www.cifas.org.uk | March 2011

FRAUDSCAPEDepicting the UK’s fraud landscape

C I F A SThe UK’s Fraud Prevention Service

In this Report . . .1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. CIFAS National Fraud Database - Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. Fraud by Fraud Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.2 Identity Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.3 Misuse of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.4 Application Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.5 Facility Takeover Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3.6 False Insurance Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

3.7 Asset Conversion Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4. Location of Fraud in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

5. Fraud by Product Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5.2 Bank Account Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

5.3 Mail Order Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

5.4 Plastic Cards Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

5.5 Communications Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

5.6 Asset Finance Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

5.7 Loan Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.8 Insurance Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

5.9 Mortgage Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5.10 All-In-One Product Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

5. Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

C I F A S

CIFAS is a not-for-profit organisation, concerned solely with the prevention of fraud and funded by subscription. Since February 1991 the membership association has been an independent Company Limited by Guarantee. CIFAS Members are drawn primarily from the UK financial services industry, but also from telecom-munications, insurance and other business sectors and the public sector.

Website: www.cifas.org.uk www.identityfraud.org.uk

CIFAS is the UK’s Fraud Prevention Service, a not-for-profit membership organisation operating in the public interest and dedicated to the prevention of financial crime. It has 260 Members spread across banking, credit cards, asset finance, retail credit, mail order, insurance, savings and investments, telecommunications, factoring and share dealing. Members share information about identified frauds in the fight to prevent further fraud.

The CIFAS National Fraud Database contains records of frauds that have been perpetrated against CIFAS Member organisations. In order to be recorded on the CIFAS Database a case must satisfy a burden of proof. This means that there must be sufficient evidence to take the case to the police, although it is not mandatory to do so.

This Report examines and assesses the fraud cases by CIFAS Member organisations during 2009 and 2010 to ascertain any key changes over that period. It looks at all frauds identified by the type of fraud committed and the product involved.

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CIFAS is the UK’s Fraud Prevention Service, a not for profit organisation operating in the public interest, dedicated to the investigation, detection and prevention of fraud. Our 260 plus Members share information on fraud in order to prevent further fraud. As a result, analysis of the frauds recorded on the National Fraud Database offers a clear picture of the fraud landscape in the UK. Irrespective of the size of the fraud or the organisation it was committed against, if it has been investigated and a burden of proof (sufficient evidence to take it to the police) has been established, then the CIFAS Member will have recorded it on the database. They are not suspicions. They are frauds.

There are many truisms concerning fraud: fraudsters adapt their methods; fraud rises to the surface during a recession and fraudsters will attack what they perceive to be the point of least resistance. These are just three of them. In looking at the frauds recorded by CIFAS Members in 2010, however, it is important also to view these in the context of the patterns identified during preceding years in order to see such statements as something other than glib sound-bites.

For example, the term ‘identity fraud’ may have meant little to most people as recently as five years ago. While identity fraud was a problem at that time – and its effects were noticeable – the number of cases was substantially lower. Now, in early 2011, however, we have had news stories, awareness campaigns and even TV dramas that have focused on it, but it remains all too prevalent.

The drivers of fraud are numerous.

Inevitably, the poor economic situation continues to have an effect on fraud levels. Individuals subject to financial pressures are being tempted to commit fraud such as making false insurance claims or misusing accounts. Historic frauds such as those that are mortgage related are still emerging, to be identified by organisations, and tighter lending criteria are leading to some people adopting false identities in an effort to gain credit. In addition, the threat from organised criminals remains high, especially those involved in developing malicious technological threats to target both traditional and newer sectors.

But, with new business levels lower now than they were in 2007, the possibility is raised that attempted frauds are simply not reaching the fraud department for investigation: if they are declined at an initial ‘in principle’ decision stage, then there is no opportunity to examine, prove and record what was still an attempt at fraud. The changes in economic conditions have, therefore, led to changes across the board, in terms of both fraud and its prevention.

While the small decrease in fraud identified in 2010 is welcome, the threat has not gone away, and it must be viewed in its proper context: as the latest in a series of changes that have taken place over several years.This is just as likely to be the calm before the storm, as fraudsters develop new methods to circumvent preventative techniques.

The question that therefore needs to be asked is less ‘what did we do to reduce fraud levels’ but ‘what more do we do to battle whatever comes next?’

Introductionby Peter Hurst, CIFAS Chief Executive

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1. Executive SummaryFraudscape - Section One

An examination of the frauds recorded by CIFAS Members in 2010 reveals:

• even after taking into account the 7% decrease in 2010,fraud has still increased by 25% over the past five years. In 2010, 217,385 frauds were recorded to the National Fraud Database by CIFAS Member organisations,

• identity fraud accounted for nearly a half of all frauds recorded (47%) in 2010,

• misuse of facility accounted for 22% of all fraud cases, and 55% of these cases are associated with paying in false financial instruments – potentially indicative of accounts being used for ‘money mule’ purposes (where funds are laundered or dispersed illegally through bank accounts – sometimes unknowingly),

• the continuing migration of fraud to new products; as fewer bank accounts and plastic cards were targeted by fraudsters (15% and 37% decreases respectively) only to be offset by increases of 30% in communications products and 34% in mail order, when compared with 2009.

The changes in the fraud landscape over recent years have led fraudsters to seek out new avenues to commit fraud. In the current economic climate, where lending criteria remain more strict (and many applications do not even make it past the ‘in principle’ decision stage to be examined by account handlers or fraud teams) the prospect of much fraud remaining undetected and unproven is of real concern.

The decrease in fraud in 2010 is, therefore, no cause for complacency.

Identity fraud – more serious than ever before

Clearly, impersonating people remains a profitable route for fraudsters and an expensive problem for the organisations affected. Once a person’s identity is compromised, their identity details can be used to attack a range of products. The increasing use of

mobile technologies and new communication devices makes identity fraud a more attractive option for fraudsters. In addition, it becomes arguably easier to commit on a larger scale. Identity fraud remains a complex affair, however: ranging from an opportunist applying in the name of a family member, to increasingly intricate malicious software being placed onto computers in order to steal personal information. It is also evident that fraudsters do not necessarily need complete information about individuals in order to try to impersonate them. They will attempt to circumvent security measures with incomplete information; for example, attempting to trick a call centre operator into revealing information.

Misuse of facility develops new techniques

While misuse of facility fraud declined by 6% in 2010, this follows sharp increases during the previous two years. The nature of many of these frauds points towards a rise in accounts being used for money laundering and the use of ‘money mules’ and is now associated with over one half of misuse of facility fraud cases recorded on the database. The increased use of savings accounts being misused to lodge unauthorised or fraudulent payments also marks a further shift in the way that such activity is carried out. This report provides further details on pages 12-13.

Not your usual suspects – fraud is not just seen in the ‘typical’ and

‘traditional’ product

Fraudscape also presents evidence about the wide range of products that fraudsters attack: from high volume bank account and mail order frauds, to lower numbers of high value mortgage frauds. It clearly shows that industries cannot operate in silos. Fraud in one area has an impact on others: for example, where a fraudster uses a false identity to obtain a credit card and then uses it to obtain a mobile phone account. As barriers are put in place in one sector fraudsters simply turn their attention elsewhere, ˃

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Over the last few years, the prosperity of the UK economy has fluctuated and patterns in the types of fraud identified have fluctuated with it. In 2007, for instance, a slight decrease in the number of identity frauds recorded was overshadowed

by a stark increase in application fraud (or people submitting applications in their own name, but with serious lies – such as inflating their income). With credit readily available, fraudsters seemed to believe it easiest to try and lie their way to a loan or credit card than go to the effort of a more complex fraud. September 2007 saw the public run on a bank, and the term ‘credit crunch’ became all too familiar. The prospect of recession became a reality. Economic hardship and the diminishing availability of credit were reflected relatively quickly in the types of fraud being committed.

2008 saw dramatic increases in the level of facility takeover fraud. Over the course of the year, facility takeover – or account takeover – went from being a fraud that was relatively modest in its regularity, to being committed in unprecedented numbers. When financial headlines spoke of the scarcity of credit, the fraudsters’ approach was simple: rather than risk the rejection of new applications, they turned their attention to abusing someone else’s existing account.

With the economic malaise continuing throughout 2009, and the associated dearth of available credit, a continued decrease in application fraud was unsurprising, as was a further increase in facility takeover fraud. More noteworthy was the dramatic reappearance of identity fraud, this time targeting products and services not subject to the same strict approval conditions and scrutiny as credit applications. For the third year in a row, stark shifts in the patterns of fraudulent activity had been recorded.

Economic conditions are not the only conditions to have changed during recent years. From the launch of the first iPhone in 2007 to the proliferation of smartphones in 2010, as well as the number of people choosing to manage their financial lives online, the way consumers live and work, has changed. It is no surprise, therefore, that fraudsters’ methods reflect those changes.

