Win, Lose or Fraud?

Congratulations! You’ve won $5,000. All you have to do is deposit the enclosed cashier’s check and wire back $2,000 to cover taxes. Sound too good to be true? It is. Fraudulent letters like this, claiming that the recipient has won a foreign lottery or sweepstakes, are sent out to unsuspecting people every day. The problem is, these people never entered the contest in the first place. This brings up a red flag for many recipients, but the lure of easy money is hard to resist. So some people follow the directions and wire the money, only to find out too late that the check was a fraud and they fell victim to a scam.

These scams impact not only the individual victim, but the business community and financial industry as well. “The impact of this is huge and the personal stories coming from the victims of these crimes cannot help but make you angry,” said John Willems, Special Agent in Charge, Alcohol and Gambling Enforcement Division, Minnesota Department of Public Safety. “These people prey on some of our most vulnerable citizens. They are willing to take the victim’s retirement savings, or even encourage them to take out a reverse mortgage on their home,” said Willems.

Banks often get caught in the middle of these scams and end up suffering financial losses. The U.S. Postal Inspection Service estimates that U.S. consumers lose about $120 million a year. Willems estimates that Minnesota businesses and consumers lose $8 to $10 million a year, though many of these frauds go unreported.

Stopping Foreign Lottery Scams
The Alcohol and Gambling Enforcement Division of the Minnesota Department of Public Safety has partnered with the Minnesota Bankers Association, Minnesota Credit Union Network, FinCrime (a network of financial institutions sharing information in a database on fraudulent activity), the Better Business Bureau, and the American Association of Retired Persons (AARP) to stop or reduce these types of fraud.

The purpose of the group is to combat lottery scams by spreading awareness and developing a database of reported scams. The database can then be used by law enforcement to track down the scammers and stop their operations. The group is growing each month with additional law enforcement agencies and businesses such as wire transfer companies and telephone companies expressing interest in assisting the effort.

Willems and his team have spent time researching foreign lottery scams, who they are affecting, and the best way to stop them. “We worked to determine what the nature of the problem was and who the victims were. Even we were surprised,” said Willems. “It was apparent something needed to be done, so we started to bring the various stakeholders together to develop what we hope will prove to be an effective strategy to attack this problem,” said Willems.

The Department of Public Safety relies on consumers to report when a lottery scam occurs. Partnering with organizations such as banks and credit unions gives the agency another opportunity to collect data on fraudulent activity. They can then pass the information about the scam on to the appropriate law enforcement agency.

“We also do what we can to disrupt the fraud activity. In some cases we may be able to disconnect telephones and work with the Postal Service to follow the flow of mail,” said Willems.

How Are Banks Affected?
Vicki Colliander of Bremer Bank in St. Paul explains that banks are affected in at least two ways: customer perception and trust, and overdrawn accounts. “Customers expect that bankers will always know about a fraud deposit item before the customer attempts to use money,” said Colliander. “After the fact, they frequently ask, ‘Why didn’t you tell me?’”

Many customers are not familiar with the intricacies of the banking system, including terms used by bankers. “They usually phrase their question asking if the funds are available. The funds are available for use by the customer, but there may still be risk that the deposited item will be returned as fraudulent,” said Colliander.

Customers run into trouble when they wire money before the cashier’s check is found to be fraudulent. “If a deposited item is returned as fraudulent and is ‘charged back’ to the customer’s account, the ‘charge back’ could cause the account to become overdrawn. By contract, the customer is responsible for the overdraft because he is responsible for everything he deposits into his account. If the customer does not have the money to cover the overdraft and the account is closed with a negative balance, the bank becomes a second tier victim of the fraud and takes the loss,” said Colliander.

What Can Banks Do?
Banks can play a big role in combating foreign lottery fraud in Minnesota. “We can’t win this fight alone; bankers need to be an active participant if we are to have any chance of success,” said Willems. “We need bankers to be sensitive to this type of fraud just as they are others. When they see this occurring we encourage them to talk with the customer about the nature of lottery/sweepstakes frauds.”

Ideally, Willems would like bankers to collect information about the scam and enter it into FinCrime so the case can be reported to and investigated by the appropriate law enforcement agency. He also stresses the importance of saving the documents that the potential victim received, including the envelope in which the documents were sent. This evidence is important for tracking and shutting down the scammers.

Educating bank staff and customers on how to recognize lottery fraud is also important. Colliander suggests training tellers and frontline staff to be suspicious of items deposited that are outside the norm for transactions on the account. “Train staff to be good listeners. Have a system in place to notify your fraud department should a customer comment on winnings or prizes they have received so action can be taken to protect the customer and the bank from loss,” said Colliander.

Colliander also recommends that banks:

• Develop a communication system that provides timely information to frontline bankers about the latest fraud checks and scams.
• Subscribe to and participate in local and national professional organizations that keep banks informed about these and other scams.
• Provide customers and non-customers with the opportunity to participate in fraud awareness meetings designed to advise on the best practices to deter, detect and defend against fraud.
• Be part of the solution. Partner with law enforcement, prosecutors and legislators to develop, contribute and support a plan to put an end to these scams.

Bremer Bank is a good example of a bank that takes a proactive approach to fighting fraud. “Our Loss Prevention Department is dedicated to gathering information and keeping our bankers informed. Bremer is always willing to participate in the development of a solution and willingly provides support to law enforcement, prosecutors and the legislature in their fight against fraud,” said Colliander.

Although foreign lottery scammers are difficult to track and prosecute, Willems believes that a proactive approach against lottery fraud will deter them from targeting Minnesota. “We will do everything we lawfully can, to make it as difficult as possible to conduct fraud in Minnesota,” said Willems.