My Sister is Stupid — Nigerian Scams, not-so-victim-less crimes, and the Western Union memorandum

CrimeI have just received definite proof that my sister is stupid.  She has told me that she paid some unidentified, unknown person, alleging to be an American house builder, stuck somewhere in Nigeria, about $10,000 in aggregate.

Moreover, she has accumulated only god knows how much in phone charges, talking to this mystery man on the phone (say after me:  “mobile-to-mobile international charges,”) and traveled to the local airport multiple times to pick up the mystery man, who had just escaped Nigeria, but — yes, you guessed it — continued to be detained on his journey — and, yes, you guessed it, again — continued to need yet more money to make the journey from captivity to my sister, his newly found sweetheart and savior.   As one would expect this entire thing involves Nigeria, meeting on the internet, a stock photo of a model, a promise of marriage and immediate relocation to some exotic locale, and, of course, Western Union.

I don’t mean to be breezy about this, but, frankly, the details are hazy — partly because they are hazy by design and partly because I don’t really have the patience for this kind of stupidity and, therefore, did not ask any questions when the sordid story was communicated to me.    Suffice it to say that the money is gone, as is the mystery man.

My sister had fallen victim to what is called the Boyfriend Scam, an up-and-coming variation on the Nigerian Scam.   At this time, I would expect that absolutely everyone who has access to the Internet knows what constitutes a Nigerian Scam or, as it is formally called, a 419 Advance Free Fraud. If there is anyone out there who does not, their access to any communication device should immediately be taken away, their finances should be put under guardianship, and they should be isolated from the rest of man-kind — and possibly put in some totalitarian style indoctrination camp.

Actually, I am being unfair.  The reason why this scam can exist in the first place is a consistent lack of meaningful enforcement. While the tendency is to say that the victims should have been more careful, the answer, of course, is that the victims are entitled to have some level of expectation that they will not be scammed, and this expectation can come only through aggressive enforcement. However, unfortunately, consumer-to-consumer and company-to-consumer scams, particularly those conducted via phone or internet, are increasingly being treated like a victim-less crime, which, of course, it is not — far from it.

Victim-less Crimes? — Not so, and, in fact, you, too, is a victim

Generally, there is an alarming, explosive increase in the volume and scope of crimes that are considered victim-less, including shoplifting, identity theft, credit card fraud, telemarketing scams (including the currently popular refinance and credit card department scams,) burglaries, and virus software scams, and as the volume of this type of crime is increasing, the pace and follow-through of enforcement appears to be declining.

The lack of swift and consistent enforcement is frustrating to the consumer, but, more importantly, it encourages individuals or companies that may otherwise not have done so, to engage in criminal activities, and, moreover, in accordance with the law of broken windows, unchecked criminal activities will always escalate in nature. In crime prevention, velocity and follow-through really does matter.

It’s the Lawless Wild West here. Every day I am exposed to fraud or attempted fraud and, also, a victim of the so-called victim-less crimes.  This morning, for instance, I got yet another phone call from a telemarketer masquerading as my credit card company.  This particular company has, believe it or not, called every day for close to half a year, in spite of the fact that I am on the Do-Not-Call Registry (or, perhaps, precisely because I am on it!) and have consistently reported the company using the Do-Not-Call Registry’s abuse reporting function.  As of noon, I had received seven phishing or Nigerian Scam electronic mails, including an electronic mails purporting to be from PayPal, urging action.  On the victim-less crime side, my local grocery store has a non-intervention policy with shoplifting and instead off-sets shoplifting through higher prices, neatly making me a victim of a victim-less crime.   In a similar vein, my local gas-station owner do not report gas-up-and-drive crimes although the criminals are captured on surveillance cameras, because, you guessed it, the police do no follow-up when he reports the crime, and instead he now charges more per gallon.  You get the gist of what I am talking about, I am sure.

The list goes on and on, and the amounts involved are staggering.  The notion of reporting business or individuals to government agencies is, of course, a complete joke — if you doubt me, try to (1) report a telemarketer using the Do-Not-Call Registry’s abuse reporting function, (2) report a Nigerian Scam or an attempted Nigerian Scam to the Federal Bureau of Investigation or the Federal Trade Commission — or any other government agency, and (3) report an attempted credit card scam to either the Department of Justice or your local consumer protection agency. You may be able to work through it once, but since you will n-e-v-e-r hear back in any meaningful way and will spend infinitely more time on the reporting than the criminal did perpetrating the crime or the government agency ever will on investigating and prosecuting the crime, you will probably never attempt to do it again. I do not know exactly where the reported information goes, but I suspect that it ends up being part of a statistics in some $25 million, tax payer funded Oracle database, never to be accessed again.