Fraud over the past few years

and the changing patterns over 2010 – and previous years – are testament to this. Intelligent data sharing across sectors, therefore becomes even more of a vital mechanism in the continued endeavour to prevent and detect fraud.

It is clear that increasingly sophisticated initiatives to counteract fraud in the banking and financial services sectors are having some impact, contributing in 2010 to the fall in frauds attempted both in relation to bank accounts (a decrease of 15%) and plastic cards (a decrease of 37%). These decreases may be masking a greater problem, however, as perhaps high credit score cut offs mean that at least some potentially fraudulent applications are being screened out. A complacent approach would be to assume that what cannot be seen does not exist – but fraudsters target different sectors in a fluid and ever-changing manner. Increases in communications frauds (which grew by 30%) and mail order frauds (which rose by 34%) demonstrate the flexibility with which fraudsters adapt their methods and targets in relation to the current environment. Whether it is using a false identity to obtain a mail order account,

taking over an existing mobile phone account to obtain an upgrade by changing a mailing address, or simply lying on an application form, all of these types of frauds are attracting both opportunist fraudsters and those involved in organised criminal activity. As fraudsters continue to adapt their methods, further changes to the fraud landscape are inevitable.

Countering the danger

In spite of the shifts seen, there remains an overall consistency. Figures collected by CIFAS over previous years have demonstrated that there is truth in the received wisdom that fraudsters change their methods, or will move on to new targets. The intelligence gathered by CIFAS demonstrates that cross-sector data sharing works to identify techniques and patterns, spot trends and arm the fraud prevention community with the knowledge, and therefore the power, required to counter the danger.

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2. CIFAS National Fraud Database: Overview

A total of 217,385 frauds were identified by CIFAS Members in 2010. This is a decrease of 7% compared with 2009. These frauds were filed to the National Fraud Database and the following section sets out an overview of recent trends. Intelligent data sharing allows CIFAS Members to detect, target and prevent fraud and the resulting data contained in this report provides a robust and reliable set of figures for 2010.

Figure 2.1 sets out the number of frauds recorded to the National Fraud Database from 2006 until 2010. Despite the 7% decrease from 2009 to 2010, there has been an increase of over 25% in the number of frauds identified over the last five years. Continuing high fraud levels mean that this remains a serious issue, affecting both individuals and organisations on local and national levels.

Fraudscape presents data analysed by the types of frauds and related products. An explanation for each fraud type can be found throughout Section 3. Frauds are categorised according to:

• the ‘type’ of case: for example identity fraud or application fraud, and

• by the ‘product’ offered by an organisation that was compromised by the fraud.

These categories are not mutually exclusive however. For example, application fraud can be committed on bank accounts, mortgages or credit cards, among others. Similarly, each product can be attacked in a number of different ways – a bank account could be targeted by fraudsters committing application fraud, identity fraud or facility takeover fraud. ●

Fraudscape - Section Two

Figure 2.1Total Frauds Recorded on the National Fraud Database 2006-2010

% change - 8% 16% 9% -7%

Year

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Table 3.1 sets out the number of frauds recorded on the National Fraud Database by each fraud type over the last three years.

3. Fraud by Fraud Type

3.1 Introduction

Fraudscape - Section Three

Fraud Type 2008 2009 2010% change since

2009

Application Fraud 77,023 57,825 44,680 -23%

Asset Conversion Fraud 522 532 539 1%

Facility Takeover Fraud 19,275 22,387 21,226 -5%

False Insurance Claims 433 670 537 -20%

Identity Fraud 77,642 102,327 102,672 0%

Misuse of Facility Fraud 39,447 50,512 47,731 -6%

Total Frauds Recorded 214,342 234,253 217,385 -7%

Table 3.1Frauds Recorded by Fraud Type 2008-2010

Overall, the decrease in the number of frauds recorded during 2010 was evident across the majority of fraud types. The most notable was the 23% decrease in the number of application frauds. This reflects both restricted lending by organisations over recent years having a knock-on effect of fewer applications coming in (and, consequently, fewer frauds) and the more stringent lending criteria used by organisations when making lending decisions.

The continuing high levels of identity fraud demonstrate that, while people may feel that they are less likely to secure a new account using their own personal details, they (and, in these cases, frequently this means organised criminal gangs) are continuing to assume the identity of another person in order to obtain products.

Figure 3.1.1 sets out the percentage of all frauds recorded in 2010 by fraud type. ˃

0.25%

0.25%

Figure 3.1.1Percentage of Frauds recorded 2010*

* Some percentages may add up to more or less than 100% due to rounding

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Figure 3.1.2Frauds Recorded 2006-2010 (four largest fraud types)

Figure 3.1.2 sets out the changes in the numbers and types of cases recorded over the last five years for the four largest fraud types. This shows that the current overall picture is one of high, but stable, levels of fraud, with the exception of application fraud which continues to decrease. The high identity fraud figures recorded at the end of 2009 have been maintained and this type of fraud again accounts for the highest overall proportion of fraud in 2010. Both facility takeover fraud and misuse of facility fraud have remained fairly stable compared with recent years.

The current high level of fraud can be attributed to a combination of factors:

• The continuing difficult economic conditions and increasing financial pressures have created challenging financial situations for individuals. This may be mitigated, however, by increasing media coverage of other options for individuals facing financial hardship, such as encouraging people to speak to their banks when struggling financially. The reality is, however, that some people will perceive no other option than fraud, in order to deal with the difficulties they face. This idea of ‘fraud for need’ as opposed to ‘fraud for greed’ should not be overlooked.

• The movement towards mobile technology has opened up new methods of transaction and, therefore, new avenues for committing fraud – and the drive towards prevention is a constant battle: namely to be as innovative as the criminals, or more so.

• Restricted lending by financial organisations has led to people feeling that opportunistic frauds are more likely to fail, thereby indicating a much more pernicious problem of serious and organised criminality coming to the surface. It is clear, however, that fraud continues to be committed by both individuals and organised criminals alike.

Over the rest of this section, each fraud type will be examined in further detail – starting with the most prevalent. ●

The chronically high level of identity fraud

demonstrate that individuals continue to assume the identity of another person in order to obtain products.

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Identity Fraud includes cases of false identity (the use of an entirely fictitious identity) or the stolen identity of an innocent victim.

Fraud Type 2008 2009 2010

Identity Fraud 77,642 102,327 102,672

Identity Fraud

3.2 Identity Fraud

The number of identity frauds recorded by CIFAS Members remained stable in 2010 compared with the level recorded in 2009. What is more striking, however, is that this type of fraud now accounts for almost half of all frauds recorded (47%). That identity fraud remains high is unsurprising given, first, the drop in application frauds and, second, the tough economic climate. More stringent lending criteria make it more difficult for a potential fraudster to obtain credit in his or her own name, so using the identity of another person (who may have a better credit rating) is seen as a preferable option by the fraudster. In the present climate, however, there remains no guarantee that even making an application in another name will be successful.

There is the continuing threat of serious fraudsters obtaining high volumes of personal data. This can be sourced either through software attacks, purchasing bulk compromised data from criminal sources or from an individual who has stolen information (such as payroll data) from his or her employer. The quality of the data may determine the types of product the fraudster then chooses to target. It is possible that the more complete the dataset,

the more likely the fraudster is to attack higher value commodities.

The media has continued to focus strongly on identity fraud with some stories becoming headline news. As a result, the public is increasingly aware of potential scams such as phishing and cold calling. In addition, CIFAS Members continue to provide their customers with information on identity theft attacks and how these can be prevented. The success of such endeavours may be demonstrated by the falling levels recorded, quarter by quarter, in 2010, but – as identity fraud remains as high in 2010 as it did in 2009 – such greater public awareness of the dangers is clearly only going so far to mitigate the problem.

The reality is that identity fraud remains a complex affair – ranging from an opportunist applying in the name of a family member, to increasingly intricate malicious software finding its way onto computers in order to steal personal information. In addition, CIFAS Members report that there is still a place for the traditional identity fraudster who assumes the identity of a high worth individual such as a company director in order to carry out fraud more easily.

The data suggests that in 2010 there was a drop in the number of individuals using the personal details of people they know well – such as friends or family. The increase in the proportion of false dates of birth identified (23% of cases in 2010 compared with 15% in 2009) indicates that information which would be known to close friends or family was not used. Instead, frauds were more likely to involve the use of the identities of strangers, where perhaps the address details were known but other information was not. There was a continuing decrease in the use of the more opportunistic fraud (or previous occupier fraud) where people found mail addressed to a previous resident and used those details to impersonate others.

