Glossary: The ABCs of fraud

Though the terms “fraud” and “scam” are often used interchangeably and both rely on deceptive practices, they involve different levels of complexity. Scams tend to be more straightforward schemes aimed at extracting money or information through misleading promises or urgent statements. By comparison, fraud typically involves more elaborate strategies, often over a longer period of time or on a larger scale. Though all scams fall under the umbrella of fraudulent activity, not all fraudulent activity meets the narrow criteria of a scam.

Before we can define what authorized push payment (APP) fraud is, let’s first explain what push payments are. Push payments refer to any situation in which a payer initiates a transaction and sends — or “pushes” — money to a payee. By comparison, most traditional payment types require the payee to initiate the transaction by requesting or “pulling” money from the payer. APP fraud is what happens when a fraudster convinces a payer to authorize a push payment under false pretenses. A form of confidence-based fraud, APP fraud often relies on impersonation and social engineering.

A business email compromise (BEC) is a type of scam that targets companies in order to gain access to company accounts and extract funds through fraudulent requests. BEC typically involves impersonating key company executives or foreign suppliers who regularly perform wire transfers. The fraudster may use social engineering or phishing techniques to trick employees into making wire transfers to bank accounts that appear legitimate but are actually controlled by criminals. BEC scams are known for their low-tech approach, relying more on human psychology and deception than advanced technological tools.

Crypto scams are inclusive of any scheme that exploits growing interest in cryptocurrencies, such as fraudulent investment platforms, fake initial coin offerings, and pyramid schemes disguised within crypto investment strategies. Victims of this type of scam are often lured by promises of high returns for minimal effort but end up losing their digital assets to scammers who exploit the relatively unregulated nature of the crypto market.

Employment scams target job seekers by promising them non-existent positions in exchange for their personal information or an upfront fee. These scams often use seemingly legitimate offers to lure individuals into submitting sensitive data and making financial transactions for training, equipment, or security clearances that are never provided.

As its name suggests, an impersonation scam involves a fraudster pretending to be someone else — often a trusted figure such as a government official, police officer, company executive, friend, or family member — in order to gain the victim’s trust and deceive them into sending money or revealing personal information. Elderly individuals have long been a popular target for impersonation scams. However, as deepfake technology continues to evolve and become more sophisticated, fraudsters are able to more easily target victims across all demographics.

An invoice scam involves the creation of fraudulent invoices, which are then sent to companies or individuals. These invoices appear to be from legitimate vendors, suppliers, or service providers but are actually designed to divert funds to the scammer’s account. Often sophisticated in appearance, these fake invoices can lead to significant losses before the deception is uncovered, particularly for businesses that handle a large volume of transactions or that lack stringent internal controls.

A money mule is an individual who transfers illegally acquired money on behalf of others. In some cases, the individual may be unaware that they’re assisting in illegal activities, having been deceived by job offers or relationships that seem legitimate. In other cases, money mules knowingly participate in schemes for financial gain.

Online shopping scams involve fraudulent websites or sellers that pretend to offer products online, only to deliver nothing to the buyer or send them counterfeit goods after they’ve made a payment. These scams can also occur through fake advertisements on legitimate sites or through phishing emails promoting phony details. Customers are often attracted by the exceptionally low prices and compelling product offers, only to find that they’ve been deceived.

Ransomware is a type of malicious software that encrypts the victim’s data, effectively locking them out of their own files or systems. The attackers then demand a ransom from the victim to restore access to their data upon repayment. Fraudsters will often demand payment in the form of cryptocurrency, making it difficult for law enforcement to trace down attackers. Ransomware attacks can target individuals or large organizations, causing data loss, financial damage and disruption to operations.

A remote access scam refers to a scheme in which a fraudster tricks an individual into granting them remote control over their computer or other device, often under the guise of providing technical support or security checks. Once the scammer has control, they access secure systems to steal sensitive information, install malicious software, or commit financial fraud. Remote access scams often rely on impersonation to convince victims that they’re speaking with a legitimate representative from a technology company.

