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Threat Assessment: Mass-Marketing Fraud The Canadian Perspective - Nov. 2007

Threat Assement: Mass-Marketing Fraud the Canadian Perspective - Nov. 2007
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Over the past 10 to 15 years mass-marketing fraud (MMF) has proliferated. Criminals and criminal organizations are involved. In Canada, the majority of schemes documented are advance fee lottery, sweepstakes pitches with counterfeit cheques, credit card pitches, government grant and loan pitches, directory pitches, investment pitches, job offer schemes, and schemes involving sales of merchandise over the Internet.

MMF has been identified as a cross-border crime concern between Canada and the United States (U.S.) since 1997. Joint responses to MMF include the creation of six regionalized partnerships and the Canadian Anti-Fraud Call Centre (CAFCC), also known as PhoneBusters. All of these partnerships require coordination and cooperation amongst law enforcement and regulatory agencies at local, provincial, national and international levels.

Current Types of Criminal Activities

With advances in communication technologies, including the Internet, cell phones, electronic banking and wire transfers, the MMF problem has become international in nature and global in its scope. While mass-marketing fraud through mail and telephone remains an ongoing concern, fraud is increasingly committed through the Internet. Voice over Internet Protocol (VOIP) and prepaid cell phones have allowed for MMF operators to become more mobile, giving them the ability to operate from any location they choose, with any area code and phone number they want. This creates law enforcement challenges in identifying who the criminals are and where they are operating from.

Some criminal networks established in Canada are involved in international MMF scams and distribute counterfeit financial instruments across jurisdictions through mail and courier services.

Identity theft is an intricate part of MMF operations. Many of the fraudulent solicitation pitches induce potential victims into divulging their personal information to criminals and risking further victimization through identity fraud. Personal information from potential victims is used to facilitate ongoing schemes and produce lead lists. These lists are resold to other groups/rings to perpetrate other fraudulent crimes.

MMF is a lucrative business for criminals. In its 2006-2007 annual report, the Financial Transactions and Reports Analysis Centre of Canada, known as FINTRAC, reported that fraud-related predicate offences (e.g. credit and debit card fraud, and telemarketing fraud) were more prevalent than drug-related cases in 2006-07.

In Canada, crimes against persons, such as threats, intimidation and assaults against ex-employees, victims or witnesses, have been associated to MMF operations. Past investigations indicate that some MMF activities in Canada are subject to protection rackets.

Incidence and Prevalence of Criminal Activities

Between 2004 and 2006, CAFCC statistics indicate an increase in reported dollars loss for MMF complaints. Additionally, the number of telephone calls received at the centre increased by almost 60 percent, from 92,307 in 2005 to 146,393 in 2006.

Currently, the most common trend in MMF is the use of counterfeit or altered financial instruments (cheques/money orders). Between March and April 2007, nearly 30 percent of complaints received at CAFCC involved the use of a counterfeit financial instrument. Schemes documented that involve counterfeit cheques are global in nature, often using foreign bank accounts to facilitate money laundering.

Canadian-based MMF operations mostly target citizens from Canada and the United States, and to a lesser degree, the United Kingdom and other English speaking countries. MMF operations outside Canada reported by Canadians are mainly based in the United States, the United Kingdom and Spain.

Ontario, Quebec, British Columbia and Alberta are the top-ranking MMF criminal locales in Canada, with Ontario accounting for almost half of the reported locations. The lottery, sweepstake, grants and loans, and credit card schemes are operated in all locales. Directory and office supply scams operate primarily from Montreal with some operations in Toronto. In 2006, 73.9 percent of the complaints received at CAFCC on Canadian suspects were received from consumers in other countries. Schemes originating in Canada primarily target U.S. citizens.

Canadians have reported being solicited with schemes originating from 105 different countries worldwide. Communication methods such as email, Voice over Internet Protocol (VoIP) and the Internet in general, are making it easier for criminals to communicate with their intended victims. The majority of complaints originated from the United States, followed by the United Kingdom, Spain and Nigeria.

Principal Techniques Used for Fraud

Facilitators of MMF activities, whether witting or unwitting, may be used by MMF operations in the various phases of their fraudulent operations, including the initial set up of a scam, the identification of potential victims, reaching and communicating with intended victims, receiving victim funds and laundering of proceeds. Facilitators vary depending on the size and level of sophistication of the scheme being run.

Overall in the last 3 years, telemarketing (direct call) has ranked the highest amongst solicitation methods in terms of the number of reported occurrence and is followed in order by mail, Internet, print, and in-person.

Receipt and Laundering of Mass-Marketing Fraud Proceeds

In the past, funds were mostly forwarded by victims to the fraudster by way of a cheque or cash through the mail stream. Now, money transfer businesses are increasingly used by fraudsters to receive funds from victims, mainly for money transfers involving transactions of less than $10,000. Cashier’s cheques and bank-to-bank wire transfers are the most common methods for transactions involving amounts of $10,000 and above. In regards to fraudulent activities committed through the Internet as the primary means of communication and transaction, payments are usually received via Internet Payment Systems (IPS).

On the money laundering front, some of the current methods that have been used for some time are: “smurfing”1 electronic funds transfer, the use of money service businesses, casinos, credit cards and co-mingling of funds using legitimate businesses. Furthermore, a few emerging trends that are particularly of interest to the laundering of proceeds obtained from mass marketing frauds are: money laundering through Internet Payment Systems (IPS), prepaid credit cards and digital currencies.

Several cases investigated in Canada show that mass-marketing fraud operations can generate substantial amounts of revenues in a relatively short period of time. For example, in Montreal, Project Coral2 unveiled a criminal operation which generated over $30 million U.S. in 18 months. In a case investigated by Project EMPTOR, an RCMP-led Task Force in British Columbia, a fraudulent scheme operated by a British Columbia couple, involving selling credit card protection to customers across the United States, took in more than $10 million from thousands of victims.

Current “Best Practices” for Reducing Incidence and Prevalence of Mass-Marketing Fraud

Today, PhoneBusters is known as The Canadian Anti-Fraud Call Centre (CAFCC) and plays a key role in education and prevention of mass marketing fraud schemes while promoting the principles of intelligence-led policing through the collection, analysis and dissemination of complaint and victim information to law enforcement agencies. Centralization of fraud complaints is a key element to enabling better information sharing and intelligence.

In Canada, the six MMF partnerships, which include three co-located task forces in Montreal, Toronto and Vancouver, are the main enforcement bodies that investigate, disrupt and dismantle MMF operations. Many MMF cross-border cases between Canada and the United States have been successfully investigated and prosecuted since 1998.

March is Fraud Prevention Month in Canada and around the world. During the month, Fraud Prevention Forum members raise awareness of the dangers of fraud, while educating the public on how to: “Recognize it. Report it. Stop it.”


Mass-marketing fraud remains a problem in Canada and is causing severe harm to Canadians and foreigners alike. While mass-marketing fraud operations continue in Canada, similar operations in other countries grow. MMF is perceived by criminals as a high-profit, low risk criminal activity and has become an attractive venture for organized crime groups.

In Canada the top schemes, in order, are: prize (including lottery and sweepstakes) pitches, the work at home/ job opportunities, foreign money offers (419 scams), loan pitches and overpayment (sale of merchandise) scams. In recent years, all of these have been associated to the use of counterfeit or altered monetary instruments and all are international in scope.

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