Staying on top of ever-evolving fraud and cybercrime

Credit managers encounter financial fraud every day, whether it is as simple as a spoofed phone call mimicking an established customer or the manipulation of a compromised email. Equipped with ever-evolving technology, fraudsters are more empowered than ever before, requiring credit professionals to be diligent in every facet of their work.  

Why it matters: With innovations in technology and the advent of artificial intelligence (AI), traditional forms of fraud have become more advanced while new schemes have emerged, leaving credit managers facing increasingly complicated fraud attempts each day.  

By the numbers: In 2024, there were 859,532 complaints of suspected internet crime, according to the Federal Bureau of Investigation, with reported losses exceeding $16 billion, a 33% increase in losses from 2023. The top three cybercrimes by number of complaints were phishing/spoofing, extortion and personal data breaches.  

“Cybercrime has exploded since 2020,” said Andrew Behlmann, Esq., partner at Lowenstein Sandler (Roseland, NJ) during the Fraud and Cybercrime: What Credit Departments Need to Know webinar. “The COVID-19 pandemic was a major shift in global dynamics and criminals found new ways to make money. There was also a drastic shift in the way people worked, the technology they used and the security of those systems. There’s this explosion—both on the demand side, with criminals choosing to commit cybercrime, as well as on the supply side, with businesses not adequately armoring themselves against cybercrime.” 

The most common fraud attempts that credit professionals will encounter are credit fraud and payment fraud. Credit fraud is when fraudsters obtain goods or services on credit without any intention of paying. Payment fraud is when goods or services are bought using fake or stolen means of payment.  

Traditional identity-based scams are still common despite the emergence of more advanced forms of fraud, so it is critical that credit managers do not lower their defenses. This includes the “Same Name” scam where a fraudster applies for credit using a name that looks and sounds similar to an existing, legitimate customer, and the “Ship To” scam, where fraudsters place orders under an existing customer’s name but ship to a different address. Synthetic identities, where the perpetrators create a fake company or individual and communicate with a salesperson, are a traditional form of fraud that’s become harder to identify as AI tools make it far easier to generate. 

“We’ve had clients dealing with traditional identity-based scams for years and despite how old-fashioned they seem, they’ve become even more common over the last five to six years,” Behlmann said. “It is now so easy for a fake business to use generative AI technology to generate emails and financial statements that look like they are coming from a legitimate company.”  

More than two-thirds of business financial fraud happens through email, according to Behlmann, with fraudsters impersonating real people using compromised emails to obtain credit or redirect payments. Among the emerging modern financial fraud schemes are application fraud, where customers falsify or misrepresent financial information to appear more creditworthy, and undisclosed ownership changes, where customers change hands to a riskier new owner, completely unbeknownst to you.  

The best practice is to always confirm changes in information, whether that’s the shipping address or the banking information.  

“When you get an email ostensibly from a customer that seems a bit fishy, reach out to them outside of that contact via phone call, ideally or an email address you know is legitimate,” said Michael Papandrea, Esq., partner at Lowenstein Sandler (Roseland, NJ). “Reach out to other contacts—your actual contacts you have at that agency—to confirm: Hey, does this person work at your company?” 

As companies address growing fraud trends, it is important that credit professionals remain confident in their own judgment. “The more sophisticated fraud gets, the more important human intelligence is going to have to be to recognize it,” Behlmann said. “The human mind has an immense ability to spot problems, and never underestimate a gut reaction. Your credit team should have people who are empowered and trained so that if something doesn’t feel right, they can stop the train and figure out what’s going on.” 

The bottom line: As fraud evolves, so should the best practices for addressing it. With companies training their teams to spot fraud and ready their defenses, it is important that credit professionals not lose confidence in their own judgment. Don’t rush your decisions, if there is an aspect of a credit application, an email from a customer or a phone call that looks off, trust your instincts.