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Tell-tale signs to look out for.
The evolution of fraud
Before we look at what you need to know about scams, let’s take a short history lesson.
The first financial fraud is widely attributed to a Greek sea merchant named Hegestratos.
Around 300 BC, Hegestratos sought to insure his ship and cargo of corn through a process known as bottomry. Essentially, a loan could be taken out on the value of the ship and cargo, which would then be returned with interest when the ship safely completed its voyage.
However, Hegestratos conspired to sink his ship, sell his cargo of corn and keep the loan. He was caught in the act by his own crew and, as the story goes, drowned trying to escape.
Fraud has evolved many times since Hegestratos planned to sink his ship. If we were so inclined, we could create a timeline of fraud through the ages taking in the Ponzi Schemes of the twenties, the timeshare frauds of the eighties and nineties or the carbon credit frauds of the noughties.
The point is that fraud always involves introducing deceit in order to achieve a gain. The difference is simply that the medium changes. All fraudsters are like Hegestratos in that they are opportunistic creatures who see a potential vulnerability and set out to exploit it. It really doesn’t matter what form the opportunity takes, it simply matters that it can be manipulated to a fraudster’s advantage.
The current fraud landscape
Today, fraud is the most prevalent crime within the UK.
The variety of mechanisms now deployed by fraudsters is quite simply staggering. Frauds range from romance fraud through to investment and crypto scams, and ticketing scams, all the way through to impersonations of large financial institutions.
The industry is now beginning to see hybrid frauds. There is a current trend whereby fraudsters contact unsuspecting individuals and claim to be from the “Police” (impersonation fraud).
The story goes that they are conducting an investigation having identified some suspicious activity on the victim’s bank account. In order to assist with the investigation, they need the victim to move all their money to a “safe account”. Victims are told that they can’t tell anyone for fear of compromising the investigation, and are taught how to answer questions from their bank if they are challenged. From the bank's point of view, the withdrawal appears to be a legitimate request from the account holder and is authorised (authorised push payment fraud).
Not only is the variety of fraud staggering, but so are the numbers involved. UK Finance recently published its Annual Fraud Report and put losses to payment fraud at £1.3bn in 2021. This number can be considered conservative. Fraud is often under-reported and previous studies have suggested that fraud costs the UK economy around £190bn per year. For context, that is roughly equivalent to the GDP of Croatia, Panama, Costa Rica and Iceland combined.
Fraud is now so prevalent, and so varied, that it is quite simply not possible to arm yourself against all of the individual varieties.
What should I look out for?
To understand fraud and whether or not you might be a victim of a scam, it is useful to get familiar with the underlying components.
The Fraud Act 2006 highlights the use of dishonesty with the aim of making a personal gain or causing harm to another.
So to paraphrase: Fraud is the application of deceit for personal gain.
So in this context, personal gain will be your hard earned money and deceit is the mechanism used to obtain it (in Hegestratos’ case it was falsely declaring that his ship had sunk).
Ultimately, if we can identify the deceitful mechanisms deployed by fraudsters, we stand a much better chance of stopping it.
Fraudsters use a wide variety of tactics, but here are some tell-tale signs to look out for:
If you identify any of the above in relation to your money, you should:
Further Information
Freetrade takes fraud extremely seriously and has a number of measures in place to help protect you. We have also created a new Fraud and Security Centre. Here you’ll find a series of articles and tips on how to stay safe that we will keep adding to over time.
Please take a look and contact us if you have any questions.
For more information on how Freetrade keeps your money safe, read this article.
The views expressed above are those of community members and do not reflect the views of Freetrade. It is not investment advice and we always encourage you to do your own research.