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Financial
Identity Theft
Overview of Criminal Activity
Identity theft continues to pose a significant threat to Canadian consumers and businesses across the country.This crime refers to the illicit gain and use of another person’s personal and financial information in order to commit a variety of frauds, including real-estate and payment card fraud amongst others. Identity theft includes mail theft, stealing from residences and personal spaces, and misuse of personal data in business transactions, theft from company and government databases. Identity theft victims may not be aware of the fraud until weeks, months or even years later. Criminal groups in Canada will continue to be involved in identity theft, particularly as more personal and financial data is stored and transmitted electronically, and as identity thieves are able to operate from a distance. Access to these data facilitates the commission of a wide range of frauds on a much larger scale.
Real-estate fraud has become an issue of increasing concern to law enforcement and professional associations involved in the mortgage industry. Real-estate fraud represents significant potential financial costs to victims and is also closely associated to other criminal activities, particularly those under the umbrella of identity theft, document fraud and the illicit drug trade.
“To commit mortgage fraud, a number of parties need to be working together and they vary the methods used to commit this crime. By sharing information, we can all constantly be taking steps to change practices and close any gaps that may exist in the system.” Canadian Bankers Association |
This type of fraud is often very complex and encompasses a number of different forms. Generally, however, mortgage fraud occurs when fraudulent information, such as false employment records, is provided to a lender in order to obtain a mortgage.Title fraud, another variant of real estate fraud, involves an individual falsely assuming the identity of another property owner.This false identity is then used by the criminal to either assume the title, sell or obtain other mortgages based on that property and the identity of the true owner.A recent law enforcement investigation uncovered an allegedly elaborate mortgage fraud scheme in British Columbia that involved obtaining mortgages using false employment records and banking documents. Many of the homes purchased in this criminal operation are alleged to have been used for large-scale marihuana growing operations.
Payment card fraud is a major component of identity theft, comprising 42% of reported identity theft incidents in 2003, according to Phonebusters. It remains a significant threat to Canadian businesses, financial institutions and consumers.According to the RCMP, total dollar losses from credit card fraud in 2003 amounted to C$200 million.The most prevalent form is counterfeit credit card fraud. In many cases, organized crime uses portable card skimmers to read and capture the data contained on the card’s magnetic stripes and then manufacture counterfeit cards.The stolen card’s information is then re-encoded onto blank magnetic cards and used to drain the victim’s account or sold on the black market. Criminals use skimmers to steal credit card data from areas such as restaurants, bars, gas stations and convenience stores. In these areas, some criminally inclined employees will sell the stolen information to individuals who will manufacture counterfeit cards.Another threat to payment cards are white-label automatic teller machines (ATMs) that are illegally modified to copy payment card information and record passwords as the card is swiped.
An increasingly popular form of Internet-related fraud is “phishing.” This involves deceptive e-mails that impersonate legitimate institutions and lure recipients into divulging personal financial information such as credit card numbers or Internet banking passwords. It may also entail passworddetecting/ decrypting software illicitly capturing encrypted passwords transferred over networks. Some spyware is designed to steal information, for example, through keystroke-logging software that illicitly records personal information. Criminals are increasingly targeting smaller financial institutions, such as community banks and credit unions, that may have fewer security resources. (See: Technology and Crime section)
“Organized crime is not some farremoved phenomenon, it is here in our community. You only have to look at the person struggling with the effects of identity theft or the family devastated by drug abuse to see the personal impact of organized crime. You do not even need to be directly victimized.” Chief Vince Bevan, |
Government agencies and departments have also been targeted by phishing. In February 2005, the Ontario Ministry of Transportation warned that an e-mail impersonating the ministry was circulating with a request for recipients to confirm their driver license information by clicking on an embedded link.
Negative Socio-economic Effects
Direct and indirect losses from identity theft in Canada are significant. While identity theft results in considerable financial costs to financial institutions, businesses and consumers alike, it remains difficult to collect current statistics regarding the problem nationally or internationally.
In 2002, the Canadian Council of Better Business Bureaus (CCBBB) estimated that consumers, banks, credit card firms, stores and other businesses lost C$2.5 billion to identity theft. In 2003, the latest year for which statistics are available, PhoneBusters recorded losses reported by victims at C$21.8 million. In addition to these financial losses, victims of identity theft are left with damaged credit ratings and disrupted personal and financial records. In a 2003 survey, the U.S. Federal Trade Commission reported that identity theft victims spent an average of US$500 to recover lost identities and clear credit ratings.
Victims may lose trust in the businesses through which they were defrauded while the business may have been unaware of the employee’s criminal activities. Corporations, or government institutions, invest considerable human and financial resources in the establishment and maintenance of a brand or image. After incidents of fraud, corporations must allocate significant time and resources recovering their lost image/tarnished brand. In addition, in cases of phishing and pharming, corporations must allocate additional resources to strengthen security measures. Identity theft will continue to grow and pose a threat to millions of people and businesses in Canada.
