In the late 16th century, a clever new scam was developed that targeted British citizens. Victims of this scam were led to believe that a wealthy Englishman was being held prisoner in Spain and that if they assisted with his release they would receive a large financial reward in return. After fronting money for an initial supposed rescue attempt, victims were repeatedly asked for more money as they were told that one attempt after another had failed.¹ The essential components of the “Spanish Prisoner” scam—an early version of advance fee fraud—remain the core elements of some of the most pervasive and costly fraud schemes targeting individuals today.

Victims of contemporary advance fee scams are commonly led to believe that they have won a lottery or have received an inheritance, but that certain fees must be paid before they can receive their money. These fees are often said to be associated with taxes or various legal expenses, and they are frequently paid by victims in small increments over long periods of time. Perpetrators are typically located hundreds or thousands of miles away from their victims, often in another country. The serious impact that advance fee scams can have on victims has been highlighted in the media. For instance, in a recent federal court case a couple from South Dakota testified that they lost most of their savings over a period of years by sending away funds they believed were needed to cover “possession, insurance and clearance fees” associated with supposed lottery winnings. Instead of winning $3.5 million and a Mercedes, they were left with nothing.²

Fraud schemes referred to as “romance scams,” “dating scams,” or “relationship scams” are similar to advance fee scams in that they are designed to obtain large sums from victims, often over long periods of time

Fraud schemes referred to as “romance scams,” “dating scams,” or “relationship scams” are similar to advance fee scams in that they are designed to obtain large sums from victims, often over long periods of time. The key difference is that victims of romance scams believe the money they give to fraudsters is an investment in a romantic relationship, and not necessarily an opportunity to receive a financial windfall. A typical example is provided by another recent news story. A woman in Buffalo, New York, liquidated her retirement savings and lost $50,000 after becoming involved in an online relationship with a person she believed was a businessman working overseas.³ Sadly, stories such as this have become ubiquitous in recent years.

The notion that advance fee and romance scams have become extremely common is well-supported by the data. In 2014, the Federal Trade Commission reported that it received over 1.5 million complaints related to consumer fraud, representing more than $1.7 billion in loss to U.S. victims. Over three-quarters of victims indicated that they were initially contacted by fraudsters via phone or email, and nearly two-thirds were directed by fraudsters to send money by wire transfer or to load prepaid credit cards.⁴ These facts suggest that the majority of complaints were made by victims of remotely perpetrated fraud schemes, such as advance fee and online romance scams.

The Origin and Evolution of Advance Fee and Romance Scams

In their current form, these scams are widely believed to have originated in West Africa with what has become known as the “419 scam,” named in reference to section 419 of the Nigerian criminal code.⁵ This term is today frequently applied, almost haphazardly, to a wide variety of scams commonly associated with West Africa, often including African-based advance fee and online romance scams. It has been suggested that these kinds of scams specifically had their origin in Igboland, an area located in southeastern Nigeria.⁶ Though this assertion has been challenged, Nigerian links were identified in connection with mail-based advance fee and romance scams beginning in the 1970s, and the scams gained serious momentum throughout the 1980s.

As late as 1997, the U.S. State Department, in a report titled Nigerian Advance Fee Fraud, warned that “criminals will correspond with [victims] via fax machines and courier mail” without once mentioning the use of email or the Internet.⁷ Similarly, romance scams initially targeted men through personal ads placed in adult magazines, and relationships were subsequently cultivated through the mail.⁸ But as Nigerian fraudsters leveraged the Internet toward the close of the 20th century, many of these scams began to be perpetrated through the use of email.

Research using Internet protocol address tracers to track the origin of spam emails has suggested that the majority of fraud solicitations now originate from the Americas and Europe, reflecting the spread of this phenomenon outside of West Africa.⁹ Today, these types of scams are perpetrated throughout the world using a broad spectrum of web-based and telecommunications technologies. For example, well-known hubs for fraud now include places like Jamaica, where scam activity began abruptly in the mid-2000s.

