Cyber crime is a wave in South Africa that will soon become a tsunami, according to the Ombudsman for Banking Services' annual report. In the United Kingdom, one of the top police officers believes that, globally, the authorities are not winning the battle against online crime.
In his introduction to this year’s report that shows internet banking fraud is on the increase, the chairman of its board, advocate John Myburgh, writes that banks are facing a challenge to provide a secure platform that will counteract the activities of fraudsters.
It is also clear from the report that members of the public need to exercise extreme caution when they conduct business online and not get caught out by fraudsters.
In the UK, commissioner Adrian Leppard, head of the City of London Police, told parliament that online fraud was rising exponentially. When asked, if we are winning this battle, he responded, “We are not winning. I do not think we are winning globally and I think this nature of crime is rising exponentially.”
He told MPs that the UK’s National Fraud Intelligence Bureau has identified some 300 internet fraud gangs worldwide. Of all fraud committed in Britain, 50% is conducted online, costing that country’s economy £70 billion a year.
In South Africa, the Ombudsman’s report reveals that, as an increasing number of people choose to conduct their bank business online, the number of internet fraud cases also increases year-on-year.
In 2009, only 45 cases of internet banking fraud were reported to the banking Ombudsman. In 2010 complaints connected to internet banking fraud surged to 484 cases reported to the Ombudsman’s office. In 2011 it climbed to 591 cases.
Last year was no different, with complaints to the Ombudsman’s office about online banking fraud increasing by three percent. It constituted almost 20% of the cases handled by his office.
Ombudsman, Clive Pillay, said the increase last year was largely because of an 8% rise in the number of complaints relating to cellphone banking fraud, “which is a major sub-category of internet banking fraud cases”.
Although the majority of the cases (57%) went in favour of the complainants, Mr. Pillay warned that bank customers also have a responsibility when they conduct their banking business. “You may not be negligent or act without reasonable care,” he said.
He also reiterated the advice he issued in his 2011 annual report:
Never click on a link in an email that purports to come from a bank, never respond to an apparent internet banking-related email and never provide any information about your online banking details in response to a phone call.
But it is not only in banking that the public fall victim to fraudsters and the perpetrators of scams. Fraudsters often prey on the most vulnerable in society and during this time of high unemployment, scam recruitment agencies lure people to apply online for job opportunities.
Some of these opportunities are supposedly abroad. Those applying are informed that their application has been successful and are told to transfer money for the necessary 'paperwork' such as a visa application. Once the money has been paid, the 'agency' is never heard from again.
Mr. Leppard also told MPs in London that, often, the victims of online fraud are wealthy retired people who are conned in fraudulent share schemes that are costing £3.5 billion a year. The average cost to the victim is £25 000 and half of those who lose out in the schemes are over 65.
“That is a significant loss to the most vulnerable people in our society,” he said.
In some instances there is also a more sinister side to these online scams. Mr Leppard said there is “plenty of evidence” that al-Qaeda and other terrorist groups are using the proceeds of online fraud to finance their activities.
Relating the details of a particular case, by way of illustration, Mr. Pillay warned people not to be too trusting. In this particular case a complainant was advised by email that he had won an international lottery and would have to pay administration fees to receive his winnings. He transferred R126 000 into various accounts with one bank and R39 000 into an account of another bank.
On realising it was a scam, he asked the banks to refund him. During his investigation the Ombudsman found that the accounts opened at the first bank were opened according to the bank’s “duty of care”. All was above board and the bank could not have known that the account holder was a fraudster.
The second bank, however, did not adhere to its duty of care when opening the account and Mr Pillay requested that it refund the client.
The lesson, he says, is this: Don’t be too trusting. You can’t blame the bank for your falling victim to fraud and for transactions concluded with third parties.