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Business Fraud & Fraud Protection

Business fraud, while taking many guises, is perpetrated in three basic forms:
  • By a business against consumers or customers, who can include other businesses, government agencies or investors;
  • By an employee or employees within a company against the company itself or other employees within the company;
  • Against business men and business women by outside assailants such as customers or con artists.

Business men and women, while accustomed to traditional forms of fraud such as bounced checks and stolen credit cards, often believe they are immune to more sophisticated forms of deception. It is a hard, cold fact that business people and other professionals are bilked out of thousands or, in some cases, millions of dollars each year by scams and other deceptive practices. No matter what your level of business savvy, be assured that there is a con artist or other scammer out there just waiting to test your judgement and make off with your money.

It is ironic that some of the most successful forms of fraud are some of the simplest. Con artists and other perpetrators of fraud rely on a number of basic precepts to run their scams, stings and deceptions:
  • Deception - the greatest weapon of the con artist or perpetrator of fraud;
  • Speed - most frauds are committed quickly, with the perpetrator disappearing before the victim is aware that he or she has been defrauded;
  • Gullibility or innocence on the part of the victim;
  • Lack of due diligence - failure to thoroughly check identification, credentials and other forms of information, especially when secondary or background checks are involved;
  • Greed - that quirk of human nature which causes otherwise rational human beings to go for the too good to be true offer;
  • Embarrassment - reluctance on the part of victims to inform law enforcement because they feel embarrassed at having been tricked, especially if a scam is simplistic in nature, or feel they will be subjected to ridicule;
  • Intimidation of the victim, occasionally by threat or inuendo, but more often by enticing the victim to become a party to an illegal activity;
  • Lack of distribution of information and lack of cooperation between differing law enforcement agencies and governments.
It would take pages to list all the different types of fraud, if it could be done at all. A few of the more common types of fraud are:
  • Embezzlement;
  • Counterfeiting;
  • Advance fee business scams;
  • Illegal investment and trading activities;
  • Tax evasion and tax fraud;
  • Scams and stings;
  • Pyramid schemes;
  • Chain letters;
  • Identity theft;
  • Dummy auction bidding, also known as shilling;
  • Illegal check writing/cashing and credit card theft;
  • Bait and switch - advertising a low-priced item, then persuading a consumer to purchase a higher-priced one, often by claiming that the advertised item is unavailable;
  • Advertising false sale prices based upon inflated retail prices;
The internet has become a breeding ground for fraud because of the speed, accessibility, and anonymity it provides to the scammer. Internet and email addresses are easily faked, or spoofed; email accounts and websites can be set up and abandoned quickly and with complete anonymity by internet thieves. These con artists migrate from website to website, collecting money from unsuspecting victims, then fleeing before law enforcement agencies can close in.

People often forget that when fraud or theft occurs, there are always multiple victims. When a consumer is bilked by a fraudulent merchant on an internet website, all legitimate internet merchants suffer because the victim is less likely to do business on the internet again and may caution other consumers to stay away. When individuals file false disability or insurance claims, rates for everyone increase as a result. Perhaps most alarming is the rising incidence of identity theft, which leaves in its wake countless defrauded merchants and the victim whose identity has been stolen with a shattered credit history and bill collectors beating on his or her door. For these reasons, regardless of whether you are a business person or a consumer, it is your responsibility and moral obligation to report all occurrences or suspected occurrences of fraud promptly to law enforcement officials. It is the responsibility of law enforcement agencies to make it easier for citizens to report suspected cases of fraud.

Authored by Kenneth L. Anderson.  Original article published 29 April 2004, updated 24 February 2006.

Follow links to the right to learn more about business fraud and fraud protection. At the left margin, Related Links address topics of interest pertaining to business and ecommerce.

In addition to business fraud protection, our Business Law section identifies areas of business requiring legal expertise and provides resources you can use both to become better informed and to accomplish those legal transactions necessary for the operational success of your business. View the Business Law SiteMap for a complete list of business law topics.

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