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The Growing Global Threat of Economic and Cyber Crime

Feb 13, 2017




  • December 2000 National Fraud Center, Inc. a LEXIS-NEXIS Company

    The Growing Global Threat ofEconomic and Cyber Crime

    The National Fraud Center, Inc.A member of the Lexis-Nexis Risk Solutions Group

    In conjunction withThe Economic Crime Investigation Institute

    Utica College

  • December 2000 National Fraud Center, Inc. a LEXIS-NEXIS Company 2


    I. Introduction ..... 5II. Executive Summary

    Traditional & Cyber Economic Crimes.. 6Banking.. 6Credit Card. 7Health Care 7Insurance 7Securities 8Telecommunications 8Intellectual Property & Computer Crime 9Identity Theft.. 9

    Impact of Technology on Economic Crime.. 9Global Implications for Economic Crime. 10Future Needs and Recommendations. 10Conclusion 11

    III. Growth of Economic CrimeEconomic Crime Defined... 12Types of Economic Crime and Statutory Law 13

    Mail & Wire Fraud: Generic Frauds & Swindles.. 13Banking Industry: Financial Institution Crimes. 14Credit Card Crimes... 15Health Care Fraud 16Insurance Fraud 17Securities Fraud 17Telecommunications Fraud. 18Intellectual Property and Computer Crime 19Identity Theft.. 20

    IV. Impact of Technology on Economic CrimeBanking. 22Credit Card... 23Health Care.. 23Insurance.. 24Securities.. 24Telecommunications... 24Intellectual Property & Computer Crime.. 25

    V. Victims of Economic Crime

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    Consumers... 28Industry. 28Government. 29

    VI. Waging the War on Economic CrimeLaw Enforcement 31National Fraud Center 31Economic Crime Investigation Institute 32National White Collar Crime Center. 32National Coalition for the Prevention of EconomicCrime. 33Internet Fraud Council 33Internet Fraud Complaint Center.. 33Independent Corporations and Private Sector IndustryCoalitions.. 34

    VII. Future Needs and ChallengesLaw Enforcement Training. 35Laws, Regulations and Reporting Systems 35Public-Private Partnerships... 36Balancing Privacy Interests... 36Global Interaction and Cooperation. 38

    VIII. Conclusion: Trends and Observations... 40

    IX. Statistic Matrix Appendix 1

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    The National Fraud Center as part of its mission, continues to research, analyze,and combat economic crime. Its focus and expertise on economic crime hascontinued for over 18 years. While seeing dramatic change and growth ineconomic crime over the years, it is increasingly evident that there areconsistent, underlying fundamental issues that need to be addressed. The rapidgrowth of technology, as well as increased competition, has helped fuel thedramatic rise and cost of economic crime; therefore exploiting the weaknessesand challenges we as a nation, business, and consumer face. This report is theNational Fraud Centers continuing contribution to assisting in eradicating thisgrowing epidemic. We as a global society have many complex challengesahead. We believe this report will continue to educate and stimulate the abilityfor dramatic change in researching, preventing, and investigating economiccrime.

    About the Authors

    This report was supported and directed by National Fraud Center, Inc. (NFC). Itwas written by Dr. Gary R. Gordon and Dr. George E. Curtis, with directional andexpert support from Mr. Norman A. Willox, Jr., and technical and researchsupport from the staff of NFC, lead by Greg Peckham. Dr. Gordon is ExecutiveDirector of the Economic Crime Investigation Institute, as well as Vice Presidentof Cyber Forensics Technology for WetStone Technologies, and a full professorat Utica College. Dr. Curtis is the Director of Economic Crime Programs at UticaCollege, where he is an Associate Professor. Mr. Willox is the Chairman of theBoard of NFC and Director of Government Relations for Lexis-Nexis RiskSolutions Group.

    The National Fraud Center, Inc. (NFC) is a recognized leader in fraud and high-risk solutions, providing expert consulting, best-practices, product reviews andsolutions support. NFC is a wholly owned subsidiary of Lexis-Nexis, and part ofthe Lexis-Nexis Risk Solutions Group. Lexis-Nexis Risk Solutions Group is thenations leading provider of fraud and risk management information solutions forindustry and government. Lexis-Nexis Group is a Reed-Elsevier PC Company.