Challenges Facing Financial Institutions

Amidst the countless fraud schemes prevalent today, advance fee and romance scams may account for the greatest amount of loss to victims

The topic of fraud is extremely broad and can encompass crimes such as embezzlement, tax evasion, corruption and other acts typically committed against governments or organizations. By contrast, most advance fee scams, and all online romance scams, target individuals. As such, financial institutions do not generally stand to suffer direct losses as the result of these scams. Rather, as events over the past several years have demonstrated, the risks to institutions are often legal, reputational and regulatory in nature.¹⁰ It is important for institutions to note that, amidst the countless fraud schemes prevalent today, advance fee and romance scams may account for the greatest amount of loss to victims.

The task of accurately quantifying the amount of loss caused by any specific type of consumer fraud is hindered by the way various reporting authorities classify fraud complaints. For example, the FBI’s Internet Crime Complaint Center uses distinct categories for complaints related to “advance fee,” “investment,” “lottery/sweepstakes,” “419” and “government impersonation.”¹¹ However, scams that fit these descriptions often represent different versions of advance fee fraud. Clearly, if these categories were combined, the total amount of loss attributable to advance fee fraud would be much higher than what is currently reported. There is also good reason to view advance fee and romance scams as closely related scam types, given that they share so many of the same essential characteristics. In fact, these similarities have led some to view online romance scams as just a variation of advance fee fraud.¹²

To compound the challenge to financial institutions, victims are often willing to go to unimaginable lengths to follow fraudsters’ directions, and can be seemingly impervious to attempts to intervene. For example, a woman in Oregon lost $400,000 in an advance fee scam over a period of two years. In spite of being told by law enforcement, bank personnel and family members that she was being defrauded, over time she placed a lien on her car, drained a retirement account and mortgaged her house in order to continue sending funds to the fraudsters.¹³

It follows that this type of fraud tends to be significantly underreported. For example, the Department of Justice estimates that only 15 percent of fraud victims report their experience to law enforcement.¹⁴ It may reasonably be assumed that the number of victims who self-report to financial institutions is no higher, and potentially far lower. Many times victims are not aware (or are unwilling to acknowledge) they are being victimized. At other times shame or resignation to the reality of their loss might dissuade victims from reporting what happened to them. In either case, underreporting poses a major impediment to financial institutions when attempting to assess and take action against the risk posed by these scams.

Developing the Right Approach to the Problem

One of the first steps that financial institutions can take toward combating advance fee and romance scams is to recognize how fraudsters gain and maintain control over their victims. Because large distances usually separate fraudsters and their victims, fraudsters must cause victims to act, of their own volition, in ways that are ultimately against their own best interest. When a prospective victim responds to an initial solicitation, fraudsters begin to carefully cultivate a close relationship that will help ensure future compliance with their demands. This technique has been described as a “grooming process,” similar to methods described by victims of childhood sexual abuse.¹⁵ As a result, it should be recognized that the lone voice of a well-meaning front-line employee or a call center representative will often not be enough to convince a victim that he or she is being defrauded. Furthermore, victims may engage in deception in order to conceal the real purpose of their activity, and many are carefully coached by fraudsters regarding what to say.

Secondly, it is important to dispel popular misconceptions about who tends to fall victim to these types of scams. It is often assumed that victims of fraud are uneducated or especially naïve. However, recent research suggests the opposite. Victims of some of the most common web-based scams are very often white-collar professionals including doctors, architects and engineers.¹⁶ Surprisingly, individuals with higher incomes and who have had financial education have been found to be more likely to fall victim to financial scams.¹⁷ Regarding online romance scams, some research has indicated that a relatively low percentage of victims describe themselves as having felt lonely prior to being victimized, or to have had a prior history of abusive relationships.¹⁸ Financial institutions should recognize that victims may not fit the “profile” of who might be expected to fall victim to a fraud scheme.

