Study Guide

Fraud and You

Fraud can happen to just about anybody - even if you live in a cave! However, there are many organizations whose sole purpose is to prevent fraud or to assist such victims, such as ScamBusters. Chances are someone you know has been a victim of fraud. Maybe it wasn't through a computer or computing system, but they were victimized nonetheless.

Forms of Fraud

Reporting Fraud

If you've been a victim of fraud, then the best course of action is reporting it to the appropriate authorities. The nature of the internet usually makes internet fraud and online schemes a national or multi-national issue best dealt with by federal agencies. One good source to report fraud is the Internet Fraud Complaint Center, a program developed by the FBI to aid in the investigating of this new con sector.

Ethics of Stopping Fraud

One popular method of fraud comes in the form of get-rich-quick schemes conjured up by people all over the world who claim to have the solution to all your financial troubles. has traced the origins and perpetrators of the infamous "Nigerian Bank Account" scheme in which exposing your bank account number is supposed to yield a return of millions of dollars. While the sender of such mail is violating an individual's right to not be harassed, and is sometimes taking advantage of an unknowing target, is it right to shut down these operations completely?

Lycos, an internet-based search engine, took matters into its own hands by targetting the servers that generate such mail by overloading the servers of verified spammers. This tactic is deemed illegal in the article. It is also unethical because the overloading of empty data across the Internet makes the world wide web slower for all players. The gain from slowing down spammer servers does not overshadow the loss of latency nor justify an illegal action.

Another possible technique might be charging for e-mail which would make scamming more difficult because at millions of e-mails sent out the cost would be too great. However, it is noted that companies that tried this technique no longer exist.

Ultimately, education might be the answer. The group most likely to be targeted by online schemes and fraud fall in the 18-39 age demographic. Until this group learns of the dangers associated with internet fraud and schemes, they will continue to fall prey to victims who are becoming more convincing and more dangerous.

Combating Traditional Fraud

Traditional forms of fraud are on the rise such as Telemarketing Fraud, but the internet is being used to combat these as well. The new do-not-call registry allows individuals to remove their phone number from the list of telemarketers, and removing one's phone number from the white pages will also help.

Implementing Security and Laws

Clearly, fraud might be prevented if security on the Internet was tighter and if new and existing laws were upheld. Of course, no single entity is able to regulate the Internet in such a manner. Secondly, many laws that protect the rights of computer users also are being challenged on the legal battlefield to essentially protect the rights of the criminal.

Methods of Authenticating

One of the more popular methods of authenticating a site is accepting its certificate only if it was approved by a trusted site. However, the issue exists about how trusted the approving site is, and the ability to easily fake these certificates makes it a less than attractive form of authentication.

Another method of authentication is SSL - Secure Socket Layers. This system uses a public/private key combination to encrypt a message and only accept packets if the appropriate passcode is given. This ensures that only those who are supposed to see the message end up being able to read its contents.

Role of the Government

The governments best chance at combatting fraud is education and providing consumers with the kind of resources they need to make the best decision possible for themselves. OnGuard Online is an example of how providing resources for the consumer better allows them to judge whether or not the decisions they are about to make will come back to haunt them.

The movement towards tougher bankrupty laws makes the decision to take advantage of online opportunities much costlier. A ruined credit report is now less likely to be salvaged by Chapter 7 Bankruptcy, and the risk associated with online transactions increases accordingly.

The government seems to be dragging its feet in defining laws for the internet that have existed in more traditional means of communication for decades. The strictness of wire fraud or mail fraud haven't yet appeared in the internet domain, and this issue has already affected the justice system.

Global Responsibility?

Currently, the need to solve this problem on a global scale is being ignored because of its heavy presence in America where 90% of crimes are reported. Though this has the potential to grow into a global problem quickly, the rest of the world has to first substanially increase its role on the internet. For now, the problem should be resolved by American laws against American criminals.

'Paying for It' - Escrow Services

What is E-Commerce without being able to have money flow between the two parties? Nothing. Ebay, the most popular auctioning service on the Internet, contends that payments may occur by a) trusting that the buyer will send a valid payment or b) using an escrow service. An escrow service is a third-party for transaction that will hold money until a certain set of condition is met. Ebay uses i-Escrow as its escrow service.


The motivation for an escrow service is earning the fee charged for holding onto the money before the go-ahead to push the payment through is received.


Responsibility for fraud when dealing with an escrow service is a difficult task. When there is credit card fraud, the credit card company does the investigating as well as taking the hit for the money that needs to be returned. However, there is a selling medium and money-holding medium in the case of an escrow service. The responsibility in this case is poorly defined, and could be the source of potential fraud, as the criminal takes advantage of this gray area.