in 2008, which resulted in roughly $265 million in lost revenue, the report notes. That compares to 2007, when the center received 206,884 fraud complaints totaling $239.09 million in losses.

"This report illustrates that sophisticated computer fraud schemes continue to flourish as financial data migrates to the Internet," says Shawn Henry, a cyber division assistant director for the FBI. "It also underscores the need for continued vigilance on the part of law enforcement, businesses and the home-computer user to be aware of these schemes and employ sound security procedures."

Many of the complaints resulted from buyers and sellers either not getting the goods they paid for, or not getting payment for the goods they offered. And that was the No. 1 reason for complaints last year, accounting for 32.9 percent of grievances—a notable change from the previous year when fraud on auction sites topped the list, reports John Kane, research manager for Internet Crime Complaint Center.

Auction fraud was the second biggest reason for complaints last year, with 25.5 percent of complaints stemming from it. Credit/debit card fraud accounted for 9 percent of complaints, the study notes.

The center logged 207,493 complaints in 2006 and 231,493 in 2005.

"We're receiving more complaints, we believe, because of what we're seeing in the economy right now," Kane notes in reports. "You have a large population of potential victims… who might not otherwise fall for these scams at a time when they're personal financial situation was a little bit better."

Markus Jakobsson, a professor at Indiana University, agrees.

Online fraud is "amazingly profitable," he says in reports. "It's a low-risk crime. There's very little risk being caught because it's very hard to trace it back, especially if it's overseas."

Americans are currently more worried about fraud than their personal safety

About one-third of people who reported complaints lost between $1,000 and $5,000. About 15 percent of people lost at least $5,000, the Internet Crime Complaint Center notes.

The center's report comes out during a time when most Americans worry that the current financial climate increases their risk of identity theft and similar crimes, notes Unisys, a global information technology consulting service.

According a report compiled by Unisys, Americans are currently more worried about fraud than their personal safety.

"It's a dramatic change," notes Tim Kelleher, the firm's vice president and general manager of managed security. "The higher number of reported complaints and financial impact from those incidents [in the center's study], coincides with the raised concerns of Americans in our survey. We believe this shows that people are more aware of certain security issues."

In Unisys' poll, financial concerns jumped 12 percent since September. In fact, two-thirds of Americans are "extremely" or "very" worried about credit and debit card fraud. And two-thirds are concerned about identity theft.

"People are still concerned about credit card fraud, and not just over the Internet," Kelleher notes. "And their concern about computer security is rising."

But e-commerce sites are encouraging users to report fraud, which could be part of the reason for the increase in complaints, the Internet Crime Complaint Center notes.

Still, the United States was the largest source of crime perpetrators for complaints, and "some reports show [Internet fraud] is the only crime bypassing the sale of illegal drugs in terms of volume profit," Indiana University's Jakobsson says.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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