Online crimes such as fraud and identity theft cost Americans nearly $240 million last year. But the research suggests that the cost to businesses from those crimes could be more than 30 times larger.
The Internet Crime Complaint Center (IC3), a partnership between the FBI and the National White Collar Crime Center (NW3C), received nearly 207,000 complaints about online crimes ranging from auction fraud to child pornography. In 2006, losses were estimated at nearly $200 million; in 2007, losses were almost $240 million, or about $680 per complaint.
Insiders told us that those statistics only reveal the tip of the iceberg, however, and online crime -- especially credit- and debit-card fraud -- could be costing businesses billions.
The Cost to Business
Small and midsize businesses (SMBs) can be hit particularly hard by online crime, according to Craig Butterworth, communications specialist at NW3C. He noted that about three-quarters of SMB owners rely on the Internet to run their businesses and online fraud is a major concern. "Credit-card fraud was the number-four complaint in this year's IC3 report," he told us.
"Online credit-card fraud is a real threat to SMBs, because credit-card agencies hold businesses responsible for fraudulent transactions. That often results in a chargeback, leaving retailers with no compensation for the merchandise shipped or any other subsequent charges associated with the transaction," he said.
As a result, many online businesses are erring on the side of caution, he said. "There's evidence that online merchants, fearful of fraud, reject far more transactions than are actually fraudulent," Butterworth said. "This causes these business to lose large amounts of revenue, possibly as much as $8 billion a year in lost revenue."
Scammers Targeting Businesses
Aside from credit- and debit-card fraud, scammers target businesses in other ways, the report shows. John Messina received a three-year prison sentence for an online fraud in which he claimed to be able to obtain investment capital for businesses in exchange for fees. Investors lost nearly $15,000 in the scam.
In another scam, three men "used false and fraudulent financial information to establish business-to-business lines of credit with over 30 businesses," which they used to buy high-end merchandise. They had this merchandises shipped to various commercial mailboxes where it was then reshipped to another commercial mailbox, and then sold on eBay.
Consumers Lose Confidence?
The IC3 report revealed a host of other Internet-based crimes that could work to diminish consumer trust in online transactions. More than a third of the complaints were from Internet auction fraud, a 20.5 percent decrease from 2006 levels. Other commonly perpetrated frauds revealed the growing convergence of online and offline criminal behavior. For example, nondelivery of merchandise or payment represented almost a quarter for the complaints, and credit- and debit-card fraud and check fraud accounted for another 12.3 percent.
Many of the other scams targeted the gullible. Pet-related scams as well as "secret shopper" frauds both relied on the same technique: send a bad check to someone and convince them to wire part of it to another person. The fraudster pockets that money and disappears before the seller realizes the check is no good.