In a romance scam, a fraudster creates a fake identity — typically on a dating app or website or social media platform — and enters into a romantic relationship with a victim. The fraudster builds trust and emotional commitment over time, eventually asking the victim for money, often for an emergency, medical expenses, or travel fare to purportedly visit the victim. In some cases, fraudsters will ask for personal information instead of money or convince the victim to engage in illegal activity. Romance scams are especially insidious because they prey on the vulnerabilities of victims and can cause significant emotional distress in addition to financial losses.

Smurfing is a money laundering technique that is used to avoid detection by regulatory authorities when moving large amounts of money. It involves breaking up large sums into smaller amounts that fall below reporting thresholds, then dispersing these smaller amounts through multiple accounts or locations. This technique derives its name from the popular blue cartoon characters, the Smurfs. Similar to how the Smurfs, who are small in stature, work together to complete tasks without drawing undue attention, criminals will use a series of smaller transactions, amounting to a large sum, to avoid notice.

Affiliate fraud occurs when individuals or entities involved in affiliate marketing programs manipulate the system to generate earnings or commission, often through fraudulent clicks, fake account signups, or by generating artificial traffic using scripts or bots. Affiliate fraud not only leads to financial losses for merchants but can also skew their marketing data, making it challenging to accurately assess the effectiveness of their affiliate campaigns.

Bust-out fraud is a sophisticated fraud strategy in which a group of criminals — often an organized crime ring — commits multiple acts of application fraud at the same time, using multiple stolen or synthetic identities. 

Credit card application fraud is often the preferred method of bust-out fraud, as criminals will work in concert to build their credit over time, making their activities appear more legitimate to financial institutions. This enables them to increase their credit or even open additional lines of credit using the same credentials. Then, when the time is right, the criminals will max out all of their cards simultaneously and disappear.

Card fraud is a broad category that encompasses any form of card-present or card-not-present fraud. Examples on the card-present side include lost or stolen cards, cards not received, counterfeiting, and fake terminals. To see what card-not-present fraud is, please refer to the definition below.

Card-not-present (CNP) fraud is a form of fraud run specifically on transactions that take place without a credit card or cardholder being physically present. This type of transaction, known as a CNP transaction, tends to be more vulnerable than card-present transactions because fraudsters don’t need to steal a physical card, counterfeit one, or find their way around EMV chip technology to make a fraudulent transaction. In most cases, all fraudsters need to complete a transaction is the cardholder’s credentials, such as their name, billing address, account number, card value verification (CVV) number, or card expiration date.

CEO fraud is a targeted form of phishing where fraudsters pose as company executives to deceive employees into transferring funds to fraudulent accounts or sharing sensitive information. Often conducted via email or other digital communication tools — CEO fraud is closely related to business email compromise — this type of fraud leverages the authority of high-level executives to bypass internal controls and exploit employee trust.

Check fraud encompasses various illegal activities involving the use of checks to unlawfully obtain or withhold money. These can include forging a signature on a stolen check, altering the amount of a check, or creating counterfeit checks.

Deepfake audio or video fraud uses advanced artificial intelligence technology to create hyper-realistic audio or video clips of individuals saying or doing things they never actually did. These deepfakes can be used to commit identity theft, impersonate high-profile individuals, or manipulate targets in social engineering scams.

Faster payments fraud, also known as real-time payments fraud, refers to any fraudulent activity that exploits real-time electronic payment systems. Scammers manipulate these fast-transfer capabilities to trick victims into sending them money under false pretenses, such as fake emergencies or fraudulent investment opportunities. Once the funds are transferred, they are immediately (or almost immediately) available to the fraudster and difficult to recover due to the speed and finality of the transaction.

Fraud farms are operations where groups of fraudsters work together to execute large-scale fraud operations, such as creating fake accounts, committing account takeovers, and submitting fraudulent transactions en masse. These operations often utilize advanced technology and organized strategies to mimic legitimate behaviors, making them exceedingly difficult to detect.

