I begin with an upfront disclaimer: With the exception of the aged, I have difficulty mustering up much sympathy for those who lose thousands of dollars-and sometimes more-after receiving an anonymous e-mail from someone they've never heard of in a country they've never visited who has-take your pick, a huge oversupply of crude oil or a huge financial bequest or a family fortune being held by an African prince-and will, in exchange for a wire transfer that will clear up the whole mess, give them a fat percentage of the profits. No red flags to be spotted there.
Who falls for this kind of thing? Incredibly, many people, among them credit union members, to the tune of more than $5 billion so far, according to one estimate. What may surprise many people to learn is that the so-called Nigerian 419 scam-named after the Nigerian criminal code under which it falls-wasn't invented with the Internet. "I've been at CUNA Mutual for 19 years in risk management, and we've been dealing with this scam as long as I've been here," said Vince Wagner, a risk management specialist. "It's just evolved. It used to be you received a letter through the U.S. mail. Then it came via fax. And now it's e-mail."
Proving the scammers aren't persnickety, Wagner said he receives at least three such pitches each week at an e-mail address that has the words "Risk Alert" in it. Members who fall for the scam are not covered by their credit union's CUNA Mutual bond coverage; but the company has an ongoing effort to educate credit unions about educating their members as part of its mission to help CUs, said Wagner. So why are people so-what's the kind word-gullible?
"My experience and that of others has been that people look at this as an opportunity to get something for nothing," he explained. "It sounds pretty attractive when someone is saying they have $26 million and they'll give you 25% of it if you just give them a couple of thousand dollars. It preys on the belief that there's nothing at risk."
That is until the member comes into the credit union and discovers there's no return policy on a wire transfer. Wagner recalled one instance where a credit union put a call through to him from a member pondering such a transfer. He said he spent 45 minutes explaining to the member why the offer was not legitimate and that the money would be lost, yet said that when he hung up he still wasn't sure he had convinced the member not to do it.
"Education is what works, and there are degrees of success," acknowledged Wagner. "We've had members come in who want to wire money to Nigeria, and the front-line staff has been educated and they show these members materials about the scam. You can Google 'Nigeria 419 scam' and you'll find lots of good sites."
Some members will arrive with a check in hand after having responded to such scam Spams. Wagner said the check may be for $50,000 and the member is urged to deposit it and wire $12,000, for example, to an account, where it will be transferred and perhaps transferred again, making it untraceable. The check, of course, is counterfeit.
Counterfeit checks are also being used in a new twist, called the "excess payment scam," that has emerged with the Internet and the ability to sell all manner of stuff online. "This is where say, I've got merchandise for sale on the Internet," explained Wagner. "Often it's a car, but we've seen dogs and cats and birds. The seller is a legitimate individual who gets an e-mail saying they will buy the object for the asking price. You agree on $15,000, and the person sends you a check for $25,000 and asks you to wire the excess $10,000 to a friend who is going to help get the car out of the country."
Wagner said something's going out of the country, but it's not your car. He noted these foreign scams seem to have domestic help, as the counterfeit check usually arrives via overnight mail the next day. In many cases, it's the scam that keeps on giving. The member may use the "funds" to pay off a car loan, and then take out a new loan for another vehicle. When the check is returned as fraudulent, the member now has the old loan reinstated, a new loan and vehicle on which to make payments, and has lost the money he or she wired.
"In this case, the credit union can also be a victim if the member now can't pay," noted Wagner. And although it's not fair, the credit union can be further victimized when an angry, embarrassed member holds the credit union responsible for having accepted the counterfeit check. In one case where a member didn't send a wire but instead sent the "excess funds" to the scammer via a credit union check, the credit union is still paying the price. "The fraudster now has a template for counterfeit checks," said Wagner. "I am aware of at least three related to this credit union, and if I know of three there are more."
Despite the mass scam mailings and the Internet, Wagner feels he and his fellow 25 risk managers at CUNA Mutual are making a little bit of headway. "Day in, day out we do hear the success stories where a loss has been stopped," he said. "Some credit unions are saying to members, 'Let's call and verify the validity of this check.'"
Yet in a Darwinian Catch-22, each victory leads the scammers to evolve. "The latest twist is that people are being told not to go to a financial institution, but to take their checks to a check-casher, and to send a wire transfer via Western Union. It just points out that the fraudsters are keeping up."
Frank J. Diekmann is editor of The Credit Union Journal.