A worrying aspect is that more identity frauds were recorded as successful in 2010 – almost two thirds compared with 56% in 2009. This can be largely attributed to a decrease in frauds for those types of products that traditionally have lower success rates (such as bank accounts and plastic cards) and higher rates for those products which have different security checks such as online shopping where there is less necessity to provide identifying documentation such as passports or utility bills.●

47% of all frauds recorded in 2010 were Identity Frauds.

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Previous Address Fraud The fraudster applies in the name of an innocent victim, gives an address accessible to the fraudster but unrelated

to the victim as the current address on the application, and gives the address where the victim is living as the previous address, claiming that he or she (as the victim) has just moved. This explains why the victim’s data is still registered at the previous address on the application and means that any documentation is sent to an address unconnected to the victim but to which the fraudster has access.

Current Address FraudThe fraudster applies in the name of an innocent victim and uses the address where the victim is living as the

current address on the application. This means that things look ‘normal’ to the lender (e.g. the victim is on the electoral roll at that address and his or her payment performance information is all located at that address). The fraudster is likely to need to gain access to the victim’s mail to intercept the relevant documentation.

Previous Occupier FraudTypically, this is carried out by opportunist fraudsters who have moved into their victim’s previous address. It occurs

when the fraudster applies in the name of an innocent victim who has recently moved. The fraudster may well not know where the victim has moved to, so uses the victim’s previous address as the current address on the application, and hopes the victim has not yet changed his or her address on accounts and the voters’ roll.

False IdentityThe fraudster applies using an entirely fictitious identity.

DEFINITIONS

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Misuse of facility fraud declined by 6% in 2010, following sharp increases during the previous two years. In common

with other types of fraud, while the overall figure was lower, the number of frauds identified remained fairly constant throughout the year, with no great fluctuations.

Much of the decrease was due to the drop in the number of cases associated with individuals running up bills and subsequently evading payment (a decrease of 54% in 2010 compared with 2009). Fraudsters have turned instead to the process of paying in false instruments. This involves paying in cheques which they know will subsequently bounce, or altering cheques that have been legitimately written. Any sort of fraudulent electronic transfer carried out by the account holder is also included in this category. The paying in of false instruments is now associated with over one half of misuse of facility frauds (55% of ˃

Misuse of Facility Fraud occurs when an account, policy or other facility is used fraudulently, e.g. paying in an altered cheque.

Fraud Type 2008 2009 2010

Misuse of Facility Fraud 39,447 50,512 47,731

Misuse of Facility Fraud

3.3 Misuse of Facility Fraud

Figure 3.3Means by which Misuse of Facility Frauds were carried out 2009-2010*

* Some percentages may add up to more or less than 100% due to rounding

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cases in 2010 compared with 47% in 2009). This change is indicative of a rise in accounts being used for money laundering and the use of ‘money mules’.

In addition, frauds relating to the retention of wrongful credit(s) – such as holding proceeds from theft – remained fairly stable, increasing by 1%. This links to those who receive extra funds into their accounts through an electronic payment error and who chose to keep and spend this money. Increasingly, savings accounts are targeted for this form of fraud.

The channel by which these misuse of facility frauds were carried out changed significantly, with the majority carried out by phone (27%), mail (26%) and face to face (22%) as shown in Figure 3.3. There was a noticeable drop in the number carried out over the internet (down by 66% from the level recorded in 2009), marking out a difference from other fraud types covered in this report. The most visible aspect was the increase in the use of the phone to misuse current accounts which almost doubled in the period since 2009. ●

D efinition: The term ‘money mule’ is most commonly used to describe an individual who allows his or her bank account to

be used to facilitate the movement of criminal funds. The mule either knowingly helps, or is tricked, into moving money through his or her own account and then to a third party, who is often located in another country.

Methods: The primary driver behind these transactions is a fraudster located overseas who has obtained funds through

phishing or trojan scams and intends to launder these funds out of the UK. As it is difficult to make cross-border transfers from UK accounts, the fraudsters need collaborators with other UK accounts to move the funds for them.

The fraudster asks the individual to receive a transfer of funds into his or her bank account, and then instructs the person either to send these funds on to another account, or to withdraw the funds (in cash or foreign currency), or to send them overseas using a legitimate money transfer service. The individual carrying out these transfers is typically offered payment, frequently in the form of commission, for this use of their account. This individual, the ‘mule’, may be complicit or completely unaware of the true nature of their actions.

Fake employment scams: Fraudsters are also known to contact people using email addresses harvested through phishing scams or

legitimate recruitment websites – offering jobs based ‘at home’ with a high salary for few hours a week. These adverts state that the recruiter’s overseas company is seeking ‘UK representatives’ or ‘agents’ to act on its behalf for a period of time. Job titles will be typically vague; along the lines of financial manager, payment processing agent or money transfer manager. Once recruited, the new ‘employee’ will begin to receive regular deposits into his or her account. Minus a small commission, the mule is then asked to withdraw or transfer the funds for placement into an overseas account (See example overleaf).

Targets: University students are often recruited as they are more likely to have unblemished credit records and low

incomes, and can be attracted by such schemes as these, as they offer an apparently easy way to make some additional money.

The unemployed are sometimes targeted through legitimate employment websites. Difficulties in obtaining work may lead to some people becoming willing to take any likely looking role, without applying the same scrutiny that the person would usually apply to an approach by an employer or recruiter.

People moving to the UK have also been approached, sometimes in their home countries, and offered jobs in the UK – moving funds as outlined above. In addition, people moving away from the UK are approached to hand over their bank accounts or good credit record when they leave, in order for fraudsters to make future use of them.

Money Mules

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Example:

Dear XXXX XYYYY,

My name is XXXX XXXX and I represent XXXX XXXX Finance Inc.

We’ve reviewed your resume and I’m glad to propose you a Payment Processing Agent vacancy.

We are a large company founded and based in the UK. XXXX XXXX Finance Inc deals mainly with providing IT services to clients within the UK, while recruiting talented individuals and soliciting agencies from all around the world.

This is a part-time position with a flexible schedule, working 2 to 3 hours a day from your home while staying in contact and receiving all your tasks online.

During the training period, you’ll be paid £2,300 a month. In addition, you’ll keep 8% from every money transfer processed. Total income, considering the current volume of clients, will be up to £4,500 per month. After you successfully pass the training period, base salary will be increased up to £4,500 per month. Furthermore, you may request extra hours or even a full-time job.

My goal is to spark your interest. In the present economy, our position offers training, support and a pay scale comparable to entry level position requiring 40 hours per week. I hope you will explore, compare, and then contact me with your questions.

Please complete a form below with your updated contact information as a part of your return email.

_____________________FORM_________________________

Your Full name: ____________________

Your Country of residence: ____________________

Your Contact phone: ____________________

Preferred call time: ____________________

_____________________FORM_________________________

We’ve found your resume at XXXXXXXXXX. This letter confirms that your resume has been duly processed and you meet our basic requirements for the Payment Processing Agent position.

Sincerely yours,

XXXX XXXX XXXX XXXX Finance Inc.

Example 3.3The letter below is a real example of a fake employment scam letter, and is printed verbatim.

C I F A S 15

The number of application frauds identified in 2010 continued on a downward trajectory, with a decrease of 23% compared with the previous year. The decrease was evident across the majority of product groups with the most noticeable being bank accounts and plastic cards. While some of the decrease can be attributed to widespread

media coverage concentrating upon reduced lending, thus deterring many even from applying, the majority is likely to have resulted from the tighter lending requirements maintained by financial organisations throughout 2010. As a result of this more stringent attitude to lending, there are two further possibilities to consider. First, that those determined to attempt fraud saw other methods (e.g. identity fraud) as a more viable alternative. Second, that the frauds were not reaching the fraud departments and therefore were not being identified, because initial lending criteria were weeding out and rejecting these applications before any underwriting, verification or fraud checks could be carried out.

Figure 3.4 depicts the differing trends in application fraud, by product, during 2009 and 2010. This shows that the overall decrease in application fraud was driven specifically by the drop in personal current account fraud, while other products remained fairly stable. ˃

Application Fraud relates to applications with material falsehoods (lies) or false supporting documentation (where the name given has not been identified as false).

Fraud Type 2008 2009 2010

Application Fraud 77,023 57,825 44,680

Application Fraud

3.4 Application Fraud

Figure 3.4Changes in Application Fraud Recorded 2009-2010 (by product type)

C I F A S16

It is clear, however, that some aspects of application fraud were less affected by the current economic conditions. The number of mortgage application frauds slightly increased in 2010, for instance. Mortgages have been among the most tightly controlled financial products over the last few years (with low levels of lending – decreasing from the previous year – continuing in 2010). The frauds identified tended towards practices such as the applicant hiding adverse credit data, and concealing past convictions. In addition, fraudulent hire purchase applications remained fairly stable, showing a decrease of just 1%.

