Vivek Kaul: Financial frauds evolve fast but it’s not as if we’re helpless

As someone who primarily writes on money, I’m often approached for advice on resolving financial fraud. Unfortunately, I’m unable to assist, given that once money has left a bank account, it’s difficult to get it back.

Before affordable smartphones and widespread internet access became the order of the day, financial fraudsters had to interact with their prospective victims in person, involving assembling people in a hall or visiting their homes to pitch a scheme convincing enough to make individuals part with their hard-earned money.

Also read: How social engineering scamsters have weaponized fear of the CBI, ED to defraud victims

The classic example has been a Ponzi scheme. The fraudster would promise a very high rate of return to prospective investors. Carried away by greed, these investors would invest. The fraudster would use the money being brought in by newer investors to pay off the earlier ones.

Once early investors were paid, they would talk about their huge return, making others envious. This envy would get more money into the scheme and keep it going until the fraudster decided to scoot.

This approach made the acquisition of potential victims expensive. Physical space had to be hired. Employees had to be kept on payrolls to keep the fraud going. Affordable smartphones and cheap internet have lowered the cost of acquiring those who can be defrauded, if not made the operation itself easier.

Consider all the unsolicited phone calls promising quick riches we receive these days. Typically, this involves transferring money to some bank account. Fraudsters can take this initial amount and disappear, or they can keep the fraud going by turning it into a Ponzi scheme by returning some of the investors’ money and encouraging them to invest more.

Then there are fraudsters (read financial influencers) who like to sell investment courses that are ‘supposed’ to help anyone buying the course get rich quickly: a fraud carried out under the garb of selling something useful.

Of course, not everyone who fraudsters call falls for their sweet talk. But some do. And that keeps them going. All it needs is continuous calling from newer numbers. This mode of operation is similar to the classic Nigerian scam where emails promising huge riches were sent out. Most people didn’t fall for the scam, but some did.

Now, the sender of those emails had no idea of who the gullible recipients were who would fall for the scam. As Steven D. Levitt and Stephen J. Dubner write in Think Like a Freak: “Gullibility is in this case an unobservable trait.”

But there was some method to this madness of sending out a huge number of emails. As Levitt and Dubner write: “The scammer wants to find the guy who hasn’t heard of [the Nigerian scam]… Anybody who doesn’t fall off their chair laughing is exactly who he wants to talk to.”

The scammers who call and promise investment riches are taking a somewhat similar approach. Though calling up individuals one-by-one is much harder than sending out bulk email messages, it is easier than having to gather people in a room.

Also read: The worrying rise of fraudsters on the prowl online

Then there is the one-time-password (OTP) fraud, involving a caller calling and asking for an OTP on some pretext. Once the OTP has been shared, money gets transferred out of the bank account of the targeted individual. At the heart of this fraud is the inherent trust on which modern businesses operate.

As Dan Davies writes in Lying for Money: “Trust—particularly between complete strangers, with no interactions beside relatively anonymous market transactions—is the basis of the modern industrial economy.” This trust leads to many people innocently sharing their OTPs and losing money.

Indeed, the success of these scams has possibly led to two things. First, it may have got more hopefuls into the business, increasing competition and, for lack of a better term, decreasing the kind of money that was being made earlier. Second, widespread media reports have hopefully made more individuals aware of such scams, and thus made them harder to execute.

This has perhaps led to fraudsters becoming more innovative, coming up with newer concepts like parcel scams and digital arrests where they seem to have been helped by the fact that a lot of private individual data is now easily and illegally available in the public domain.

This helps fraudsters make threats like a ‘digital arrest’—even though there is no such thing under the law—sound more credible, creating what Davies calls a world of illusion and defrauding individuals of their hard-earned money.

So, what’s the way out of this? Caveat emptor. Or, as Davies puts it, when it comes to a financial fraud, everything can be “brought to a halt at a very early stage if anyone had taken care to confirm all the facts.”

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The simplest solution is to not take calls from unknown numbers. If someone is trying to reach out, they are likely to message. But this suggestion does not seem to work with people of my parents’ generation, who are in their seventies and eighties.

They grew up in an era of trunk calls, and to many of them, every call seems like someone trying to reach out in an emergency and must thus be answered. The Latin phrase ‘Mundus vult decipi-ergo decipitaur’ describes this aptly: The world wants to be deceived , let it therefore be deceived.