Is AI the New Fraud Frontier?
Written by: Steve Troy, President, AeroFund Financial
We have been living in an age of technology for about 50 years now. You might consider different starting points of the tech age: Intel’s development of the microchip in 1971, Apple’s introduction of the personal computer in 1976, or the IBM PC in 1981. From the microchip to the PC to the computer in your pocket, technology is everywhere and used by everyone. From the 2-year-old staring at an iPad to your grandmother FaceTiming with her iPhone, technology has changed our lives.
Do you know who else uses technology? Crooks, bad guys looking to steal your money. The question is: Are frauds and scams more sophisticated and/or frequent today than 50 years ago? According to the FBI, they are more frequent. Scammers and fraudsters can reach more people today than they could decades ago. Pre-technology, a scam was typically done either face-to-face or over US mail. Mail fraud was so prevalent in the 20th century that a fraud statute was established, and the US Postal Service has a fraud department.
No one is going through your trash today looking for your social security number and date of birth. You have provided your information to multiple companies you’ve previously done business with. Right now, scammers can get a listing of thousands of names along with addresses, birthdays, social security numbers, and even your passwords, for just a few hundred dollars. They can get more information about you at their fingertips than you can remember yourself.
If fraud is more prevalent, surely it must be more sophisticated, right? Well, not exactly. Doing a forensic dive into fraud today, it does not seem to be any different when compared to 50, 60, or even 100 years ago. One of the most popular forms of fraud people fall for all the time is the Ponzi scheme, which was named after Charles Ponzi in the 1920s. Ponzi was not the first to promise high returns to investors while using their money to pay the high interest payments of old investors, all the while siphoning off money to live a lavish lifestyle. Bernie Madoff elevated the Ponzi scheme to an art form.
The Ponzi scheme is not the only classic fraud used today to separate honest people from their money. There is still the old-fashioned pigeon drop that was featured at the beginning of the movie The Sting. A fraudster finds a lot of money or has a winning lottery ticket and tells an unsuspecting person if they put up earnest money, they can hold the ticket or found money and split the booty. Obviously, the cash has been switched or the ticket is a counterfeit leaving the gullible empty handed.
Then there are the Nigerian letter scams. “I am a prince who cannot get my millions out of the country. I need your help, honest person. I can send the money to you and you can keep 20% for helping me. To show your honesty, please send me a good faith payment so I know you to be of good character.” Boom, your money is gone.
Fake girlfriends needing travel money to leave a war-torn country, non-existent stock investments, or your grandson was robbed and needs money to get home. The frauds and scams go on and on, with people falling for them time and time again.
Collusion has always been a favorite of the criminal set; 2 or more parties conspiring to remove you from your money. These parties pretend to not be related, but in fact they are working in consort to make it look like there is a legitimate business relationship to lure you into a false transaction, the actual premise of the movie The Sting.
Banking fraud is certainly on the rise. Malicious actors can create fake companies that trade with other fake companies to create fake collateral to deceive banks and finance companies out of millions. One party pretends to be a seller, the other pretends to be a buyer, lay on a little Ponzi magic and millions can be stolen.
How do you rob a bank in the internet age? The same way they did 50 years ago. An employee enters their password into the bank’s computer system and transfers money to an offshore account. Ah, you are not an insider and do not have the password? No problem. Simply manipulate someone at the organization into giving you their password. How? Trick them into opening an app or an email that places a piece of spyware on their device. The next time they login, you can watch them enter their password.
Want to rob a corporation? You don’t need to threaten them with blowing up their store, offering protection, or hijacking their trucks. Take control of their computer server and demand ransom to unlock it.
You might think to yourself “I would never fall for scams that are so transparent!”. Some sophisticated investors have been scammed with one or more of these. After someone who has been defrauded starts to explain what happened to the police, it becomes apparent how ridiculously simple these frauds really are. Some people feel stupid and are embarrassed to report the crime. Fraud is based on nothing more than the honesty, emotions, gullibility, and yes, the greed of someone like you or me.
Doing a deep dive on fraud, it is hard to see anything new other than the sheer volume of attacks. Instead of sending 10 letters by US mail, it is now thousands of emails to unsuspecting victims. Instead of looking over someone’s shoulder for a password, it is a spybot placed on a PC. Forget the whiteout and scissors to create a fake document; photoshop can create convincing letterheads, invoices, signatures, checks, and money orders.
Will artificial intelligence create new frauds and scams? Doubtful. Will it make the same old frauds be more convincing? Probably. Can we always protect ourselves from falling victim to fraud? Absolutely not. At some point in time, we will all fall victim to a fraudster. Why? Because we are honest, and we want to believe in the goodness of people.
Pierre Omidyar, the founder of eBay, said it best when asked why he expected someone would send payment to a seller after the goods were shipped. He said, “given the opportunity, most people will do the right thing”. The keywords here are “most people”. Unfortunately, that remaining minority will prey upon the rest of us, keeping us on guard in a financial game of Whack-a-Mole.