As would be expected, compared with other fraud types, application fraud has seen the highest rate of frauds being carried out through more ‘face to face’ channels (27%) – instead of remotely (online or by phone). Essentially, people were representing themselves but were including material untruths on the applications or the supporting documentation such as by using forged passports or utility bills. ●

Facility takeover fraud decreased by 5% in 2010 compared with 2009, but this follows very large increases over recent years. Despite the decrease in 2010, over 5,000 facility takeover frauds are still being recorded each quarter.

The most common events associated with a facility takeover are the change of address on the account, unauthorised payments by the facility hijacker to another account (presumably the fraudster’s account, a third party accomplice or a similarly duped retailer, for example), or the application for an upgrade of a product in order to carry out further fraud.

There was a noticeable increase in those looking for a facility upgrade (20%, compared with 9% in 2009) and this now accounts for one fifth of all facility takeovers. This involves fraudulently taking over an account in order to obtain an expensive and much sought after product (which will then either be used to run up substantial bills or be sold through another channel). This type of facility takeover fraud was most commonly associated with communication products in 2010, and is indicative of the increased focus on products such as smartphones in recent years. As in previous years, these attacks are carried out either by opportunists who obtain the details of those they live with, or know well, or organised criminals who carry out these frauds on a larger scale. ●

Facility Takeover Fraud (also known as ‘account takeover’ fraud) occurs where a person (the ‘facility hijacker’) unlawfully obtains access to details of the ‘victim of takeover’, namely an existing account holder or policyholder, and fraudulently operates the account or policy for his or her own (or someone else’s) benefit.

Fraud Type 2008 2009 2010

Facility Takeover Fraud 19,275 22,387 21,226

Facility Takeover Fraud

3.5 Facility Takeover Fraud

1 in 5 Facility Takeover Frauds relate to an account being hijacked in search of an upgrade.

C I F A S 17

False insurance claims presented a fairly stable picture in 2010, following the fluctuation in figures seen in 2009. Overall, the number dropped by 20% in 2010 from the levels recorded in 2009, and this drop occurred gradually during the course of the year, as shown in Figure 3.6.

The bulk of the overall decrease was driven by the fall in household insurance frauds recorded (down by 41% from 2009). The inflation of claims remained one of the most

common reason for a household insurance fraud, with people still tempted to claim a higher value for goods than those that were actually stolen or damaged.

Despite the overall decrease in false insurance claims, motor insurance fraud remained steady; with an increase noted in the proportion of these frauds being identified as staged events (42% compared with 35% in the previous year). These ‘crash for cash’ cases are where an individual deliberately causes an incident, often by stopping suddenly and causing another vehicle to crash. The driver of the other vehicle can either be innocent or can be a part of the fraud. Either way, the insurance claim is fraudulently made. These incidents were recently associated with a highly professional network of expert gangsters with doctors, solicitors, claims firms and victims all lined up ready to play their respective parts1. Most seriously, this immediately presents a very serious threat to the safety of anyone within the vicinity of the ‘accident’. The knock-on effect is that the populace at large suffer from the inevitable increase in all insurance premiums. ●

False Insurance Claims occur when an insurance claim, or supporting documentation, contains material falsehoods (lies).

Fraud Type 2008 2009 2010

False Insurance Claims 433 670 537

False Insurance Claims

3.6 False Insurance Claims

1 ACPO Head of National Road Policing Intelligence, Geraint Anwyl; Submission to the House of Commons Transport Committee, Jan 2011.

Figure 3.6False Insurance Claims Recorded 2009-2010 (by quarter)

C I F A S18

The number of asset conversion frauds remained similar to 2009 with a slight increase of 1% recorded. Figure 3.7

shows that the numbers recorded closely follow the pattern seen in 2008.

While it may be expected that asset conversion fraud could rise during a recession (due to people needing extra funds or wanting to dispose of an item such as a car that they cannot continue to pay for), this is not reflected in the figures. One reason could be that, in the years immediately preceding 2010, people were simply unable to obtain the finance required to purchase a product in the first place; therefore, they did not have an asset which they could sell on unlawfully. The difficulties facing the industry are evidenced by the 15% increase in the number of asset conversion frauds identified as having originated with a dealer compared with the previous year. ●

Asset Conversion Fraud relates to the unlawful sale of assets subject to a credit agreement where the lender retains ownership of the asset (for example, a car or lorry).

Fraud Type 2008 2009 2010

Asset Conversion Fraud 522 532 539

Asset Conversion Fraud

3.7 Asset Conversion Fraud

Figure 3.7Asset Conversion Fraud 2008-2010 (by quarter)

C I F A S 19

4. Location of Fraud in 2010Fraudscape - Section Four

Map 4.1 presents the number of instances of fraud recorded per 1,000 people across Great Britain in 2010. It clearly shows that high levels of fraud are concentrated in urban areas. This is especially noticeable in the Greater London area and the extended commuter belt in the South East, and also in the North West (Manchester and Liverpool). In the Midlands, frauds were more prevalent in Birmingham and Nottingham, while in Scotland there were higher levels in the urban centres of Glasgow, Edinburgh and Aberdeen.

There are some interesting anomalies, however, where high levels of fraud were identified in areas that fall outside the larger urban areas; for instance, along the north coast of Cornwall, sections of the North West Wales coastal areas and in the far north of Scotland. These could equally be explained by individuals or groups targeting certain (more rural) areas, or it could indicate fraudsters obtaining bulk datasets specific to a locality.

Maps 4.2 and 4.3 display data on the Greater London area. This is presented based on the concentration of

frauds recorded in this area in 2010 (as displayed in Map 4.1). Identity fraud and misuse of facility fraud are the most common fraud types recorded in 2010, as noted elsewhere in this report.

Map 4.2 shows the number of identity fraud cases recorded across London in 2010 per 1,000 people. The map shows that overall levels of identity fraud are relatively high across the whole of London. There are some variations, however. The data shows higher concentrations of identity fraud centred around the inner London south east boroughs and the far north west of the region. Some areas, especially along the eastern and southern edges of the region, show markedly lower levels.

Map 4.3 presents the number of misuse of facility frauds recorded across London in 2010, per 1,000 people. This map shows a greater polarisation in the distribution of misuse of facility frauds than is evident in the identity fraud map. The areas with the greatest concentration are in East London with another high density area in the western boroughs.

The maps on the following pages show:

Page 20The location of addresses actively involved in fraud cases identified by CIFAS Members in 2010. The term ‘actively

involved’ means that any previous addresses used by the fraudster have not been included.

Page 21The location of addresses within the Greater London area associated with Identity fraud in 2010.

The location of addresses within the Greater London area associated with Misuse of Facility fraud in 2010.

Addresses are based on middle layer super output areas and the intermediate geographies as produced by the Office for National Statistics (ONS) and the General Register Office for Scotland (GROS).

Population counts are based on figures sourced from the ONS.

Greater London area maps are superimposed with London council boundaries.

Maps

The maps on pages 20 and 21 contain public sector information licensed under the Open Government Licence v1.0. Contain Ordnance Survey data © Crown copyright and database right 2011. Contain Royal Mail copyright and database right 2011. Source: Office for National Statistics

C I F A S20

Number of Frauds recorded per 1,000 people in Great Britain

10 and above

Between 5 and 10

Between 3 and 5

Between 1 and 3

Less than 1

Map 4.1

See page 19 for attribution.

C I F A S 21

1

2

3

4

56

7

8

9

10 11

12

13

14

15

16 17

18 19

20 21

22

2324

25

26

27

29

3031

32

3328

Number of Identity Frauds recorded per 1,000 people within Greater London

10 and above

Between 4 and 10

Between 3 and 4

Between 2 and 3

Between 1 and 2

Less than 1

No fraud recorded

Map 4.2

1

2

3

4

5

6

7

8

9

10 11

12

13

14

15

16 17

18 19

20 21

22

2324

25

26

27

29

3031

32

3328

Number of Misuse of Facility Frauds recorded per 1,000 people within Greater London

10 and above

Between 4 and 10

Between 3 and 4

Between 2 and 3

Between 1 and 2

Less than 1

No fraud recorded

1 Hillingdon2 Harrow3 Ealing4 Hounslow5 Richmond upon Thames6 Kingston upon Thames7 Sutton8 Merton9 Wandsworth10 Hammersmith and Fulham11 Kensington and Chelsea12 Brent13 Barnet14 Enfield15 Haringey16 Camden

17 Islington18 City of Westminster19 City of London20 Lambeth21 Southwark22 Lewisham23 Croydon24 Bromley25 Greenwich26 Tower Hamlets

27 Hackney28 Waltham Forest29 Redbridge30 Newham31 Barking and Dagenham32 Bexley33 Havering

Map 4.3

See page 19 for attribution.

