Identity fraud is a crime where one person uses another person’s personal data, without authorization, to deceive or defraud someone else. For example, it is identity fraud to use someone’s personal information to open a credit card account without permission, and then charge merchandise to that account. Identity fraud does not occur when a credit card is simply stolen; that may be consumer fraud, but is not identity fraud. Identity fraud is a synonym of unlawful identity change. It indicates unlawful activities that use the identity of another person or of a non-existing person fraudulently.
Identity fraud can occur without identity theft, as in the case where the fraudster has been given someone’s identity information for other reasons but uses it to commit fraud, or when the person whose identity is being used is colluding with the person committing the fraud. One case of identity fraud is when the PlayStation Network was hacked into, and the man responsible for this took the information from everyone who had their credit card information installed on the Network. It took three months to fix the problem, when it occurred. Moreover, identity fraud does not necessarily involve colluding or theft of another’s personal information; it can also involve the use of fake names, ID cards, falsified or forged documents, and lying about his or her own age to simply “hide” his or her true identity.
False identities are used, for instance, by organized crime to access goods and services or to participate in money laundering. Importantly a large proportion of identity fraud is linked to people trafficking, money laundering, drug running and terrorism
In the world of credit, we are quick to associate the idea of fraud with the impact it has on the consumer or the individual. Identify theft and phishing scams are seemingly commonplace threats to our personal financial security, but what about businesses? Are they vulnerable to the same fraud?
The short answer is a resounding “Yes.” In fact, according to credit reporting agency Experian, business-to-business (B2B) fraud costs U.S. businesses “more than $50 billion annually,” and even that number is assumed to be understated. The increasing role that e-commerce and virtual transactions play in our everyday lives will only increase those numbers as time goes by.
Fraud for any business can be devastating, and due to a lack of protections for business fraud, the onus of protection typically falls on the business owner.
For that reason, it’s essential that those leading or involved in B2B businesses learn how to protect themselves and understand the types of fraud they may be subjected to. Here’s a few tips to understand and proactively protect your business from B2B fraud.
Understanding the Different Types of B2B Fraud
There are many types of fraud that can impact your business, and you’re probably already aware of at least a few of them. However, becoming familiar with the major fraud types that have plagued the business world can help you not only identify them when they come along, but prevent problems before they occur.
The nature of fraud is constantly evolving, and while this is not a complete list of every scenario you may encounter, this should act a general guide for some of the most popular scams and gimmicks used to steal assets from B2B companies.
- Account Takeover: Similar to the phishing and telephone scams that compromise personal identities, this type of fraud involves interception of credit card or account information that is later used to place orders or otherwise defraud the legitimate business. This particular type of fraud accounts for a large portion of B2B fraud incidents.
- Business Identity Theft: This type of fraud involves a perpetrator opening business accounts under the name of a legitimate business. Here, the applicant acts as the business owner (or a representative) and utilizes their contact information to apply for credit or open accounts.
- Commercial Bust-out: Equating to millions of dollars in losses, this type of fraud requires the perpetrator to deceptively open several lines of credit with the intention of eventually abandoning them once the credit limits have been reached. In many cases, this first requires that a good credit history be built so that limits can be increased and maxed out right before the owner disappears.
- Never Payment: This type of fraud happens when a business or individual opens a new account, often through material misrepresentation, with the intention of utilizing the account but never making a payment.
- Shell Companies: Companies that are set up with the specific purpose of committing fraud are sometimes referred to as “shell companies”. The company will not sell a product or provide a service. Often used to launder money, these businesses rarely have a physical location, but if they do, it is typically a storefront used solely to fake legitimacy.
How to Protect Your Business from B2B Fraud
Verify All Information
Perhaps the easiest and most important step in B2B fraud prevention is verifying the information provided by those seeking or requesting your services or products.
If you will be extending terms to another business, or making a large sale without collecting full payment up front, always make it a point to thoroughly review and vet information provided by the business.. From the proper name of the business and the owner/representative to the physical location of the business, make sure everything on the application is accurate, and ask questions if it is not.
Additionally, if your business is contacted by a bank, credit card company, or government agency, always verify the legitimacy of the business/organization and their request before providing any sensitive information.
Track Credit Information
Businesses are able to track the credit details of other businesses to ensure that they are dealing with responsible, credible business partners. Unlike personal credit, which is protected by the FCRA, anyone can pull a business’s credit reports at any time without permission. The premium plus plan from Navallows you to find detailed credit information on up to 5 different businesses.
Identify Past Offenders
Because it’s not always easy to catch fraudulent businesses or individuals in the act, habitual fraud is common, and those who commit it and subsequently escape the law are likely to keep doing so. By utilizing fraud tools like Experian’s National Fraud Database, you can compare applications and information to current fraud records stored in a database.
Monitor Accounts & Invoices
It’s easy to let invoices stack up or to go a few weeks without thoroughly checking out your banking or credit accounts. Unfortunately, that behavior can easily leave you and your business a victim of fraud. In the beginning, test transactions tied to fraud or illegitimate charges may not be large enough to raise flags, but by regularly monitoring your accounts, you’ll be able to spot them before true damage has been done.
Educate Yourself & Your Staff
You can’t always be on the front lines of your business, but you should always trust that your employees can run things efficiently in your absence. Educating those who work for you on the types of fraud and how to prevent them can help you remain confident and secure when your employees are on the front lines.