Nigeria And The New Scams

Recent evidence suggests that “419” frauds have got more sophisticated. Don’t be their next victim! Geoff Covey reports

If you have never received a letter emanating from West Africa offering the chance to share in hidden over-invoiced contract proceeds, or in government money spirited out of a country in the wake of a coup, or in a concealed legacy from a deposed Head of State, you are lucky.

Nigeria was the birthplace of the 419 scam, so called after the section of that country’s penal system which addresses advance fee fraud attempts made via unsolicited correspondence. Nigeria has long been considered one of the most corrupt nations on earth, as its regular appearance towards the bottom of Transparency International’s Corruption Perception Index indicates.

The scale of the original 419 problem is well documented. Although less than 1% are thought to have responded to the many thousands of approaches made, this still represents a huge amount of money, and explains the sheer volume of approaches from scamsters eager to exploit gullibility (and that is a polite term to describe anyone daft enough to respond to a recent letter purporting to be from the son of Sierra Leone’s non-existent late ruler, King Octopus Camara III).

Latest schemes
Now Nigerian fraudsters have developed second generation 419 schemes with the potential to be even more successful.

Instead of an unsolicited letter, fax or e-mail, a direct face-to-face approach is made (quite often at trade shows or other networking events), or is arranged via a cold call. The perpetrators have thick African accents, but very often use anglicised names to conceal their true origin. There is no definitive list of the names used, but one place where a list of names is made widely available is on the Icelandic website, International Investigation Services (http://www.superhighway.is/iis), which has also just added a forum where people can share information.

In one scenario, the intended victim is fed some fairly routine 419 patter to entice them to part with their money. They are offered the chance to buy into a high return contract, a distinguished business club, or a profitable enterprise. False documentation attesting the truth of the claims is eagerly thrust in front of the quarry. Often, the deal contains an international element (eg investing in a company with offices in three continents). Further meetings are set up, and new people appear, each talking up this ‘once in a lifetime opportunity’, while simultaneously warning that time is short.

The scam does not always end with one payment. The really successful operators play their victims for all they are worth. Each time money is transferred to the crooks, victims are told no further payments are needed, but somehow third parties to the original deal crop up, and each heralds a new tax to pay or an overseen administrative item to be met. Umbrella organisations, splinter companies and keen-to-sell investors are regular features, and bring inevitable further costs. The end game often comes when the victim is told that the people they were dealing with have been killed or fired, requiring the transfer of more funds (or the collapse of the deal).

Once victims realise that all the promises have been empty ones, they start making enquiries. Usually they find that the entities to which they have given their money do not exist, do so in name only, or have different addresses from those given by the Nigerian gangs. Further digging uncovers a trail of mail collection addresses and phone numbers which forward to pre-paid mobiles, domestic premises, or even to lines overseas which can charge £50 a minute, unbeknown to the caller.

Sometimes the gangs use telephone banks, which are duped into believing they are acting for legitimate concerns. So when a victim rings, the call is answered with the company name given by the Nigerians, before the call is forwarded or a message taken. This adds to the credence of the operation. Equally, the banks to which victims make payments are rarely based in Nigeria, but the money is quickly transferred there nonetheless.

To put it all in context, the single most successful of these frauds yielded an incredible $181m, according to the hugely informative 419 Coalition website (http://home.rica.net/alphae/419coal/).

Forgeries
After years of conducting 419 scams, Nigerians are now expert at producing authentic-looking documentation (courses on how to run successful 419s are available in Lagos), and this skill is an important part of the new generation of frauds. Forged letterheads may feature logos taken direct from legitimate company websites, but with the contact details altered.

Such techniques are used for another scam, whereby goods are obtained through forged letterheads and purchase orders. This operates on the same principle as the notorious NATO scam of the late 1990s, when a Londoner of Jamaican extraction, calling himself Col Alan Reed or West, and claiming to be from NATO, contacted manufacturers of high value electrical equipment regarding a $100bn contract. He said he was responsible for compiling a list of suitable vendors to supply equipment for a top secret project which was not even to be discussed with company management. It may sound implausible, but the shrewd ‘Colonel’ succeeded in getting his hands on an estimated $100m worth of equipment to test at ‘NATO’s Military Testing Unit’ (which turned out to be a private apartment in Rekem, Belgium).