C I F A S22 www.ordnancesurvey.co.uk/cifas

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C I F A S 23

For each case recorded to the National Fraud Database, CIFAS Members also record the type of product that was applied for, and this information provides a useful basis for analysis. These products are the types of commodities that members of the public can obtain (such as bank accounts, insurance products and mortgages) and, by collating and sharing data, CIFAS and Members can identify those products which are being targeted by fraudsters most regularly and the specific methods used.

This section provides an overview of common trends recorded in 2010, and the following section presents information on each group of products separately in order of the number of cases identified, starting with the largest group, bank accounts. Data for each product group is analysed in relation to the types of case it was recorded against, for example a bank account fraud can

be perpetrated by several methods including using a false identity or by providing untrue information on an application form.

The product groups with the highest amounts of fraud were bank accounts (31%), mail order accounts (23%), plastic cards (18%) and communications (15%) – and, together, these groups account for 87% of all frauds recorded by CIFAS Members in 2010. Each product group will be presented, therefore, in descending order of total frauds.

Table 5.1 shows the number of fraud cases recorded in each product group in 2009 and 2010 and the change between the two years. It is evident that there was considerable variation in the types of product targeted in 2010 compared with 2009. ˃

5. Fraud by Product Group

5.1 Introduction

Fraudscape - Section Five

Product Group 2009 2010 % Change

Bank Account 80,105 67,904 -15%

Mail Order 38,718 50,495 30%

Plastic Card 63,396 39,651 -37%

Communications 23,939 32,152 34%

Asset Finance 9,579 9,665 1%

Loan 6,653 6,018 -10%

Insurance 6,106 3,679 -40%

Mortgage 3,004 3,542 18%

Other 2,182 3,518 61%

All-in-One 571 761 33%

TOTAL 234,253 217,385 -7%

Table 5.1Frauds Recorded by Product Group 2009-2010

C I F A S24

The ‘other’ group in Table 5.1 consists of products which do not fall into any of the other product groups. The majority of cases recorded in this group in 2010 relate to ‘credit file requests’. These occur when a fraudster attempts to obtain a credit file of an innocent party in order to acquire as much financial detail as possible about a future victim. This is an increasing issue, with 3,341 frauds identified; 68% higher in 2010 than in 2009.

A credit file is information relating to an individual that is held by one of the Credit Reference Agencies (CRAs). The credit file contains personal information about an individual such as date of birth, address and previous address.It also holds a record of current and previous financial commitments such as mortgages and credit cards.The most common way in which this type of fraud was carried out was through current address fraud: when a fraudster used the existing address of his or her victim and then attempted to intercept the file.

Figure 5.1 shows the changes in the number of frauds recorded (in the four largest product groups) between 2007 and 2010. The data in 2010 presents a less polarised picture with frauds more evenly spread across the four largest product groups. This reflects the emergence of new methods to perpetrate fraud in recent years – and is indicative of the move in emphasis from the more traditional products in the financial sector, to a wider range of newer products and markets. ●

Figure 5.1Frauds Recorded 2007-2010 (the four largest Product Groups)

C I F A S 25

The types of bank account fraud recorded in 2010 are set out in Table 5.2.1:

5.2 Bank Account Fraud

Fraud Type 2009 2010 % Change

Application Fraud 26,822 17,756 -34%

Misuse of Facility Fraud 34,571 37,144 7%

Facility Takeover Fraud 4,051 1,974 -51%

Identity Fraud 14,661 11,030 -25%

Total 80,105 67,904 -15%

Table 5.2.1Bank Account Frauds Recorded 2009-2010 by Fraud Type

As shown in Table 5.2.1, bank account frauds decreased by 15% in 2010 compared with 2009. This decline can be attributed, in part, to the continued heavy investment by financial organisations in counter fraud systems.

The most notable aspect over recent years is the interesting dichotomy between the continuing decrease in application frauds with a corresponding increase in misuse of facility frauds, as shown in Figure 5.2. ˃

Figure 5.2Application Frauds and Misuse of Facility Frauds Recorded 2007-2010

C I F A S26

Product Type 2009 2010 % change

Personal Current Accounts 74,006 59,311 -20%

Personal Fixed Notice Savings/Investment Accounts 93 217 133%

Personal Instant Access Savings/Investment Accounts 4,431 6,611 49%

Company Current Accounts 1,551 1,738 12%

Table 5.2.2Changes in Bank Account Frauds 2009-2010

This pattern can be linked to the types of accounts that were targeted in 2010, with an increase in personal savings account frauds and a decrease in the use of personal current accounts. Table 5.2.2 shows that frauds targeted at personal fixed notice savings accounts increased by 133% and frauds targeted at instant or easy access savings products increased by 49%. During the same time period, personal current account fraud decreased by 20%. Savings products could have been targeted due to a perception that these would not receive the same amount of scrutiny or security as current accounts. During 2010 the number of company current account frauds also increased.

Misuse of facility fraud accounted for 55% of all bank account frauds identified in this period. In part this was linked to the reduction in application frauds as a result of more stringent credit checking. As it was increasingly difficult for fraudsters to open a new bank account (due to the variety of Know Your Customer (KYC) and verification requirements), fraudsters were making use of existing accounts, which might have been obtained through legitimate means. In addition, CIFAS Members have reported that lower levels of applications to financial organisations meant that some fraud departments continued to have more time to examine existing accounts and patterns of payment.

Misuse of facility fraud arises due to a number of different circumstances. It can be that individuals suffered financial

pressures and resorted to paying cheques that they knew would bounce. Other activity, meanwhile, is carried out by organised criminals who launder money by persuading people to pay in funds through their own lawful accounts. This can occur through coercion of individuals who are paid by criminals to allow their accounts to be used for money laundering purposes. In addition, it is known that people reply to job adverts where the role in question requires the innocent party to move funds (fraudulently, although they may not realise it) through their accounts. (see information box on ‘money mules’ page 13)

Despite the drop in application fraud, there was an increase in the proportion of people hiding their adverse credit history (67% compared with 60% in 2009), by claiming to reside at an address for longer than they actually lived there (9% compared with 5% in 2009) or by providing false employment details (8% compared with 4% in 2009). This could be a reflection of the higher unemployment levels and the harsher economic climate of 2010.

The nature of identity fraud relating to bank accounts continued to display a similar pattern to that presented in 2009, with a continuing reduction in the use of completely fictitious identities to open bank accounts. Use of a false identity accounted for just 9% of these types of fraud compared with 15% in 2009. The most common types were impersonation at a current address (42% compared with 36% in 2009) and the use of false documents (27%). Once again, this is a worrying trend that points towards an organised element. An account could be opened in someone’s name and they would not know about it until they try to open another account or were chased for the debt, as the fraudster would intercept the correspondence. Furthermore, with a move away from paper based to online statements, a fraudster has often simply to intercept the first contact sent by post from a financial organisation as further statements can be accessed online from an account of his or her choice.

Following a leap in levels in mid 2009, facility takeover fraud reduced by over 50%. There appear to have been changes both in how individuals’ details are being ˃

Misuse of Facility Fraud accounted for

55% of all bank account

frauds identified in this period.

C I F A S 27

obtained and, once obtained, how they are being used. The majority of the decrease is accounted for by the reduction of facility takeovers recorded as being carried out online. Instead, there was an increase in the number of accounts taken over through face to face interaction and especially by phone. This reflects the increased security placed on online accounts so that fraudsters resort to dealing directly with a member of staff in order to persuade them to make account changes.

Compared with 2009, a lower proportion of these takeovers consisted of unauthorised electronic payments (51% compared with 87% in 2009) and also lower numbers of unauthorised security and personal detail changes being made. Instead there were increases in the number of unauthorised address changes and paper payment instructions. Changing addresses on an account might appear to be an innocuous thing to do and, once the fraudster has effectively diverted the account to a new address, he or she can request new cards or chequebooks to be issued to that address.

There was a decrease in the use of the internet as a bank account fraud facilitator from 33% in 2009 to 19% in 2010.

This is a reflection of the considerable efforts made by financial institutions to combat internet fraud, together with an increasingly educated public who are less likely to respond to phishing attacks. It is too early to say if this is a trend, however. The emergence of new malware threats makes it harder for personal users to protect their home computers and it is difficult to predict how this will affect banking fraud in the next year. The increase in phone fraud relating to bank accounts was also notable (22% in 2010 compared with 11% in 2009) and this is an area that will need to be monitored closely. ●

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While Bank Account Fraud decreased by 15% in 2010, it still accounted for

31% of all frauds.

C I F A S28

5.3 Mail Order Fraud

Fraud Type 2009 2010 % change

Application Fraud 280 246 -12%

Facility Takeover Fraud 2,816 4,168 48%

Identity Fraud 30,920 44,577 44%

Misuse of Facility Fraud 4,702 1,504 -68%

Total 38,718 50,495 30%

Table 5.3Mail Order Frauds Recorded 2009-2010 by Fraud TypeThe types of mail order fraud recorded

in 2010 are presented in Table 5.3.