In addition, a strategy should be developed for how victims of these types of scams will be identified, since they cannot be relied upon to self-report. Victims also often behave and transact differently than perpetrators; as a result, controls designed to detect anti-money laundering issues may be inadequate to identify consumer fraud. Tools designed to specifically identify known patterns of fraud are essential to developing a more accurate picture of risk.

When a potential victim is identified, institutions should be prepared to have someone conduct an investigative interview with the customer. Suspected victims should be provided with fraud awareness and other helpful information. However, steps should also be taken to ensure that victims are unable to continue to use the institution’s products and services to comply with the demands of fraudsters. It should be kept in mind that, after this sort of interaction with an institution, a victim will usually continue to receive phone calls, emails or text messages from fraudsters, which will reinforce the established scam narrative. The ideal approach is one that provides fraud awareness information to potential victims with strong measures to prevent future victimization.

In recent years, technological advancements have tremendously enhanced the access that fraudsters have to their victims. Advance fee and romance scams are especially pervasive, causing unimaginable hardship to victims and presenting unique challenges to financial institutions. By obtaining a better understanding of why and how victims act, institutions can develop a strategy to better protect themselves and their customers from the risks associated with these scams.

Aaron Archer, CAMS, investigator, Western Union, Englewood, CO, USA, aaron.archer@outlook.com

1. Bergiel, B.J., Bergiel, E.B., & Balsmeier, P.W., “Internet cross-border crime: A growing problem,” Journal of Website Promotion, 3(3/4), 133-142, 2008.
2. “Couple testifies about being Jamaican lottery scam victims,” Jamaica Observer, April 30, 2015, http://www.jamaicaobserver.com/news Couple-testifies-about-being-Jamaican-lottery-scam-victims
3. Luke Moretti and Rose Ciotta, “Local woman loses $50k in online romance scam,” WIVB News, February 17, 2015, http://wivb.com/investigative-story/local-woman-loses-50k-in-online-romance-scam
4. “Consumer Sentinel Network data book for January—December 2014,” Federal Trade Commission, February 2015, https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-january-december-2014/sentinel-cy2014-1.pdf
5. Bergiel, Bergiel & Balsmeier, 2008.
6. Chawki, M., “Nigeria tackles advance fee fraud,” Journal of Information, Law & Technology, 1, 2009.
7. “Nigerian Advance Fee Fraud,” United States Department of State, April 1997, http://www.state.gov/documents/organization/2189.pdf
8. Monica Whitty and Tom Buchanan, “The Psychology of the Online Dating Romance Scam,” April 2012, https://www2.le.ac.uk/departments/media/people/monica-whitty/Whitty_romance_scam_report.pdf.
9. Olumide Longe and Adenike Osofisan, “On the Origins of Advance Fee Fraud Electronic Mails: A Technical Investigation Using Internet Protocol Address Tracers,” The African Journal of Information Systems, 3(1), 16-26, April 1, 2011, http://digitalcommons.kennesaw.edu/cgi/viewcontent.cgi?article=1017&context=ajis
10. Associated Press, “MoneyGram agrees to settle scam charges, sets up $100 million compensation fund,” November 9, 2012, http://www.cleveland.com/business/index.ssf/2012/11/moneygram_agrees_to_settle_sca.html
11. Internet Crime Complaint Center, “2014 Internet Crime Report,” Federal Bureau of Investigation.
12. Ultrascan Advanced Global Investigations, “Smart people easier to scam: 419 advance fee fraud statistics 2013,” Amsterdam: Ultrascan AGI.
13. Anna Song, “Woman out $400k to ‘Nigerian scam’ con artists,” November 12, 2008, http://www.freerepublic.com/focus/news/2130596/posts
14. “Financial Fraud Crime Victims,” United States Department of Justice, February 10, 2015, http://www.justice.gov/usao-wdwa/victim-witness/victim-info/financial-fraud
15. Whitty, M.T., & Buchanan, T., p. 13, 2012.
16. Ultrascan, 2014.
17. Bergiel, Bergiel & Balsmeier, 2008.
18. Whitty, M.T., & Buchanan, T., 2012.