    Peer Review

    Peer review of this report was conducted by executives of the National WhiteCollar Crime Center (NW3C) and the National Coalition for the Prevention ofEconomic Crime (NCPEC), lead by Richard Johnston and Allan Trosclair. Mr.Johnston currently serves as the Director of the NW3C. Mr. Trosclair is theExecutive Director of the NCPEC.

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    I. Introduction

    The purpose of this report is two-fold: 1. To present an assessment of the stateof economic crime in the United States, and; 2. Based on that assessment, toindicate areas where additional research, legislative action, training, cooperationbetween law enforcement and industry, and international cooperation arerequired.

    Such a study is challenging, because of the paucity of reliable data. As isdiscussed in Section III, there is no central repository of statistical information oneconomic crimes. Available statistics and data were obtained from reliablesources including government agencies, industry associations, private sectororganizations, Internet sites, and online databases, including Lexis-Nexis.

    The data presented here provides the basis for a discussion on economic crimein the United States and clearly points out the challenges that will be faced in thenear future.

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    II. Executive Summary

    The American people have had contradictory views of economic crime for sometime, seeing it either as a minor issue or a major crisis. In the past twenty years,there have been times when it has been in the limelight because of a financialcrisis, e.g. the Savings and Loan Scandal and the insider trading problems in the1980s. Usually, it has taken a back seat to a strong national focus on moreconventional crimes, specifically violent ones. Many estimate the cost ofeconomic crime to be over $500 billion annually.1 There has been a significantincrease in these figures over the past 30 years; in 1970 the cost wasapproximately $5 billion; it rose to about $20 billion in 1980, and approximately$100 billion in 1990.2 As the Internet and technological advances continue toreshape the way we do business in government and industry, and competitionand economic pressures create quicker and more efficient ways to do business,the reality of increased economic crime having a serious impact on the economygrows geometrically.

    All the financial segments of the United States economy report significant lossesas a result of economic and computer crime. This report provides the latest andmost reliable statistics in eight key areas: banking, credit card, health care,insurance, securities, telecommunications, intellectual property and computercrime, and identity theft.


    While some types of economic crime are specific to the seven areas of thisreport, other types, such as identity theft and false statements, cut across allindustries. Traditional economic crimes and new cyber crimes are discussed inthis report. Current statutory laws are discussed for the crimes within each of theeight areas discussed below.


    Ernst & Young reports that more than 500 million checks are forged annually.3 In1997, the American Bankers Association reported that banks lost $512 million tocheck fraud.4 American Banker, an industry magazine, predicts that there will bea 25% increase in check fraud over the next year.

    Money laundering has increased over the last ten years. As a result, globalefforts to combat this crime have increased. While it is extremely difficult toestimate the amount of worldwide money laundering, one model estimated that in1998 it was near $2.85 trillion.5

    The growth of online banking presents other opportunities for perpetrators ofeconomic crime. Funds can be embezzled using wire transfer or account

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    takeover. Customers can submit fraudulent online applications for bank loans.Hackers are able to disrupt e-commerce by engaging in denial of service attacksand by compromising online banking payment systems. Identity takeover canalso affect online banking, as new accounts can be taken over by identitythieves, thus raising concerns regarding the safety and soundness of financialinstitutions.6

    Credit card

    According to Meridien Research, estimated fraud loss for the credit card industryamount to $1.5 billion annually7, of which $230 million is estimated to result fromonline transactions. MasterCard reported a 33.7% increase in worldwide fraudfrom 1998 to 1999. During the first quarter of 2000, fraud losses increased35.3% over the last quarter in 1999. VISA reports similar trends. It is estimatedthat fraud losses for online transactions may exceed $500 million in 2000.8

    Fraudulent credit card activities include the use of counterfeit, stolen, and never-received cards, as well as account takeover, mail order and Internet card-not-present transactions.

    Health care

    Health care fraud includes frauds perpetrated upon government-sponsored andprivate health care benefit programs by insiders, the insured, and providers.Losses for 1999 were estimated to be about ten percent of all money spent onhealth care, which translates to a loss of approximately $100 billion. 9 Health carerelated cyber crimes include obtaining

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