After a sharp increase in the last quarter of 2009, mail order fraud continued to increase in early 2010, followed by a decrease and levelling off later in the year. The most noticeable aspect was the drop in misuse of facility fraud and the continuing, though slightly moderated, increase in identity fraud as shown in Figure 5.3. ˃

Figure 5.3Mail Order Frauds Recorded 2008-2010 (by quarter)

C I F A S 29

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The overall increase was driven almost exclusively by the internet – with 99% of all mail order frauds carried out in this way.

Identity fraud continued to account for the highest proportion of all mail order frauds (88%). Although not showing the same spike as seen in the last quarter of 2009, the levels overall were higher than in 2009. The

decrease in the middle of the year was likely to have been due to mail order organisations identifying fraudster tactics and moving to counteract them. Following the pattern in 2009, the link between mail order frauds and organised criminals again appeared to be supported by the data. This was especially the case where data sets of compromised identity details were being used. The majority of the increase in identity fraud was accounted for by a large increase in the number of current address frauds (which now account for 87% of all mail order identity frauds). A proportion of these will have been committed by people impersonating family or friends that they live with or know well. In over half of all cases, however, a false date of birth was provided. This indicates that a high number of attacks were being made by strangers, using the data sets that were not always complete.

Mail order application fraud continued to decline, and the fraudsters’ success rate was much lower: at 78% compared with 85% in 2009. The number of mail order facility takeover frauds increased to levels close to those of 2008. ●

The overall increase was driven almost exclusively by the internet – with

99% of all Mail Order Frauds

carried out in this way.

C I F A S30

5.4 Plastic Card Fraud

This decrease is likely to have been due to financial organisations having more stringent initial lending criteria. Lenders have remained cautious and it is widely known that they are continuing to decline a high proportion of credit card applications. As a result, people are simply not applying for as many card accounts as they might have done in previous years. Organised fraudsters will be just as aware that they will not succeed with an application in their own names and, even if they assume another person’s identity, that there is no guarantee that this other identity will be ‘creditworthy’. In addition, there is a sizeable group of people who simply do not want to get into the position of having additional credit in these straitened times, although they may have been tempted to commit fraud to obtain credit in previous years.

Despite the overall decrease, the success rate of the plastic card frauds attempted remains consistent with previous years – with just over half (51%) being successful. The frauds identified were increasingly concentrated on online frauds with this channel accounting for 70% in 2010 compared with 60% in 2009.

For the majority of application frauds, the story remained similar to recent years with the largest proportion being efforts to hide a poor credit history (70%), and providing false employment details (13%); both of which were likely to be related to current economic difficulties and increasing unemployment. There was a notable decrease of 75% in the number of people providing false bank details (which now account for just 6% as compared with 15% in 2009).

This could be linked to the reduction in bank account frauds noted in Section 5.2.

Identity fraud on plastic card accounts is largely reliant upon current address fraud (see definition on page 11) which accounted for 63% of identity fraud in 2010, compared with 51% in 2009. Current address fraud remained a serious issue with cards, as an impersonator would have free rein to use a card as he or she wished once it had been intercepted. The innocent party would have no knowledge that this was happening until, perhaps, they applied for another product or were chased for the debts. Therefore, while less identity frauds were being recorded, those that were remained very serious and were frequently indicative of more organised activity.

The pattern of plastic card-related misuse of facility fraud remained remarkably similar to that seen in 2009, with the main reason for recording a fraud of this type being regular payment fraud (40%). This occurs, for example, when a fraudster sets up a direct debit from an innocent party’s account in order pay off his or her own credit card. Facility takeover fraud, meanwhile, continued to decrease: with a lower proportion associated with changing address (49% in 2010, compared with 62% the year before). Instead, there was a move to plastic card frauds being associated with an unauthorised electronic payment instruction (39% in 2010 compared with 26% in 2009), for example when a fraudster had acquired debit or credit card details and used these to transfer funds from the victim’s account to his or her own. ●

Table 5.4Plastic Card Frauds Recorded 2009-2010 by Fraud Type

Fraud Type 2009 2010 % change

Application Fraud 5,866 3,830 -35%

Facility Takeover Fraud 11,503 8,209 -29%

Identity Fraud 39,249 23,560 -40%

Misuse of Facility Fraud 6,778 4,052 -40%

Total 63,396 39,651 -37%

The types of plastic card fraud recorded in 2010 are set out in Table 5.4. There was a decrease across all plastic card fraud types, following the pattern seen in 2009.

C I F A S 31

The types of communication fraud recorded in 2010 are set out in Table 5.5:

5.5 Communications Fraud

Fraud Type 2009 2010 % change

Application Fraud 5,172 4,578 -11%

Facility Takeover Fraud 3,879 6,590 70%

Identity Fraud 11,511 16,821 46%

Misuse of Facility Fraud 3,377 4,163 23%

Total 23,939 32,152 34%

Table 5.5Communications Frauds Recorded 2009-2010 by Fraud Type

Communications fraud has seen a continuing increase from 2009 into 2010, with the key drivers again being identity fraud and facility takeover fraud. In 2010, facility takeover fraud accounted for a greater number of the total frauds identified than application fraud.

The most notable increase during the year was in facility takeover fraud. There are two main approaches used by fraudsters to take over a communications account:

1) Unauthorised facility upgrade: this occurs when an individual takes over an account (e.g. a

mobile phone account) to obtain an upgrade of the product. The fraudster then receives a new model of phone, which they can use or sell on for a profit. This method increased by 113% compared with 2009

2) Unauthorised addition of another facility to an account: for example, adding another

number to a genuine mobile phone account leaving the innocent party to pay the extra charges.

Figures 5.5.1 to 5.5.3, on page 32, show how these approaches have changed since 2008, with unauthorised facility upgrades becoming the vehicle of choice for fraudsters.

There is, though, no one clear method by which facility takeover frauds are being carried out. A fraudster might obtain some details from a phishing attack, and then change the account or apply for an upgrade over the phone. The online security measures used by many communications providers may mean that, while a fraudster may obtain details of a victim online (by exploiting any potential weaknesses in individual PCs or laptops), they think they have a better chance of talking their way around the extra security on the phone.

However, we are at a very interesting juncture in the use of communications products, specifically mobile phones. The functionality of smartphones is changing rapidly and they are being used, by increasing numbers of consumers, almost like mobile computers. This is bringing new dangers for customers, and new opportunities for hackers ˃

The challenge for those involved in providing mobile data

services and the internet, is to counteract this threat with increased security and to educate consumers.

C I F A S32

scouring the internet for personal data. Accessing public wi-fi hotspots using a mobile phone can mean that any information accessed is visible to others. The challenge is for all those involved in providing mobile data services and the internet to counteract this threat with increased security controls and by educating consumers to become more security aware.

The rise in communications-related facility takeover fraud can also be linked to the decrease in application fraud recorded in 2010. Communications companies continued to sell high volumes of aspirational consumables such as smartphones, and introduced tougher credit-checking procedures. As these phones have been on the market for a few years now, it has become common knowledge that mobile phone companies require detailed levels of personal information from new applicants. As it may be more difficult to open a new account, the fraudster uses an existing account instead, obtaining the necessary details by whatever means possible.

For communications-related application fraud, however, concealing a bad credit history by failing to disclose addresses remained the most common reason for a fraud being recorded.

Identity fraud again accounted for the highest proportion of communications fraud and continued to increase strongly. Current address fraud (see definition on page 11) remained the most common method used by fraudsters, and again increased sharply in 2010. Interestingly, the use of completely fictitious identities also continued to increase and was associated with 21% of frauds in 2010. It has been suggested by some that this type of attack is less sophisticated (as the fraudster is just trying his or her hand), and this is somewhat borne out by the continuing increase in the number of cases where the company ran its usual checks, only to find out that the person named on the account was not known at the address cited on the form.

Following a decrease last year, misuse of facility fraud in relation to communications products has shown an increase in 2010. The most noticeable increase in these types of fraud was in regular payment fraud (from 23 cases recorded in 2009 to 2,071 cases in 2010). This could be a result of a fraudster setting up a payment from an innocent party’s bank account to pay for a mobile phone account. ●

Figure 5.5.2Communications Facility Takeover Frauds 2009

Figure 5.5.3Communications Facility Takeover Frauds 2010

Figure 5.5.1Communications Facility Takeover Frauds 2008

C I F A S 33

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C I F A S34

Table 5.6 sets out the figures for asset finance fraud in 2010 compared with 2009, by fraud type:

5.6 Asset Finance Fraud

Fraud Type 2009 2010 % change

Asset Conversion Fraud 526 539 2%

Application Fraud 8,196 8,247 1%

Identity Fraud 479 472 -1%

Misuse of Facility Fraud 378 407 8%

Total 9,579 9,665 1%

Table 5.6Asset Finance Frauds Recorded 2009-2010 by Fraud Type

Following a decline over recent years, asset finance fraud presented a fairly stable picture for 2010, showing an increase of 1%.

Asset finance is an important part of the survival of many businesses, especially those that need to manage their cash flow closely. It allows investment in business assets (such as machinery, office technology and vehicles) over a medium term period. That fraud figures remained stable in this sector may either be a result of companies in the economic slowdown struggling to pay leases or of companies looking at extra finance as a way of increasing cash flow. It could also be a reflection of individuals being unable to pay leases and selling the product such as a vehicle (still subject to a hire purchase or similiar agreement) to pay other debts.

Application fraud continued to account for the highest proportion of asset finance frauds – and increased during the year by 1% after several years of decline. This was contrary to the overall trend of application frauds falling across other product groups. The increase in application fraud was concentrated on contract hires (whereby cars are hired for set periods of time at a fixed monthly rate but continue to be owned by the finance company). The main reason for these frauds was that people were hiding a poor credit history by not disclosing a previous address. The main evidence presented for application frauds was again proof of electoral roll (27%), where after investigation the finance company discovered that the applicant appeared on the electoral roll at an address they had failed to

declare. There was also a notable increase in the numbers presenting fraudulent bank statements to support their applications, which was the case with over one fifth of asset finance application frauds.

In relation to asset finance, both misuse of facility fraud and asset conversion fraud continued to increase in 2010. This has been a repeating trend over recent years, and could be linked to the economic slowdown. People are unable to afford repayments on products and so attempt to sell the item, simply fail to make repayments, or attempt to continue to pay using false instruments, such as a cheque that they know will bounce.

As noted earlier in this report (page 18) asset conversion is the sale of an asset that is still owned by a finance company as the loan has not yet been paid in full, for example a car that is bought on hire purchase and then sold. This accounted for 6% of asset finance frauds in 2010. ●

The main evidence presented for application frauds was again proof of electoral roll (27%), where after investigation it was discovered that the applicant appeared on the electoral roll at a different address.

C I F A S 35

Loan fraud refers to both secured and unsecured loans but not mortgages. This type of fraud decreased by 10% overall in 2010, continuing a trend noted over the last four years; with the total now representing less than one third of the

figure of 2007. Figure 5.7 demonstrates that, overall, the decline in 2010 was more gradual than in preceding years.

˃

5.7 Loan Fraud

Fraud Type 2009 2010 % change

Application Fraud 4,198 3,397 -19%

Facility Takeover Fraud 17 13 -24%

Identity Fraud 2,093 2,404 15%

Misuse of Facility Fraud 344 204 -41%

Asset Conversion Fraud 1 0 -100%

Total 6,653 6,018 -10%

Table 5.7Loan Frauds Recorded 2009-2010 by Fraud Type

Figure 5.7Loan Frauds Recorded 2007-2010 by Fraud Type

The types of loan fraud recorded in 2010 compared with 2009 are set out in Table 5.7.

C I F A S36

The decrease was linked to the tighter lending criteria discussed elsewhere in this report as financial institutions remained reticent about lending. This was also reflected in the figures for application fraud which has shown the most notable decrease over recent years, accounting for 56% of

loan frauds in 2010 compared with 63% in 2009 and 70% in 2008. Hiding an adverse credit history by failing to disclose a previous address continued to be the preferred option for those attempting loan application fraud, albeit with a lower proportion than in recent years (72% down from 80%). Similarly, those providing a false time at an address decreased. The number providing false employment details continued to climb, now accounting for 15% of cases. This reflected the higher unemployment figures in 2010, with people attempting to hide unemployment when applying for a loan.

Following a decrease in 2009, loan-related identity fraud increased in 2010 and accounted for 40% of all the loan frauds identified. It is likely that, having come across strong resistance from the standard financial organisations, fraudsters turned to less traditional lenders whom they perceived to be an easier target. Loan-related identity fraud is increasingly perpetrated using the internet (an increase of 66% from 2009) and the phone (increase of 80%) to carry out frauds. ●

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Loan-related identity fraud is increasingly perpetrated using the internet (an increase of 66% from 2009) and the phone (up by 80%).

C I F A S 37

Table 5.8 sets out the types of insurance fraud recorded in 2010 compared with 2009:

5.8 Insurance Fraud

Fraud Type 2009 2010 % change

Application Fraud 4,284 2,944 - 31%

False Insurance Claim 670 537 - 20%

Facility Takeover Fraud 2 0 - 100%

Identity Fraud 1,046 108 -90%

Misuse of Facility Fraud 104 90 - 13%

Total 6,106 3,679 - 40%

Table 5.8Insurance Frauds Recorded 2009-2010 by Fraud Type

There was a notable fall in insurance fraud in 2010: the biggest decrease being in home insurance which reduced by 66% from 2009. Motor insurance, the other largest product type in insurance terms, declined by 27% in 2010 compared with 2009. The decrease, however, occurred across all insurance fraud types, with the most substantial reduction seen in identity fraud – which dropped by 90%, back to a level last seen in the first half of 2008. Insurance related application fraud also showed a substantial decrease, down by almost one third (31%).

Although there was a decrease in application fraud, there were some notable changes in how these were carried out. The most common method was the provision of false bank details (24% of application frauds) but an increase was also recorded in the proportion of applications where other claims were not declared (18% in 2010 compared with 5% in 2009). The latter is often attempted in an effort, by individuals, to reduce an insurance premium, perhaps not surprisingly, given the economic situation and uncertainty regarding 2011’s economic prospects. There was also a surge in insurance applicants providing inconsistent details across applications (17% in 2010 compared with 6% in 2009). This is caused by individuals putting different combinations of details on different application forms; again in an effort to obtain a lower premium. The number of these types of fraud being identified is indicative of greater scrutiny by insurance companies of applications, together with the benefits of data sharing across the industry.

Inflated claims accounted for the greatest proportion of false insurance claims: 28% in 2010 compared with 15% in 2009.

Overall, the most notable change in the methods associated with insurance fraud was in the provision of false payment details. This has decreased from 29% of insurance frauds in 2009 to 7% in 2010. In terms of changes, this was closely followed by the provision of a false address (9% in 2010 down from 14% in 2009). There was also a substantial reduction in the provision of false phone numbers, which were filed in only 10 cases in 2010 compared with 648 in 2009. The decrease in insurance related identity fraud has contributed to the lack of cases recorded for ‘confirmed not known at address’, false identities, and impersonations. As insurance premiums can change depending on postcodes, manipulating an address is another common method of attempting to obtain a lower premium.

The internet remained the favoured method to carry out insurance fraud, although at a lower proportion: 63% in 2010 compared with 73% in 2009. There was an increase in the number of brokers identified, primarily in relation to application fraud: jumping from 81 overall in 2009 to 543 in 2010. This could indicate that brokers struggling for business were increasingly tempted to alter information on application forms in order to meet targets. ●

C I F A S38

Table 5.9 sets out the types of mortgage fraud recorded in 2010 compared with 2009:

5.9 Mortgage Fraud

Fraud Type 2009 2010 % change

Application Fraud 2,677 3,391 27%

Facility Takeover Fraud 6 0 -100%

Identity Fraud 161 66 -59%

Misuse of Facility Fraud 160 85 -47%

Total 3,004 3,542 18%

Table 5.9Mortgage Frauds Recorded 2009-2010 by Fraud Type

2 Council of Mortgage Lenders website http://www.cml.org.uk/cml/media/press/2838

Mortgage fraud increased by 18% in 2010, largely driven by a 27% increase in the number of application frauds compared with 2009. Application frauds now account for 96% of all mortgage frauds, with identity frauds and misuse of facility frauds dropping back to the levels recorded in 2008. The increase in mortgage application fraud was in line with expectations that falling house prices and tighter lending criteria have exposed falsified mortgages, especially those where key information on the original application form, such as salary, was untrue.

Figure 5.9 shows that the bulk of the increase occurred in the first half of the year following on from the high end-of-year figures in 2009. There was a subsequent decline in the second half of 2010, with quarter 3 showing a decline of 14% and a further decline of 9% in quarter 4. Following sharp falls in 2008 and 2009, mortgage lending stabilised in 20102. Lenders continued to maintain stringent lending criteria and to require large deposits from applicants. Given this context, the overall increase in mortgage application fraud can be attributed to:

• increased scrutiny by lenders which has detected more issues with applications.

• the long ‘lag time’ in identifying mortgage fraud. Properties fraudulently obtained during boom times may be abandoned or offloaded hurriedly during a recession, or the account may fall into arrears, meaning that the original fraud is only now being uncovered.

• some brokers being under financial pressures due to the economic slowdown and struggling to keep their companies afloat. Some may have turned to fraudulent activities such as changing the details of clients’ incomes in order to obtain a mortgage. Applicants in such cases, of course, may not necessarily be in collusion with the broker.

There is also a group of people who falsify applications in order to obtain the mortgage initially, yet who do intend to make their repayments. During the boom times these people would obtain a mortgage, pay it as agreed and sell the property for a profit. It is no longer certain that a property sale will make a profit and the applicant is in danger of falling into negative equity. This type of application, however, is likely to have reduced substantially because of the prevailing conditions. ˃

Application frauds now account for

96% of all Mortgage Frauds.

C I F A S 39

In 2010, the most common form of mortgage application fraud was an attempt to hide adverse credit information linked to an undisclosed address (43% compared with 30% of cases in 2009), followed by 22% of cases of applicants simply not disclosing a bad credit history. There was another increase in those providing false employment details (8% compared with 5% in 2009).

Much mortgage business is carried out at a distance, for example an intermediary such as a broker based in Manchester could be dealing with a client based in London and a solicitor in Birmingham. As the intermediary never meets the client face to face they may find it more

difficult to identify fraudulent applications, especially those supported by high quality false documents. It is therefore not surprising that the majority of mortgage frauds continued to be associated with businesses introduced by brokers (69%).

There is some evidence, however, that there is a move towards greater scrutiny of documents – with a notable increase in the numbers recorded as presenting false evidence of electoral roll information, wage slips or bank statements which did not pass examination. The increase in fraudsters using forged P60s noted in 2009 was not sustained in 2010.

The decrease in the number of mortgage-related identity frauds can account for some of the reduction in frauds associated with the presentation of false documents. These accounted for just 15% of cases in 2010 compared with 33% in 2009. Within mortgage frauds, using false or altered documents, stating false income, or providing false employment details have all decreased from over two thirds of mortgage application frauds in 2009 to account for less than half in 2010. ●

Figure 5.9Mortgage Frauds Recorded 2008-2010 by quarter

43% of Mortgage Application

Frauds attempted to hide adverse credit information linked to an undisclosed address.

C I F A S40

The types of all-in-one frauds recorded in 2010 are set out in Table 5.10.

5.10 All-In-One Product Fraud

Fraud Type 2009 2010 % Change

Application Fraud 194 179 -8%

Facility Takeover Fraud 109 255 134%

Identity Fraud 189 271 43%

Misuse of Facility Fraud 79 56 -29%

Total 571 761 33%

Table 5.10All-in-One Product Frauds Recorded 2009-2010 by Fraud Type

3 http://www.mortgages.co.uk/news/2010/Oct/first-direct-sees-rise-in-offset-mortgages-800160353.html

An all-in-one product is one where a group of financial products are offered together and operate through interaction. A common example of this is an offset mortgage when, instead of paying interest on an entire mortgage, customers pay interest on the difference between the balance of a mortgage and their savings.

The number of all-in-one frauds was low overall but increasing and showed a rise of 33% in 2010 compared with the previous year. The majority of this increase was due to a 134% upsurge in all-in-one product facility takeover frauds, following on from the very high increase of over 500% in 2009. The most common means by which this was carried out was through unauthorised electronic payment instructions (33%); indicating that fraudsters were using the interaction between accounts to hide their activities, targeting accounts that they hoped would not be noticed. This increase could also be related to the increase in savings account fraud, noted in Section 5.2. There is little evidence, to date, that certain bank accounts are being targeted simply because they are linked to other products, so it is most likely a case of the fraudster abusing whatever facilities are available on the account once they get access.

Application fraud on all-in-one products has not increased despite the increased presence of all-in-one products on the market. Demand for offset mortgages was strong in 20103 as base-rate stability and low interest rates on savings accounts continued to encourage customers to look for increased value. However, the decrease in

application frauds could be related to the overall tight lending conditions relating to mortgages, which have affected the whole market, whether they are stand-alone or all-in-one.

In cases of all-in-one product-related impersonation, the methods have swung back to current address fraud with 74% of all cases associated with frauds of this type. This is considered a more sophisticated method as fraudsters need to establish a means of obtaining access to a person’s mail to retrieve any post. This may not need to happen regularly, because once the first piece of mail is received, other aspects of account manipulation can be carried out online. The most common means by which all-in-one frauds were carried out continued to be the internet (45%). ●

74% of All-in-One product-related

impersonation cases are current address frauds.

C I F A S 41

Information about those who are associated with frauds is recorded to the National Fraud Database. These demographic details are identified by Members at the time the fraud is recorded.

This section focuses on those who carried out the frauds. However, those frauds which involve impersonation or facility takeover involve the targeting of an innocent victim. A total of 107,867 victims were identified in 2010. Of these, 21% were recorded as being victims of facility takeover and the remaining 79% were recorded as victims of impersonation. Often the details of the fraudster and their victim are the same, for example in relation to identity fraud as the true identity of the fraudster is never established - merely that the applicant is not who he or she purported to be. Therefore, in order not to double count these figures, the data presented in this section is based on the information recorded as being associated with the fraudster at the time the fraud was recorded.

Gender In the vast majority of cases, the gender of an

individual was recorded (97%). Table 6.1 sets out the gender breakdown of frauds and shows that the proportion of males to females has remained fairly stable in recent years with males accounting for approximately two thirds of frauds each year.

Table 6.2 sets out the gender of fraudsters by fraud type. In identity fraud, the details presented are the characteristics of the victim’s identity that the impersonator used to commit the fraud. In application fraud, the details are accepted as genuine (except where identified as false, for example a date of birth).

Males continued both to carry out more frauds, and to be the target of higher amounts of identity fraud and facility takeover fraud. The distribution of females recorded against different fraud types presents an interesting picture, however. On the one hand, the higher than average ˃

6. DemographicsFraudscape - Section Six

2008 2009 2010

Female 34% 31% 32%

Male 66% 69% 68%

Table 6.1The gender of fraudsters 2008-2010

Fraud Type Female Male Unknown

Asset Conversion Fraud 19% 75% 7%

Application Fraud 33% 66% 2%

False Insurance Claim 27% 70% 4%

Facility Takeover Fraud 37% 61% 2%

Identity Fraud 30% 68% 2%

Misuse of Facility Fraud 23% 70% 7%

Table 6.2The Gender of Fraudsters by Fraud Type 2010*

A total of 107,867 victims were identified in 2010. Of these, 21% were recorded

as being victims of facility takeover and the remaining 79% were recorded as victims of impersonation.

* Some percentages may add up to more or less than 100% due to rounding

C I F A S42

Figure 6.1Age Groups of those Involved in Fraud 2010

proportion of females associated with facility takeover fraud may indicate a greater number of women being targeted in these types of fraud. It is, however, also likely to be as a result of more organised criminals carrying out frauds using bulk data obtained through cyber attacks such as phishing and use of spyware. These types of fraud do not discriminate in terms of the age or gender of the victim. They rely on volume instead of specifically targeting individuals who may be perceived as ‘a good victim’ due to age or wealth. On the other hand, the higher rate of females recorded against application frauds shows that a significant number of women actually carry out these frauds themselves.

Age Groups The date of birth of an individual connected to a fraud

was recorded in the majority of cases. In 2010, the average age of a fraudster recorded on the National Fraud Database was 38 years old, the same for males and for females.

Figure 6.1 sets out the breakdown of fraudsters by the age group they were in at the time the fraud was identified.

Fraudsters fell predominantly into the age groups 21-30 years old and 31-40 years old which together accounted for over half of all frauds recorded in 2010.

The information above is based on the data identified by Members. In some cases, such as application fraud, this may not be the actual age of a fraudster but instead it was the age given by the fraudster because he or she thought it was the optimum age needed to obtain a product.

Figure 6.2 shows how each type of fraud attracts a different age group. There is a greater prevalence of identity fraud and facility takeovers as the age profile increases. This is in line with perceptions that fraudsters are more likely to target those with ‘good’ credit records who have amassed assets in their name. For those recorded as being in the age group ‘under 21’, the main fraud type was overwhelmingly misuse of facility (64%) with these being primarily focused on current accounts. Application frauds show the greatest prevalence among those in the age groups ’21-30’ and ’31-40’. ˃

C I F A S 43

Figure 6.2Age Groups by Fraud Type 2010

Both asset conversion fraud and misuse of facility fraud were associated with a younger age group. These two fraud types were also dominated by males. While this presents a clear picture of younger men being involved in these types of fraud, the reasons why could be varied. It could be that these frauds appear on the surface to provide a quick short term gain for little effort, or it could be that some people in this group simply turned a blind eye to their account being used for fraudulent purposes. It could also be that some people did not realise that what they saw as acquiring something for nothing was in fact committing fraud. ●

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