Counterfeit currencies, cloned credit cards and fake cheques were once the primary tools of financial fraud, but advancements in technology and the digitalization of finance have significantly changed the landscape.
Modern fraudsters are using artificial intelligence and machine learning to their advantage, optimizing social-media intelligence, deepfakes or fabricated imposter identities, along with a growing list of innovative tactics to deceive unsuspecting individuals.
In the first half of 2023, Canadians reported a collective loss of more than $283 million. Some people may be more susceptible to online scams depending on their level of digital literacy, but people in general are becoming increasingly vulnerable as they seek relief from financial stressors such as the rising cost of living, inflation and fears surrounding an impending recession.
With fraud sophistication on the rise, it’s crucial to understand the fundamentals of financial scams in order to exercise caution in financial and online security matters.
Identify common fraud techniques
Financial fraud involves illegally and deceitfully taking someone’s money or financial information, leading to devastating consequences, including emotional distress.
Most schemes are built around three key factors that are strategically used to prey on people’s tendency to make impulsive decisions: pressure, opportunity and rationalization.
Pressure refers to creating intense situations that push individuals to quickly respond to a request, while opportunity involves offering individuals a chance to secure significant gains or avoid severe losses. Rationalization uses exaggerated or fictitious reasons to make unusual requests sound legitimate.
For example, in a phishing scam, a fraudster might impersonate the Canada Revenue Agency (CRA) and pressure someone to quickly send money to correct a supposed tax mistake, claiming the request will help them avoid law enforcement involvement. Similarly, investment scammers may promote low-priced penny stocks, pressuring traders to quickly invest by citing fake news articles or promotional materials.
In a world where digital currency has become more mainstream, scammers often take advantage of anonymity and a lack of regulation. They may create a “rug pull” exit scenario, enticing investors with early bird bonuses for fake initial coin offerings that promise substantial returns, only to disappear with the funds.
Create a safety net
Financial fraud underscores the inherent human vulnerability to make errors and exposes the limitations of digital safety nets. At its core, fraud is a numbers game that thrives on confirmation bias, feeding individuals information that validates their pre-existing beliefs. As such, it is important to recognize the biases that make people prone to schemes and actively seek varied information sources, opinions and credible evidence with contrasting viewpoints.
Questions such as, “Why am I so lucky?” or, “Why is this investment being offered to me?” are key considerations to help put scenarios into perspective, replacing emotions with practical concerns like the risk and return profile of the offered investment. Oftentimes, if something is too good to be true, it likely is.
As for email fraud, it’s important to both scrutinize the description of the email and read the full email address. Sophisticated fraudsters can make the content of an email look like it’s coming from a legitimate organization, but the email address may have a different domain name, be misspelled or even be completely random.
A financial institution such as your bank or the CRA is unlikely to send you an email with a linked attachment, so always be cautious when an email contains an attachment or a link.
Leveraging multi-factor authentication is also important for protecting your information. Although it may seem burdensome to pull out your phone each time you log into an account on your computer, multi-factor authentication is a valuable tool for keeping your personal information safe. Using encrypted portals and password-protected documents is another technique that can safeguard confidential information.
Furthermore, staying updated with new types of fraud, growing your knowledge about common financial scams and educating yourself on digital literacy are critical to safeguarding yourself against scams.
Some excellent resources include the Canadian Anti-Fraud Centre and the Ontario Securities Commission, while many prominent banks and financial institutions host insightful seminars and educational sessions.
Wealth advisers also play a pivotal role as guardians of their clients’ financial well-being. It is imperative they take proactive steps to confirm the legitimacy of unusual requests, such as reaching out to clients directly for verification or implementing rigorous data protection measures when working with third parties such as lawyers or accountants. This could be by sending documents through a portal, or even password-encrypting files with sensitive client information.
Tackling suspicions and reporting fraud
If you suspect you’ve fallen victim to fraud, there are practical steps you should take to address the situation, including ceasing communication with the scammer, changing your passwords, informing your bank of a potential security breach and reporting to your respective credit bureau, such as TransUnion LLC and Equifax Inc., by placing a fraud alert.
The emotional strain from the financial loss can be overwhelming, intensifying the feeling of the monetary setback. Seeking assistance can help ease these emotional pressures, since advisers can provide supportive and empathetic guidance without judgment to help navigate the situation. Advisers also work collaboratively with clients to create a comprehensive plan for financial recovery, taking into account a client’s financial goals, objectives and available resources.
Additionally, there are resources and community groups to help you cope with the stress associated with financial fraud and advisers can refer you to trusted legal professionals. Most importantly, they can empower you to regain your financial confidence and resilience by providing consistent support and keep you well-informed about the ever-changing financial landscape.
