Internet and Digital Fraud on the Rise

Recently, the U.S. Federal Trade Commission disclosed that consumers reported losing more than $10 billion from fraud in 2023, This is an astonishing number and reflects the decline of ethics in society over an extended period of time.

Consumers alone reported losing more money to investment swindles—more than $4.6 billion—than any other category in 2023. That amount represents a 21% increase over 2022. The second highest reported loss came from imposter swindles, with losses of nearly $2.7 billion reported. In 2023, consumers reported losing more money to bank transfers and cryptocurrency than all other methods combined.

Results of FTC Study

The FTC received fraud reports from 2.6 million consumers last year, nearly the same amount as 2022. The most commonly reported scam category was imposter scams, which saw significant increases in reports of both business and government impersonators.

Online shopping issues were the second most commonly reported in the fraud category, followed by prizes, sweepstakes, and lotteries; investment-related reports; and business and job opportunity scams.

Another first is the method scammers reportedly used to reach consumers most commonly in 2023: email. Email displaced text messages, which held the top spot in 2022 after decades of phone calls being the most common. Phone calls are the second most commonly reported contact method for fraud in 2023, followed by text messages.

The FTC uses the reports it receives through the Sentinel network as the starting point for many of its law enforcement investigations, and the agency also shares these reports with approximately 2,800 federal, state, local, and international law enforcement professionals. While the FTC does not intervene in individual complaints, Sentinel reports are a vital part of the agency’s law enforcement mission and also help the FTC to warn consumers and identify fraud trends it is seeing in the data.

Digital Fraud

"Digital tools are making it easier than ever to target hard-working Americans, and we see the effects of that in the data we're releasing today,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC is working hard to take action against those scams."

Mobile phones have become a perceived safe place in our personal lives, especially among Gen Z. But in 2021, 68% of digital banking fraud originated on mobile platforms. As mobile technology improves, we see attackers targeting mobile channels more than traditional desktop applications. Fraudsters are increasingly exploiting mobile malware and uploading rogue apps designed to impersonate well-known brands to trusted app stores—exploiting the popularity of mobile banking to steal account information.

Digital fraud entails the use of phishing emails, phony websites, bogus mobile apps, fake social media profiles, and other mechanisms to illegally obtain information and defraud consumers and businesses.

Cryptocurrency fraud has exploded in recent years, fueled by greed and FOMO (the fear of missing out), making it one of the fastest growing digital crimes. According to the FTC, U.S. consumers lost $750 million to crypto scams in 2021. And  Chainalysis reports that worldwide losses may topped $3.2 billion—a 516% increase from the previous year. No doubt, cryptocurrency fraud will continue to climb in the coming years.

Modern machine learning has proven to be instrumental in preventing digital fraud loss by understanding the behavior behind an attack. This technology works by studying normative customer behavior and looking for deviations that may signal fraud.

Ethics & Fraud

Fraud is an intentional act. Fraud doesn’t occur by accident. It is a crime and one increasingly infecting society. The reality is that regulatory agencies always seem to be one step behind scammers. Digital fraud is on the rise and is likely to be the most prominent type of fraud in 2024 and going forward.

Today’s most robust fraud management platforms enable organizations to set their risk tolerance and gain insight into the types of attacks they face. When a certain behavior is deemed high risk, that user must provide additional authentication before proceeding. This strategy allows companies to only filter out highly suspicious users, leaving the majority of regular customers uninterrupted.

We have become a cynical society for many reasons, not the least of which is the number of scammers who telephone us, send us email messages, or otherwise make unwanted contact. We just want to be left alone and enjoy the peace and quiet to which we are entitled. Unfortunately, there are too many people in society who look for the easy way out. In other words, why should they work for a living when they can earn ill-gotten gains?

The FTC’s Bureau of Consumer Protection stops unfair, deceptive and fraudulent business practices by collecting reports from consumers and conducting investigations, suing companies and people that break the law, developing rules to maintain a fair marketplace, and educating consumers and businesses about their rights and responsibilities.

There is a lot more to say about this scourge that is infecting society. It threatens our wellbeing. What, if anything, can be done about it? My best advice is to become educated about it and the steps you can take to verify the would-be scammer is on the up-and-up. The FTC website can help in that regard.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on February 15, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.