Gareth Dothie, Interim Head of Fraud Operations – Economic Crime Directorate (Acting Detective Chief Inspector), City of London Police

Below is an insight into what can be expected from Gareth’s session at Fraud & Financial Crime Europe 2023.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

What effect has the increased advertisement of cryptocurrency had on investment fraud?

The increased public knowledge and interest in new technologies, particularly cryptocurrencies, has created new fields of investment and research. Some people are legitimately at the cutting edge of these fields and making money from them. However, wherever there are trends and public interest, fraudsters will also see opportunities to use the marketing, advertising and news articles that come with them to boost interest in their own false products.

Fraudsters are quick to pick up on investment trends and to create new companies to capitalize on them. This has been seen in property development booms as well as green initiatives such as carbon credits. From 2021 to 2022 the number of investment frauds reported went up by over 10% and the losses by over 30%; cryptocurrency investment forms a part of this upward trend.

Some of the hype about cryptocurrency investment, particularly away from traditional news media, has been about the get-rich-quick success stories where the value of a cryptocurrency has multiplied many times overnight. This can happen when an investor gets in at, or before, an Initial Coin Offering (ICO). The value of this to a criminal is that the cryptocurrency need not be available on the market, listed on an exchange, or potentially even functional.

On top of this, fraudulent investment companies conduct their own advertising campaigns, create glossy brochures and use all other marketing tools at their disposal, just like any other company. This can make it difficult for customers to spot the criminal company among many others.

What are the key social factors impacting customer investment decisions?

Public interest in an investment type and its regular appearance in the media- whether traditional or otherwise- is likely to have an impact on the types of investment people are interested in. This is why criminals use popular trends and public successes to their advantage.

Changes in circumstance such as redundancy, cost of living rises and recessions can also cause consumers to look for new sources of income. Desperation can make people more likely to look for quick fixes such as high risk, high reward investments, and less likely to perform due diligence.

Criminals are not afraid to try new tactics to interest their target market. For example, cryptocurrency investment frauds could be marketed towards younger males who already have an interest in technology. Social media is increasingly being used to advertise and market fraudulent companies.

News, blogs and articles on social media platforms are unregulated and subject to less critical scrutiny than traditional press. Platform algorithms, which are designed to keep users interested and coming back, offer up more of the content a user has shown an interest in. This can serve to reinforce and legitimize an idea that may not be accurate or as one-sided as portrayed.

Although these factors may lead someone towards investing in a particular product, it is usually the deliberate actions of criminals that seal the deal. Fraudsters use a wide range of social engineering techniques to trick, convince or force victims to invest.

Investment fraud companies deliberately target the vulnerable, the desperate and those open to persuasion. They employ what they call ‘sucker lists’ of prior victims who may be susceptible, they use pressure tactics such as calling an elderly person every day and any other tricks they can use to get a victim to commit money.

What internal controls can organizations integrate in order to mitigate risk to customers?

The controls organizations can put in place to protect customers from fraud varies depending on the industry. However, any organization that can have a level of exposure to investment fraud companies need to do their bit to monitor for fraud and the inevitable money laundering that follows, to flag up risk and to report crimes.

The upcoming Online Safety Bill is due to include a responsibility to combat illegal activity online and this includes fraud. This will put a greater onus on companies to take responsibility for material hosted by them online.

The financial and regulated sectors have established responsibilities to know their customers and watch for money laundering. However, these must not be considered a ‘tick-box’ exercise as professionals and banks, for example, have an opportunity to get a valuable early warning about illegal activity that law enforcement can use to take action.

Investment in systems that can be tuned to spot irregularities and suspicious activity is an important consideration but may not be appropriate for companies of all sizes. However, educating and training staff and fostering a culture that is proactive and risk aware can help protect both the company and its customers.

Companies of all sizes can take active steps to ensure their company brand is not being cloned or misused. Some examples are regularly searching the company name and similar websites to their own online to see if someone is using them. Reverse-image searches can be used on company logos to see if these are being used. Similar searches can be conducted on social media sites as these are increasingly being used for fraud.

Why is it important for organizations to ensure visibility across all channels of communication?

Clear messaging and communication with customers are important steps for companies to protect customers from fraud. The messaging should be tailored to the customer type and industry; an accountancy firm catering to small businesses will have different concerns to a retail bank or a software-as-a-service provider.

Methods of communication are changing and vary across different demographics. It is important for organizations to consider who they are talking to and how best to get their messages across. A mass email may reach the greatest percentage of customers but may miss those whose preference is postal communication and those who rarely communicate outside of social media.

Although there isn’t necessarily an off the peg solution there are excellent resources available such as via Action Fraud, Take 5 to Stop Fraud and Cyber Griffin which is provided by the City of London Police.

The better educated all members of the public are about fraud and risks such as cyber-attacks and social engineering, the harder a target they will become. Some elements of company communication may be ensuring customers know the risks inherent in the company’s particular industry and ensuring they know how the company will and will not contact them to avoid the risk of cloning or phishing.

The more visible a company is in its communication and the wider it’s reach across all sections of the customer base; the less likely criminals should be to find gaps in information that they can exploit.