U.S.: E-Commerce Is Fertile Ground for Fraud

Testifying before the House Committee on Energy and Commerce, Eileen Harrington of the FTC's Bureau of Consumer Protection said that more than a fourth of all complaints the agency received in its complaint database last year related to Internet fraud.

"The Internet enables con artists to cloak themselves in anonymity, which makes it necessary for law enforcement authorities to act much more quickly to stop newly emerging deceptive schemes before the perpetrators disappear," Harrington said.

The FTC testimony came on the same day the U.S. Federal Bureau of Investigation (FBI) announced that criminal charges had been filed against approximately 90 companies and individuals over Internet fraud cases that caused cumulative losses in excess of US$117 million.

New Method, Old Scams

Since 1994, the FTC has brought 182 Internet-related cases against approximately 593 defendants, Harrington said. To date, she testified, the agency has collected more than $55 million in redress for victims of Internet fraud and deception.

Out of the cases brought by the FTC against Internet fraud and deception, over half of them have involved old-fashioned scams that have been retooled for the new medium, Harrington said.

"Traditional scams -- such as pyramid schemes and false product claims -- thrive on the Internet," Harrington said. "Moreover, the architecture of the Internet itself has given rise to new high-tech scams that were not possible before development of the Internet."

Fire With Fire

Although the FTC has been involved in policing the electronic marketplace for more than six years, it is now using the Internet to combat the growing trend of Internet fraud, while the e-commerce marketplace is still young, Harrington said.

At the center of the FTC's efforts is its Web-based complaint database, dubbed "Consumer Sentinel." Complaints come into the database from the FTC's Consumer Response Center (CRC), which processes both telephone and mail inquiries and complaints.

Consumer Sentinel also includes data received from organizations such as the Better Business Bureau and the National Fraud Information Center.

The data is then offered over the Internet, free of charge, to over 300 U.S., Canadian, and Australian law enforcement organizations. New features recently added to the database include a "Top Violators" report function, that allows law enforcement to pull up the most common suspects and schemes by region or subject area, and an "Auto Query" function, that lets investigators create automatic search requests.

Surfing For Trouble

The FTC has also implemented a new system for sniffing out potential online fraud, called "Surf Days." On a designated Surf Day, FTC staff members scan the Internet for a specific type of claim or solicitation that may be in violation of consumer protection law.

When a suspect site is identified, the page is downloaded and saved as potential evidence, and the operator of the site is sent an e-mail warning. A law enforcement team later revisits the warned sites to determine whether the sites have abided by the FTC's warning.

The FTC has held 27 Surf Days, which have identified over 6,000 Internet sites making dubious claims, Harrington said.

Without a Trace

Despite the FTC's increased efforts to prevent online fraud, Harrington said the very nature of the Internet beast presents law enforcement officials with many challenges. Many of those challenges can be attributed to Net's global reach, she said.

"In addition to fraud proceeds moving offshore quickly, fraudulent online operators may be beyond the reach of the Commission and U.S. courts, practically if not legally," Harrington said. "Using anonymous e-mails, short-lived Web sites and falsified domain name registrations, many fraud operators are able to strike quickly, victimize thousands of consumers in a short period of time, and disappear nearly without a trace."