CrimeClosing the Barn-door after the Neighborhood has been Nuked

Don’t get me wrong… Once in a while government agencies will act, but it is just too slow and too erratic to stem the tide.

This morning, for instance, David Migoya of the Denver Post, reported that the Federal Trade Commission had received a temporary restraining orders against six companies to halt scams where tens of thousands of consumers were duped into paying for online technical support for nonexistent computer viruses at a per-incident rate of up to $450. Moreover, Bloomberg BusinessWeek reported that the amount involved was $163 million — a mind-boggling sum.

Over the last five to ten years or so you have probably seen exactly this kind of scam — whereby a pop-up window, looking very Windows like and official, warns you about imminent danger when you are browsing and urge you to take some sort of action.  I certainly have seen lots of variations on this scam.

The Federal Trade Commission noted that the scammers eluded detection by operating via 80 separate domain names and 130 phone numbers, but that is, of course, not the full story. Without a doubt, this thing started with one domain and one phone number — and inevitably — near immediate reporting by a concerned or defrauded citizen to the Federal Trade Commission followed by…  nothing.   And it is exactly the nothing piece that encouraged the scammers to expand their operation, and other scammers to follow in their foot-prints. Had the Federal Trade Commission immediately clamped down on the first offender, the criminals would have been discouraged, rather than encouraged, and the vicious cycle would have been broken.

I think it is fair to say that in order for the Federal Trade Commission to act today, the matter has to be of a certain size (probably, to not put to fine a point on it, it has to be headline worthy, involving hundreds of million of dollars,) and that is exactly the wrong way to go about it if you want to protect the most vulnerable consumers — the elderly, for instance.  Rather swift enforcement and harsh punishment is needed. Now and on an ongoing basis!

Nigerian Scams and Victim-less Crimes as a Contagion

It is easy to discount Nigerian Scam victims, claiming that there has to be some sort of penalty for this level of stupidity, but, ultimately this thinking is shortsighted. The Nigerian Scams creates a direct victim out of the sucker who falls for the scam. However, it also creates a seperate string of victims in a chain of events that I like to think of as collateral damage, since most direct victims of Nigerian Scams cannot handle the economic loss that is inflicted upon them, and, therefore, they lean on their support network, including family, inadvertently creating secondary victims. Moreover, by transferring money out of local societies, the Nigerian Scams, creates tertiary, quaternary, quinary, senary, septenary, octonary, nonary, and denary victims. In this way, Nigerian Scams are like a contagion, and, in my view, should be treated as such by the government.

Let me draw a simple parallel. If the Center for Disease Control, the CDC, applied a similar approach to deal with an outbreak of the Ebola virus, a generavirus with an average case-lethality rate above 65% and a contagion rate, R0 of between 1.34 and 1.83, in St. Louis in Missouri, then the agency would urge anyone dying from the disease to fill out a form on a web-page, and would dutifully collect this information in an Oracle database that it had bought from Oracle specifically for this purpose for $10 million or so, and meanwhile send out regular bulletins advising the population that the best way to deal with the problem is to avoid contact with other humans.

After two years, and an estimated casualty rate of 45 million citizen in the United States, the CDC in conjunction with Michigan State would isolate a 100 unit sub-division in Kalamazoo and vaccinate the residents using shots acquired for $25,000 per piece from a pharmaceutical company who had developed the vaccine in the 1990ies using grants at a cost to the United States tax payers of hundreds of millions of dollars. Six months later the CDC and Michigan State would issue a joint, self-congratulatory press-release, announcing the initiative in Kalamazoo and exclaiming that it had taught the virus cluster in the Kalamazoo sub-division a lesson, and now, all the other pesky Ebola virus cluster should consider themselves put on notice that if they continued to scores of citizens then they, too, risked that the CDC would come after them.

Then, the CDC would wait another year, carefully recording the ongoing fatality rates. Menwhile, encouraged by the lack of enforcement, the Ebola virus rages on, killing another 10 million citizen, and, finally, the CDC realizes that it has to identify another cluster to prosecute and make an example of.

Western UnionThe Western Union Memorandum

An interesting fact about that Nigerian Scams — in all their variants — is that they require the transfer of funds from the victim to the scammer to be untraceable and irreversible, so as to prevent the victims from retrieving their money and alerting officials who can track the scammers.

This is, of course, a significant twist from the rules of traditional cons, which mandates that cons, whether long or short, have to be conducted in such a way that the victims either never conclude that they have been duped or are so embarrassed by their own stupidity — or, as it may be, greed — that they do not report the crimes.

International Western Union style wire transfers are ideal for this purpose, since they cannot be cancelled or reversed and the recipient cannot be tracked — and since they are fast and global, unlike, say, postal orders or cashier’s checks.