Insurance fraud encompasses a range of illegal activities committed by applicants, policyholders, third-party claimants, or service providers aimed at defrauding the insurance process. These activities can include exaggerating claims, falsifying medical documents, staging accidents, or underreporting income to reduce premiums. Insurance fraud can not only lead to higher premiums for honest policyholders, it can also strain the financial systems of insurance providers.

Malware, short for “malicious software,” refers to a program or file designed to harm or exploit a programmable device, service, or network. Criminals use malware for various nefarious purposes, such as extracting sensitive data, hijacking core computing systems, and spying on users’ activity without their knowledge. Common types of malware include viruses, worms, Trojan horses, ransomware, and spyware.

Merchant account takeover is a form of account takeover in which a fraudster gains unauthorized access to a merchant’s online account, typically used for processing payments. Once inside, they can divert funds, alter account details, or make unauthorized transactions, leading to lost revenue and customer disputes.

Money laundering is the process of disguising the origins of illegally obtained money, typically by means of transfers that involve foreign banks or legitimate businesses. The goal of money laundering is to make the money appear as though it came from a legitimate source, thereby integrating it into the financial system in a way that cannot be easily traced back to its original source. 

This process typically happens in three stages:

1. Placement, where illicit money is introduced into the financial system

2. Layering, which is the complex process of obscuring the source of the money through multiple transactions and bookkeeping tricks

3. Integration, where the now “clean” money is reintegrated into the economy, appearing as legitimate business earnings

Money laundering is not just a financial crime, it’s often used to aid and abet other criminal activities, such as drug trafficking and terrorism, which is why regulatory authorities have mandated strict anti-money laundering (AML) and know your customer (KYC) practices.

Payments fraud, also known as transaction fraud, is the unauthorized and deliberate use of a payment instrument, such as a credit card or digital wallet, to commit a financial crime. Fraudsters may steal payment information to make unauthorized purchases or create false merchant accounts to receive payments for non-existent goods or services. The scale of payments fraud is extensive, affecting countless individuals and businesses globally and contributing to increased operational costs and security measures within the financial sector.

Pharming redirects internet users from legitimate websites to fraudulent ones without their knowledge. This is achieved by manipulating Domain Name System (DNS) settings or infecting computers with malware. The goal is to collect personal and/or financial information, which fraudsters can then use to commit identity theft or make unauthorized transactions. Unlike phishing, which relies on luring users to fake websites, pharming can take place without the user being aware, making it particularly insidious and difficult to detect.

Phishing refers to when fraudsters impersonate legitimate institutions via email, text message, or other digital communication to trick individuals into providing sensitive information, such as passwords and card credentials. These messages often create a sense of urgency, prompting the recipient to act quickly to resolve a fabricated security alert or account issue.

Remuneration attacks refer to the manipulation or interception of financial transactions related to employee compensation. Examples of remuneration attacks include altering account details on payroll systems to divert payments or using phishing techniques to obtain sensitive payroll information.

Social engineering encompasses any fraud or scam that uses psychological manipulation to convince people into performing certain actions or divulging confidential information. Social engineering techniques, such as phishing, exploit human characteristics of trust and curiosity with the aim of gaining unauthorized access to systems, obtaining sensitive data, or inducing individuals to commit security breaches.

Synthetic identities are fake identities fraudsters create by combining actual, stolen credentials with fabricated personally identifiable information. 

The most common method for generating a synthetic identity is to steal an actual individual’s credentials from government documentation and combine it with fabricated details, such as a false address and phone number. This approach is known as a partial or patchwork identity fabrication and is considered a form of identity theft. Though less common, fraudsters may also invent identities out of whole cloth — an approach known as total identity fabrication.

Wire fraud is a broad category that includes any illegal activity that uses electronic communications or an interstate communications facility to defraud victims. Typically, wire fraud involves transferring funds electronically across state or international borders through wire transfers, electronic payments, or even traditional telephone lines. Wire fraud schemes can be highly sophisticated, using fake communications from legitimate businesses or fake identities, and often target a large number of victims to maximize potential gains.