Let’s take scammers to the cleaners

Financial education is key to limiting the likelihood of someone falling into a scam.

EVERY day, without fail, we have seen reports about how individuals are scammed by all sorts of methods and strategies. The victims are innocent but simply trapped in a situation, thinking that they will get rich quickly.

Scams itself are now a pandemic as they are so widespread to the extent that what is reported is only the tip of the iceberg, as many victims stay silent when they are tricked into parting with their hard-earned monies by these scammers.

There are various forms of scams and they include online job scams, forex, investments, eCommerce, Macau scams, cryptocurrency, love scams, parcel scams to even maid scams.

Scams are successful as they are able to trick the victim into parting with monies with a promise of exceptional return.

Greed and fear play a big role in these scams as we have seen many cases of victims just falling into a trap that they have either been targeted by law enforcement officers or they could earn big bucks in a short space of time with little money upfront.

It is common to hear, as reported in the media, that victims are promised double-digit returns and lucrative income if they were to participate in the scheme pushed by these scammers.

Scams everywhere

According to a report last month by Ipsos, a global leader in market research, an alarming 76% of Malaysians have been targeted by scammers, of which 51% occurred in the past three months.

Popular applications include phone calls, WhatsApp chat messaging, Facebook, Telegram, SMS and e-mails. Just under half the victims of scams reported the matter to relevant authorities.

Last year, according to the Bukit Aman Commercial Crime Investigation Department SemakMule database, some 160,095 bank accounts and phone numbers linked to scammers were identified, while according to Bukit Aman Commercial Crime Investigation Department early this week, scammers raked in some RM472.2mil last year, which was more than double compared to RM217.5mil in 2022.

Globally, scams too are big businesses. According to The Global State of Scams 2023 Report by the Global Anti-Scam Alliance (GASA), a substantial 25.5% of the world population, or two billion individuals lost money to scams or identity theft in the past 12 months, with losses at a staggering US$1.03 trillion between August 2022 and August 2023.

These were estimates that were extrapolated from a survey that was carried out by GASA involving 49,459 persons from 43 nations. This amount is substantially and significantly higher than the US$55.3bil lost for the whole of 2021 and the US$47.8bil lost in 2020.

The sad part, so far only 0.05% of scammers have been caught.

Generative AI – the next big thing in scam

Last year, the advent of artificial intelligence (AI) came mainstream with the likes of Nvidia delivering cutting-edge solutions for businesses and consumers that have allowed companies to transform themselves with higher productivity and faster solutions to issues, products, and service delivery.

At the same time, this has also created new challenges. The emergence of “Voice AI”, has transformed as a tool for scammers to widen their “market reach”.

In the world of deepfakes, some of these Voice AI are used to impersonate a known public figure or even someone close to a potential victim.

One does not have to go far but just see how some of the “clever work” done by these scammers to fool potential victims as some of the popular social media uses browsing history to feed on victims based on certain keywords.

Promises of spectacular returns are common while in some other schemes, the victims are manipulated to part with their monies using fear tactics.

Reward commensurate with risk

Financial education is key to limiting the likelihood of someone falling into a scam. The rule of thumb is simple. With no risk, placing a fixed deposit for a man on the street probably gives approximately 2.8% to 3% return over a 12-month horizon.

For those who are able to purchase bonds, the 10-year Malaysian Government Securities, which is a measure of risk-free investment, currently gives investors a 3.8% return a year.

Investing in the Malaysian stock market, taking the FBM KLCI as a benchmark, the dividend yield is approximately 4.1%. Investing in slightly higher risk profile investments such as real estate investment trusts can top at about 6% per annum.

Hence, any sort of investment offering in the market that promises higher than the above return is riskier and the potential loss of capital rises when expected returns are higher.

Thus, when a platform offers a 10% or 12% return per month (this is somewhat a typical promise made in most investment scams like cryptos, forex, stock market, etc), the expected return on a simple annualised basis is a staggering 120% to 144%, or 260% to 390% if compounded monthly, which is unreal and near impossible.

For anyone to suggest these types of annualised returns have only one thing in their mind, i.e., to scam the victims.

Ponzi schemes too have spectacular return promises as they use new monies to pay older investors in the form of the promised returns. The “game” can continue for a foreseeable time until and unless the music stops – that is there are no longer any new investors in the scheme.

Time for action

While individuals falling for scams can be blamed for being greedy as they are being lured with exceptional profit gains over a short period of time, or fear due to psychological pressure as they fall victim to scammers impersonating law enforcement officers, there are steps the government can take to protect consumers.

First, the mule accounts that are being used. Most of the scams that are being carried out involve mule accounts. These are accounts “borrowed” for fund transfers to the original scammers.

The mule account holders earn a small fee for allowing these scammers to use their accounts for these illicit funds transfers. Authorities in Malaysia have identified thousands of mule accounts and provide a link for consumers to check on the database at https://semakmule.rmp.gov.my.

However, not many use this service and continue to fall victim to scammers. Hence, one way to overcome this is to completely freeze these mule accounts at the onset of any reported scams by working with the banks to identify large movements of funds in a quick turnaround time.

The authorities could also expand the time for confirmation of payee for suspicious and large transactions, increase warnings and payment delays for higher-risk transactions, and strengthen intelligence and data sharing across the financial sector.

New legislations

Second, following the steps proposed in the Philippines, Malaysia too should enact legislation that not only looks at cybersecurity issues, which the government intends to table soon under the Cyber Security Bill but extends beyond to include bills that will cover mule accounts and blocking of online websites, which can be done via an Anti-Mule Bill and Online Site Blocking Bill.

In the Philippines, according to the Private Security Advisory Council, the Anti-Mule Bill was aimed at barring money mules and/or fraudulent acts involving bank accounts and criminalise the registering or opening of an account using a fake identity.

In addition, it will also cover the selling or transferring of an account to unauthorised persons, purchasing or using an account without being the owner, and recruiting people to open accounts to commit fraud.

Risk sharing

Third, we could emulate the measures taken by Singapore authorities under the Shared Responsibility Framework, which has proposed that financial institutions and telecommunication companies that were proven to be negligent to bear full responsibility for victims’ losses.

Although not implemented just yet, the consultation paper sets out a list of “discrete and well-defined duties” for these companies, making them liable to pay if they have fallen short of their responsibilities.

In conclusion, scammers are everywhere and waiting to prey on their next victim.

While greed and fear play a critical role in making scammers walk away with hard-earned monies, there is more that can be done to educate the public in terms of awareness of what is risk and the commensurate rewards when it comes to investments.

Other measures are dependent on the government to implement to reduce the incidence of scams in this country and the introduction of new legislation as well as enforcement actions are key, especially via the financial industry as well as taking actions on known mule accounts.

Instead of falling into being victim to these scammers, it is time for us to take action and send these scammers to the cleaners.

Pankaj C. Kumar is a long-time investment analyst. The views expressed here are the writer’s own.