This raises the interesting point that an organization such as Western Union clearly has the power to prevent or — at least complicate — the crime by simply changing their product offerings and processes.

Since, without a doubt, Nigerian Scams are well understood by Western Union, the above point raises the questions of whether or not Western Union could in principle be considered a willing participant in the crime — a paid accomplice, if you will, in the same way that a fence is a paid accomplice in burglary and a getaway driver is a paid accomplice in bank-robberies — and what kind of cost/benefit analysis Western Union has conducted with respect to Nigerian Scams and how its leadership and owners rationalizes being accomplices.

In much the same manner as the discovery part of the Cipollone vs. Liggett matter in the 1980ies uncovered some of the tobacco industry’s internal documents through discovery, revealing a hidden face of the tobacco industry, leading to a veritable tsunami of revealed secret documents through the 1990ies, and culminating with  the release of more than six million secret tobacco industry  documents in 1998, I suspect that Western Union or some other wire transfer companies will one day be subject to a critical mass of litigation scrutiny, resulting in classified and extra-ordinarily damaging memorandums coming to light — ultimately forcing radical changes in  product offerings and processes.

Western Union, a publicly traded company with revenues of $5,491 billions and operating income of $1,385 billions in it fiscal 2011 year (that’s b-i-l-l-i-o-n-s, people!) acknowledges in its annual report for its fiscal year 2011 that:

“[the] … majority of our revenue comes from fees that consumers pay when they send money or make payments. In certain money transfer and payment services transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer or business and the rate at which we or our agents are able to acquire the currency.”

The company has finally come under some assault, and now, in a not too subtle way has issued an early warning to its investors, by way of an entry in its annual report for its fiscal year 2011:

“Western Union has received Civil Investigative Demands from certain state attorneys general who have initiated an investigation into whether the Company took adequate steps to help prevent consumer fraud from 2010 to 2011. The Civil Investigative Demands seek information and documents relating to consumer fraud complaints that the Company has received and the Company’s procedures to help identify and prevent fraudulent transfers. Due to the stage of the investigation, the Company is unable to predict the outcome of the investigation, or the possible loss or range of loss, if any, which could be associated with any possible civil claims that might be brought by one or more of the states. Should such claims be brought, we could face significant fines, damage awards, or regulatory consequences, or compulsory changes in our business practices, that could have a material adverse effect on our business, financial condition, and results of operations.”

Given the scope of the Nigerian Scams and their disproportionate impact on the weaker groups in our society, I, for one, cannot wait to see such top-secret Western Union memorandums come to light.   With a little luck the disclosure, the reveal in magician parlance, will cause governments to act as it was the case with the tobacco industry debacle, where the ball started rolling with the issuance of the Meehan Memorandum in 1994 from United States Congressman Marty Meehan to United States Attorney General Janet Reno, in which Mr. Meehan requested that the Department of Justice initiate a formal criminal investigation and wrote that:

“… more hearings have been held and investigative reports published. The additional evidence uncovered through these activities strongly suggests that tobacco company witnesses committed perjury while giving sworn testimony before Congress on April 14, 1994. The evidence further indicates that other Federal crimes may also have been committed by the individuals and corporations named above.  …

The enormity of the harm perpetrated by tobacco companies and their agents on American consumers is difficult to comprehend. It is apparent, however, that the crimes alleged here, committed over decades. have contributed profoundly to the serious illness and early death experienced by tens of millions of Americans, as well as to literally trillions of dollars in health care costs and lost productivity borne by the economy of this nation and the individual States.”

In my view, the most cost-effective way to combat crime is to penalize the third-parties that benefit from the crime. I touched upon this subject in a recent posting on this blog. The illegal immigration problem, for instance, is not cost-effectively stopped at the border or in nationwide traffic stops, but, rather, in raids of companies (or individuals) that use illegal labor and disproportionate fines. If you want to stop the meat-packing plants from using illegal labor, for instance, simply fine the corporations that owns meat-packing plants $1,000,000 per illegal laborer caught in a raids on the plants, and — just to make sure the message comes across loud and clear — put the executive team and the entire Board of Directors in jail for one year. I guarantee you that you would see an immediate change in the hiring processes in meat-packing plants.

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2 Comments on “My Sister is Stupid — Nigerian Scams, not-so-victim-less crimes, and the Western Union memorandum”

  1. […] interesting though is the fact that my recent posting about Nigerian Scams and other related items, caused the blog to start getting hits from — wait for it — […]

  2. […] by scammers, such as individuals perpetuating Nigerian Scams (read more about Nigerian Scams in a blog posting that I wrote after my sister fell victim to a Boyfriend Scam, a variant of the Nigerian scam.)  […]