Advance Blog

February 6, 2024
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The Surge in Investment Fraud: A Deep Dive into the Causes and Consequences

Globally, there has been a staggering rise in investment scams in recent years, with a notable surge reported in Russia. According to the Moscow Times, during the latter half of 2022, the Russian Financial Supervisory Authority and the Central Bank identified a 300% increase in attempted investment fraud compared to the same period the previous year, reaching 965 cases.

Last year, Thailand also experienced a rush in fraud cases from the post-pandemic era, especially around protective clothing and medical essentials.

A recent article by Lars Olofsson and his team, notable for his work at Juicy Fields and his expertise in investigating investment fraud, has delved into the reasons behind this post-pandemic trend.

A significant factor contributing to the surge in fraud is simply the impunity that these criminals enjoy. Law enforcement agencies have struggled to apprehend these fraudsters, allowing them to operate freely. Additionally, the accessibility of additional saved funds during the pandemic, when travel and entertainment expenses were minimised, provided individuals, some of whom had never invested before, with extra money.

Incredibly some countries have weaponised and institutionalised fraud to the extent that it has become a significant source of foreign income. In a new report, researchers at the security firm Jamf said that an advanced persistent threat group known as BlueNoroff targets cryptocurrency exchanges, venture capital firms, banks and wealthy individuals. The U.S. Treasury Department considers BlueNoroff APT hackers a subgroup of Lazarus, the most notorious North Korea-based government hackers tracked by researchers and governments.

Frauds can be big or small. In 2018, the US Treasury said, North Korean groups had attempted to steal more than $1.1 billion from targets and had carried out fraud, extortion or cyber-attacks in Bangladesh, India, Mexico, Pakistan, Philippines, South Korea, Taiwan, Turkey, Chile, and Vietnam. One of their most notable attacks included the theft of $80 million dollars from the Central Bank of Bangladesh’s New York Federal Reserve account.

The pandemic also contributed by shifting people’s social and investment behaviours as well as resetting their risk aversion. With many confined to their homes, increased internet activity created an environment ripe for fraud. Even outside of the obvious cyber-attacks, fraudsters exploited this “work remotely / always be online” trend by establishing phony online communities, manipulating social connections and creating false trust among potential victims.

Notably, the sophistication of these scams has now evolved, with fraudsters employing behavioural scientists and advanced psychology techniques to manipulate victims. The rise in the number of scams and victims, coupled with an increase in average losses, underscores the seriousness of the situation.

Contrary to stereotypes of uneducated and relatively naive individuals, Olofsson stated that victims hail from diverse backgrounds, often possessing advanced education and substantial business experience. The perpetrators have managed to infiltrate all strata of society, normalising fraud in some regions.

The most common frauds have evolved from the simple bait and switch “rubber glove scams” to schemes around bogus offers of employment, fake commodity sales and non-existing services. They all revolve around a basic tenet of greed and profit, but now the latest evolutions are subtle, believable and targeted to each individual’s profile. I have lost count of how many “wealth advisors” have approached me in the past year, along with ubiquitous “recruitment consultants” with a fantastic work-from-home bonanza. Even otherwise sensible people have invested time, money and resources in fantastic schemes involving millions, if not tens of millions of dollars in phantom trades of commodities, precious metals and energy.

These investment frauds frequently exist along with extensive money laundering activities. Olofsson’s investigations have uncovered instances where the money laundering associated with these scams can surpass the initial fraud amounts. Once the channels have been set up for the illegal transfer of money, not only the fraud’s funds are transferred but also money from other criminal activities, including terrorist funding.

Beyond financial losses, investment fraud has destroyed social institutions, particularly in nations where fraud has become normalised. Organised scams often involve recruiting family members, friends, and relatives, causing deep-seated conflicts and rupturing social bonds. In these instances, fraud extends beyond financial loss, leaving a trail of broken families and fractured social connections.

As investment scams proliferate, efforts must intensify to address the root causes and implement robust measures to safeguard potential victims and preserve social cohesion.

If you feel you are a victim of fraud, you should move quickly, as fraudsters relocate as soon as they sense their schemes are under scrutiny. Bank accounts are closed, offices are vacated, and companies are abandoned, leaving an untraceable maze.

Silk Legal provides various services around dispute resolution and general litigation. This article is for information only, and while we have tried to keep our updates as accurate as possible, there may be errors and changes to proposed legislation that can affect your decisions. Please feel free to contact us for a free consultation at [email protected].

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Silk Legal
Dr. Paul Crosio, Partner at Silk Legal

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