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Daily Telegraph: Can you afford to ignore risk of fraud?

Can you afford to ignore risk of fraud?
By Ian Cowie, Personal Finance Editor (Filed: 13/05/2006)

Former fraudster Frank Abagnale is a classic example of poacher turned gamekeeper.

He was in town this week to promote a new service which aims to protect us from 21st century forms of theft, which the Home Office reckons cost £1.7 billion last year. Mr Abagnale also had some free advice to help make life more difficult for the cyber crooks. As always, his timing was impeccable.

On Monday, The Daily Telegraph had revealed how a £1 million scam forced Shell to suspend payment for petrol with chip and pin (Personal Identity Number) cards in all its 600 forecourts.

The new security system failed to prevent hundreds of customers' credit and debit cards being cloned and used to withdraw cash from automatic teller machines (ATMs) in Britain and France.

Then, on Tuesday, we reported a four-fold increase in “boiler room” frauds during the last year. On the back of rising stock markets, spivs are seeking to exploit growing investor confidence by ringing their way through the share registers of companies such as Diageo and Balfour Beatty to promote stocks that do not exist.

You might think anyone daft enough to part with money on the strength of a phone call from a stranger scarcely deserves sympathy. When there are thousands of shares and pooled funds to choose from onshore, where you can rely on extensive investor safeguards, it is difficult to see why anyone would want to go paddling in shark-infested waters far from home.

The golden rule is never to invest with any firm which is not regulated by the Financial Services Authority (FSA). It could not be easier or quicker to check. Simply ring 0845 606 1234 or go online to and click on “consumer information”, then click “FSA Register”, where you can type in the company name you want to find out about. It takes a few seconds and could save you thousands of pounds.

Of course, even an authorised firm may give bad advice or go bust. But, if it does, the FSA can order compensation to be paid or the Investor Compensation Scheme can pay out up to £48,000 per person. That is, 100pc of the first £30,000 lost per person and 90pc of up to another £20,000 of losses. Investors with unauthorised firms are entitled to nothing.

On the basis that forewarned is forearmed, the FSA website even names some of the crooked outfits currently targeting the public and includes a section headed “scams and swindles”. As if to demonstrate what cheeky monkeys some of these conmen are, this includes a bogus letter, purporting to come from the FSA's chief executive, John Tiner, which is being used to rip off unwary financial advisers. I kid you not.

But back to the reformed rogue Mr Abagnale, who was played by Leonardo Di Caprio in the film of his book Catch Me if You Can. By his own account, he cashed $2.5m of fraudulent cheques between the ages of 16 and 21 before going on to “serve time in the French, Swedish and US prison systems”. So even clever clogs trip up eventually.

He reckons the advent of e-commerce and internet banking has made life easier than ever for the kind of crook he once was. His advice this week is to avoid internet banking like the plague. My inclination is to agree. There are obviously risks associated with computer security when even the Pentagon cannot keep hackers out of its systems. So why take a chance by putting bank account details online, unless there is some pressing need to do so?

Similarly, he warns against the risks of identity cards. The Government's Big Idea will be a boon to fraudsters because these cards bring together far too much information about individuals on one easily-stolen bit of plastic, as well as conferring an entirely spurious sense of certainty. Regular readers will know that these cards – which we will be required to pay for – also represent a tax on breathing. Thank heavens Her Majesty's Opposition has decided, belatedly, to oppose this mad idea – as the Liberal Democrats have done from the start.

I am less sure about Mr Abagnale's advice to shun debit cards (which can be regarded as a form of instant electronic cheque) and always use credit cards instead. His reasoning is that the Consumer Credit Act compels banks to shoulder losses while investigating fraudulent withdrawals from credit cards while this is not automatically the case with debit card fraud.

This leads – perhaps too neatly – to the Cims PrivacyGuard service being promoted by Mr Abagnale and backed by the credit reference agency Experian. It is intended to stop fraud, particularly identity theft, by monitoring credit checks run on policyholders, or any other suspicious activity, such as a change in the individual's credit rating, in return for a fee of £6.99 a month or £79.99 a year.

That could be good value if you fear fraud may cause you to lose sleep or, worse still, cash. However, another of Mr Abagnale's tips costs nothing and is clearly common sense. He urges everyone to check their bank statements regularly.

This might seem to be a statement of the bleedin' obvious, but the fact remains that many people fail to act upon it. As a result, fraudsters have more time to steal more money from their unwitting victims. Joint accounts are particularly vulnerable because both partners may assume withdrawals are being made by the other one.

This was brought home to me, quite literally, a few years ago. My wife's suspicions would never have been aroused, had I not been away on a fact-finding mission to Caracas and Buenos Aires at the time. So she knew it couldn't be me taking cash out of our joint account.

The bank (it hardly seems fair to name it now) originally said I had made the withdrawals at its branch in the Strand in London. But, when challenged to produce my signature, it immediately agreed it was an obvious forgery.

It turned out one of the counter staff had noticed my wife drawing cash there fairly frequently and decided to join in the fun. The bank reinstated the missing money immediately. It just goes to show you don't know who to trust. And, to paraphrase Thomas Jefferson, the price of freedom from fraud is eternal vigilance.

8 May 2006[News]: £1m chip and pin fraud highlights flaws in system
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