In 300 BCE a fellow by the name of Hegestratos earned himself a dubious honor.
The Greek merchant is believed to be the first financial fraudster in recorded history after he took out a loan on a ship with a cargo of corn with an eye on scuttling the empty boat, pocketing the insurance money and then selling the corn.
The scheme failed after the crew busted Hegestratos trying to destroy the ship and he drowned while trying to escape.
Hegestratos may have struck out but financial fraud has no sign of slowing down, and the growth of artificial intelligence has enabled bunco artists to execute more sophisticated, convincing and large-scale attacks.
The National Consumer Law Center recently declared fraud “a national crisis” that demands better protection.
In 2024 consumers reported more than $12.5 billion in fraud losses to the Federal Trade Commission, but total fraud is far higher, the center said. The group cited a Pew Research Center report that nearly three-quarters (73%) of U.S. adults have experienced some kind of online scam or attack, and one in five reported losing money.
“The increasing ease and use of mobile and online banking have provided new opportunities for criminal fraudsters,” the center said.
“Consumers are plagued by problems with unauthorized transactions and fraud involving peer-to-peer payment apps, crypto-assets and exchanges, wire transfers, check alterations and forgeries, and Electronic Benefits Transfer card skimming.”
AI being weaponized to pull scams
Fraud losses are up 25% from 2023, even as the number of consumer-fraud incidents stayed relatively stable year-over-year since 2020, the Federal Reserve Bank of Kansas City said in a recent report, citing FTC statistics.
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“Scammers increasingly contact victims using more novel and interactive methods such as social media, websites and mobile apps,” the report said. “When coupled with the use of AI, these methods enable scammers to create especially convincing scams.”
The study said that fraudsters were also increasingly directing victims to use newer methods of payment, like cryptocurrencies and payment apps, which give the victims little to no possibility of stopping or reversing a scam payment.
The FTC and the Kansas City Fed compiled a list of the five most costly financial scams in the U.S., in order of highest to lowest dollar amount.
Investment scams were the top ripoff, followed by business imposter scams, government imposter scams, romance scams and online shopping thievery.
These five categories comprised 42% of total fraud losses reported to the FTC in 2020, and roughly 60% from 2021 to 2024.
“Consumer education, while ever more important, is only part of the solution to tackling scams,” Ying Lei Toh, the Kansas City Fed’s senior economist, said. “Scammers use a range of services — from telecommunications to financial — to commit scams, and each service provider involved can play a role in fighting scams.”
Training AI to combat fraud
International Fraud Awareness Week, an annual global campaign hosted by the Association of Certified Fraud Examiners, recently wrapped up on Nov. 22.
Over recent years more than 1,500 organizations have participated in the event, which marked its 25th anniversary, by holding employee trainings and community events and sharing antifraud resources.
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The association said fraudsters were weaponizing AI to automate scams, create convincing deepfakes, generate fake documents and make attacks more sophisticated.
Among other stunts fraudsters are using AI to generate fake documents like contracts or invoices and creating deepfake videos or audios to impersonate individuals.
On the plus side, financial institutions are increasingly using AI to combat fraud, according to IBM IBM.
AI-powered machine-learning models trained on historical data might use pattern recognition to automatically catch and block possible fraudulent transactions from being executed, the computer giant said.
They also might require human agents to complete extra authentication steps to verify a suspicious transaction or use predictive analytics to estimate what types of transactions a person might make and recognize unusual behavior or a new type of transaction.
A warning for Black Friday and the holidays
Black Friday, the busiest shopping day of the year, is upon us once again, and consumers are hunting for bargains.
A survey by Incogni, a data-removal and privacy-protection service provider, found that while 95% of Americans are concerned that their data could end up in a breach, 78% are still willing to share personal information for discounts, perks or free shipping.
“U.S. shoppers seem to be at a crossroads, understanding in varying degrees the risk of data sharing and breaches, but continuing to hand over personal information for short-term benefits, especially during the holiday season,” Darius Belejevas, head of Incogni, said in a statement.
“Education is crucial; consumers need to recognize that every discount carries a substantial data cost.”