The culprit was caught only recently. A feature of the NATO scam was that all correspondence came from ‘The North Atlantic Treaty Organization’, whereas NATO does not refer to itself as ‘The’, and Organisation is spelt with an s.

In the Nigerian model, orders are confirmed - often more than once - by telephone, and strictly specify the time and location of deliveries. If the victim is successfully duped and the delivery is made, the goods are quickly repackaged and transported elsewhere. For example, three Nigerians were arrested and charged in December after a sting operation caught them in the act of receiving £80,000 of computer equipment ordered in the name of a legitimate company, whose details had been altered in the correspondence. The delivery warehouse in Hackney, East London, contained a treasure trove of items, from designer clothes and electronic goods to musical instruments.

A variation involves forged electronic payment instructions and accompanying letters, which are invariably hand delivered to banks. Once again, the documentation looks genuine at first sight, though close inspection reveals obvious anomalies. Most of the time the instructions are for round amounts, which is strongly indicative of fraud.

In one recent case, a CHAPS payment for £75,500 was stopped by a major bank after discrepancies were found when it was faxed through (without a sending fax number on the header). The intended beneficiary was a Nigerian company not in keeping with the payee’s usual business. The same firm experienced a second attempt months later, when another round amount - this time £25,200 - was requested to be sent to a Leicestershire firm. Again, vigilance by bank staff questioned the validity of the payment. The subsequent investigation found that the Leicestershire firm was legitimate, but entirely unconnected with the attempted fraud. This in itself is another aspect of the new breed of 419s.

Key precautions
It is reasonable to assume that, as happened with the original 419s, other African nations will follow the Nigerians’ lead. If you are approached with an out-of-this-world business proposition - regardless of who it is from - remember that if it seems too good to be true, it almost certainly is. Even if you think it seems a viable plan (and this applies to any business deal with an unknown party), conduct some due diligence. Check company details and addresses (be wary of obscured ownership in trusts, offshore, or West African jurisdictions), and listen for call forwarding when telephoning. Study the accounts, looking for red flags such as unexplained profit leaps and windfall profits, and ask for references. The same rules should apply to avoid being conned by a NATO-type 419 scam, and, in addition, acceptance of orders should be confirmed with the head office as listed at Companies House.

Be aware too of employee collusion. Payment instructions are hard to forge, and finding a forged one would suggest that an insider or an ex-employee had passed a copy to the criminals. Electronic payments should contain hi-tech security features which would deter crooks (following the principle that criminals will test security measures at many organisations but will target those with the weakest ones). Ensure that all staff involved in electronic transactions are carefully vetted, and also that banks, and others with whom you deal, never accept posted or hand-delivered instructions. Most at risk are smaller enterprises, which may not use encryption or authentication codes, and whose controls may not be very sophisticated.

Nigerian President Olusegan Obasanjo pledged to crack down on corruption when he replaced the notorious Sani Abacha three years ago, and many more arrests and prosecutions of 419 gangs have occurred since then than was previously the case. In August 2001, he announced a zero tolerance attitude to such scams, mirroring the actions of Ghanaian President John Kufuor, which have proved highly effective. However, the announcement came a week after the Financial Action Task Force blacklisted Nigeria as a non-co-operating country, specifically on account of 419 frauds. This may have forced Obasanjo’s hand. Rome was not built in a day, and, by the same token, it remains to be seen how long it will take to undo years of corruption in Nigeria. With a new raft of scams in operation, it seems highly likely that the situation will get a lot worse before it gets any better.

Geoff Covey is editor of Inside Fraud Bulletin, published by corporate fraud prevention and investigation consultants Maxima Group plc, www.insidefraud.com

FACTS ABOUT 419 FRAUDS
The Nigerian scam is held to be the third to fifth largest industry in Nigeria. According to the 419 Coalition website, targets usually receive an unsolicited fax, e-mail, or letter concerning Nigeria, containing either a money laundering or other illegal proposal, or a legal and legitimate business proposal by normal means. Common variations on the scam include ‘over invoiced’ or ‘double invoiced’ oil or other service contracts where the writers want to get the overage out of Nigeria; crude oil and other commodity deals; a bequest left you in a will; and ‘money cleaning’ where a lot of currency needs to be ‘chemically cleaned’ before it can be used (the scam is for the cost of the chemicals).

The 419 Coalition gives five rules for doing business with Nigeria: