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Advance Fee Frauds

What is Third Party Fraud?

This is a fraud committed against someone or some business by people other than their employees. They can be committed against individuals, businesses, companies, governments etc. Third party frauds are not as common as occupational frauds, but on average each fraud is for a larger amount.

Some third party frauds are not meant to remain hidden forever. Some only remain hidden long enough for the fraudster to get away. The fraudster may not care if the fraud is eventually discovered as there is no continuing relationship with the victim and they have made their getaway.

What are advanced fee frauds?

It is a fraud aimed at getting the victim to pay an amount of money in advance of getting a product or service, and then never to supply that product or service.

One common version of the fraud is based on the Nigerian 419 fraud, where monies are paid to the fraudster to allegedly pay commission etc. so that other amounts of money can be made available, or to pay fees that will enable the supply of a product, service, a loan or other benefit

Who commits these frauds?

The typical "con-man" performs these frauds. "Con-man" is short for a person that performs a "con" or "confidence trick". The goal is go gain the victim's confidence and trust and make them believe that the fraudster and the offer is legitimate and that the product or service or loan will be delivered.

How are these frauds committed?

Fraudsters will target people or businesses with a difficulty or problem and offer a solution to that problem. That solution will generally take some time to put together and will cost some money. The fraudster will ask for money to be paid up front (in advance) for commissions, fees, bribes, stamp duty or other costs.

The victims, who are generally desperate to have the solution, will either be encouraged to pay the fees in advance, or will be manoeuvred into a position where they will offer to pay the fees to speed up the process.

This money can be significant. These money are taken by the fraudster, who generally disappears or says that the solution is no longer possible and the money has been spent.

What is the aim of the fraud?

The aim is simply to get money out of a victim. This is done by telling them lies about what the fraudster can do for them and what the money is to be used for. The money is paid to the fraudster who disappears with it.

FOR EXAMPLE

Lets look at two examples of the fraud in action:

Example One

A small business is approached by a salesperson selling advertising space in a new local business directory that will be allegedly released in a few months. The advertising sounds cheap compared to the perceived value. The sales person only wants 50% of the fee now and the balance after the directory is distributed, and then only if you are completely satisfied.

Glossy material is provided to show what this directly would look like, and names of other businesses that allegedly will be advertising in it will be dropped. The business owner takes up the deal, supplies the art work and, importantly, the cheque for the 50% deposit. A few months later, there is no directory and the sales person is gone.

This is the advance fee fraud as it is commonly known. Something is offered, with only part payment required now and the balance after delivery, but nothing is provided.

Example Two (Actual Case)

A business was in trouble and the owners advertised to sell the business so that they can pay outstanding debts. They were approached by a person that offered to buy the business from them for a price that was more than the business was really worth.

As the owners were in financial difficulty with unpaid creditors making demands, and were relieved when the offer to buy the business was received. The purchaser met with the owners and generally became very friendly with them in a short period. (This is a common tactic to build trust.)

The purchaser advised that they would be able to settle the contract as soon as money became available from an overseas lender. After a long delay - designed to make the victims anxious - the purchaser said that she was having difficulty paying the fees needed to get the loan processed, stating that the settlement of another property she was selling had been delayed. (This is another common tactic - creating an urgency and a problem that the victim can solve by handing over money to the fraudster.)

The purchaser said that she needed to get funds to get the loan processed. As the victims were desperate to have the loan processed and to sell the business, the owners offered to give the purchaser the money needed for the fee. They mortgaged their unencumbered business to borrow the money and paid it into an overseas account at the purchaser's request. The purchaser has been un-contactable since.

LESSONS TO BE LEARNED

Confidence tricksters can look like any other business person either selling a product for a good price, or proposing a solution to vulnerable and desperate people. If the victims are desperate, they will be open to many schemes that they would not otherwise consider and may do almost anything to try to get the imagined solution.

Fraudsters are practiced at making bad ideas look like they were originated by the victim, by guiding the victim to conclusions that they want them to reach. They can create a position where a desperate or gullible person will offer to give the fraudster money to get a solution to a problem, or a profit on a 'deal'.

Fraudsters prepare a story to tell the victim. looking behind the gloss and hype of the story may show what the actual position is. Conducting searches and demanding proof of the proposed deal may expose - or at least serious doubts about - its fraudulent nature.

Always ask:

• Is the deal too good to be true, because it may not be.
• Is the person just too friendly or doing too much for you in an attempt to gain trust?
• Why do they need the money now? Why can't they find the money for fees etc. themselves?
• Who would be worse off if the proposal was a fraud and the benefit was never received? What will you lose and what are the chances of that happening?
• Are they happy for you to get an independent person's opinion?

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

Acknowledgment
The material in this Fact Sheet was sourced from various publications including those listed in the Reading List on the Fraud Awareness page on this website.

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Last Updated: 11.3.2008