The U.S. economy officially entered a recession in December, 2007. The economic downturn and financial turmoil has shaken financial institutions worldwide—all are feeling the impact. The opportunity for fraud during this downturn is especially significant, since we are seeing an unprecedented level of M&A activity and account churn—a fraudster’s delight! Uncertainty and change provide the cover fraudsters need to steal money.

Given the down economy, is fraud really increasing? The statistics say the answer is yes:

Mortgage Crime–Mortgage Fraud in the United States rose 45% in Q2 2008 compared to Q2 2007, according to the Mortgage Asset Research Institute.

Cybercrime–-Wide-ranging online fraud is skyrocketing as fraudsters take advantage of the financial services turmoil:

• Phishing attacks were up at least 40% in 2008. Attacks in June alone rose 117% compared to a year earlier.
• Money Mule schemes to launder money through unsuspecting victims rose by more than 500% from August to October, 2008.
• 90% of all phishing attacks target financial services customers, according to the Anti-Phishing Working Group.
• Symantec estimates $7 billion worth of stolen goods are traded annually via the internet underground economy. Researchers found everything from stolen credit card information to DDA details—including account credentials as well as balance information!

Industry experts also warn of an uptick in fraud. A recent study by the ASIS Group finds that professional, organized attacks are increasing, and identity fraud will continue to be one of the fastest growing crimes for the next 5 to 10 years. 

The risk of internal fraud is also rising, thanks to the weak economy. Here’s an interesting quote from Jody Westby, an Adjunct Distinguished Fellow at Carnegie Mellon University’s CyLab and CEO of Global Cyber Risk in a recent BankInfoSecurity interview: “In this economy, people are going to be more tempted to steal inside data, to sell it or use it for their own purposes. The insider threat will be more prevalent than in the past, there will be more desperate players out there.”

So the economy is down and fraud attacks are rising. Add in the financial turmoil hitting banks plus the related customer churn and 2009 seems to be shaping up as a difficult year for loss prevention professionals. I’d love to hear your thoughts about how the economy is affecting fraud. Is your institution experiencing a fraud uptick? What types of schemes are you seeing? Are you battening down the hatches for a stormy 2009 or are clearer skies ahead?

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