The Evolution of Fraud

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When and where did fraud begin?

Sarah Golding, Head of Fraud Consultancy and Sales Support, reflects on how fraud has changed over the years, and how it will continue to do so in the future.

The Evolution of Fraud

I have worked in the fraud industry for well over 10 years and it is astonishing to reflect how much fraud has changed, primarily driven by advances in technology which show no signs of abating.

To get a greater appreciation of the evolution of fraud, however, we must look further back in time…

Fraud has existed for many years. The first recorded instance comes from 300 BC, in Greece, when shipping merchant Hegestratos changed the world by attempting to con the insurers of a shipload of valuable goods by sinking his boat but keeping the cargo, and claiming the loss anyway.

This is the first known case of first party insurance fraud. At the time the policy was known as a bottomry and worked on the basis that a merchant borrowed money to the value of the ship and its cargo. As long as the ship arrived safely at the destination with the cargo intact, the loan was paid back with interest. However, if the loan was not repaid the boat and its cargo were repossessed. In the case of Hegestratos he was caught in the act of trying to destroy his ship once he’d already sold the cargo, and he drowned trying to escape.1

The first case of financial fraud was not long after this in 193 AD, at the time of the Roman Empire, when the Praetorian Guard2 attempted to sell rights to the royal throne. However the guards had no rights to this, they were trying to sell something that didn’t belong to them and were therefore committing financial fraud.

In addition, the counterfeiting of money also dates back many centuries, with the counterfeiting of coins.

It is safe to say as long as there have been goods and money there have been fraudsters looking to exploit loopholes in order to gain financially.

Fast forward through the centuries

The first record of property fraud and conning innocent buyers out of their money dates back to 1821. Gregor MacGregor3 was selling land that did not exist, and conned investors into thinking he was building homes.

Counterfeiting can also be evidenced throughout history. In one notable instance from 1911 it related to art, however the motive was the same – financial gain. Argentinian Euduardo de Valiferno paid an employee from the Louvre art gallery to steal Leonardo Da Vinci’s Mona Lisa; interestingly it was not so he could sell the painting on, but so he could credibly sell forgeries to underground collectors.

The 1920s saw the first Ponzi scheme, a form of investment scam carried out by Charles Ponzi whose name it takes

Identity Fraud and Cheque Fraud were also prevalent in the 1900’s. One very famous example being Frank Abagnale Jr, who had over 8 identities including an airline pilot, a physician and a lawyer. This story was made famous by the movie ‘Catch Me if You Can’.

How has this changed over the years?

Picture – Human Nature: The Cyber World’s Most Powerful Defense…and its Greatest Vulnerability

More recent types of fraud include ATM fraud, application fraud, card not present fraud, internet banking fraud, mobile banking fraud, contactless card fraud, benefit fraud, and employee fraud.

One key theme with more recent fraud types is advances in technology and cyber enabled fraud.

Cyber enabled fraud in itself has evolved rapidly in recent years. From Malware and Trojans, to Phishing, DDoS, Botnets and Ransomware to name a few.

In addition, the way in which people manage their finances has changed.

According to the Telegraph4, for the first time online banking has overtaken visiting branches, with the proportion of transactions carried out in a branch reducing from 48% to 34% over the past 2 years.

In 2017 figures from the British Retail Consortium showed that for the first time in the UK cards account for more than half of all retail purchases, taking over from cash5.

Also more than half of all transactions are now carried out digitally, making it the primary method of banking for customers. This has increased from 33% to 52% over the past 2 years4.

What does this mean today?

Technology is moving at pace to try to combat fraud. For example, the latest smartphones now include face recognition algorithms that, in the case of Apple’s new iPhone X, have replaced conventional forms of biometric authentication.

It is more important than ever to protect your business against fraud as fraudsters will always find new ways to try and scam people. As one bubble bursts, so another will rise in response to the new tools and technologies.

According to Frank Abagnale Jr (Catch Me If You Can), the crimes he committed 50 years ago as a teenager are now 4000 times easier to commit today as technology breeds crime; there will always be people willing to use technology in a negative self-serving way6.

Over the years fraud has gone hand in hand with goods/money, from small opportunistic scams to today’s more organised crime groups. However, the goal has always been the same – financial gain. Both historically, and contemporarily, where there have been opportunities to make money, there always have been and always will be fraudsters planning how best to do this.

Scammers may not be sinking ships these days, but they’re still busy working on their next targets. This can sometimes feel like fighting a losing battle, however the key is to remain one step ahead of the fraudsters, or at the very least on the same step!








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