Identity Fraud Schemes Cost Businesses Billions

The Broad Impact of Identity Theft

When you hear about identity theft, you probably think of the person who has to spend many months trying to clear up his credit report. But the ramifications of identity theft go much further than that individual. They cost businesses and banks billions each year – not just in merchandise that will never be paid for, but also in lost trust and bad publicity.

Case Study: The Red Cross Identity Fraud Incident

In 2004, Patrick L. Meehan, the U.S. Attorney for Eastern Pennsylvania, filed an indictment charging Harold J. McCoy, Danielle Baker and Karynn R. Long with a variety of federal charges dealing with an identity fraud scheme that stole the personal information of blood donors. The defendants used the information to obtain credit for purchases of merchandise, cash counterfeit checks and obtain bank loans.

A Scheme Spanning Across States

According to the indictment, the defendants engaged in this scheme throughout the eastern United States from approximately August 2002 to April 2003. At the direction of McCoy, Baker, an employee of the American Red Cross, stole names, dates of birth, social security numbers, addresses, telephone numbers, places of employment and other information from the computer records of the Red Cross blood drives.

Targeting High-Income Victims

McCoy and his cohorts targeted the victims based on their jobs with companies that paid high salaries, which made it easier to obtain credit. With the personal information from 40 victims, they went on to fraudulently obtain $268,000 in cash and merchandise in more than 170 illegal transactions.

The Impact on The Red Cross and Other Stakeholders

“This fraud case had a significant impact on the Red Cross, as many companies refused to participate in future blood drives. The Red Cross has estimated its loss from this fraud to be at least $455,000, as it had to purchase blood from other parts of the country to make up for the lost donations.

The indictment also noted that the financial loss to retail establishments, credit card companies and banks in this case was approximately $268,762.

The Red Cross defendants received prison sentences ranging from 18 months to 162 months.

Professional Insight on Identity Fraud

I thought the Red Cross identity fraud case clearly illustrates the wide ranging effects of this crime. I contacted Richard Goldberg, an assistant U.S. Attorney and the chief of the Financial Institution Fraud & Identity Theft Section, for the U.S. Attorney’s Office, Eastern District, Pennsylvania, and asked him how business people were hurt by identity fraud cases.

The Business Repercussions

“Businesses are hurt by identity theft when customers trace the theft back to the business,” Goldberg said. “When they realize that a crime is being committed at a certain location, they don’t want to take their business there anymore.”

Ensuring Security in Businesses

“A good business – big and small – has to recognize that as much care as they take to safeguard their proceeds, whether cash, checks or money wired into their accounts, they have to take equal care to safeguard the information they have in their files and computers. It is just as valuable,” Goldberg explained.

The Two Types of Identity Thieves

Goldberg further elaborated on two categories of identity thieves and highlighted how a low-tech technique could be used in identity theft, citing the Red Cross case as an example.

Recommendations for Businesses

The U.S. Attorney’s office recommends that businesses can prevent identity theft and reduce the harm it causes by taking the following steps:

1. Screen employees carefully and repeat the process frequently.
2. Limit which employees have access to sensitive information about clients and customers.
3. Create an audit trail so that you can locate the source of the leak if identity thefts occur.
4. If an identity theft occurs, contact law enforcement immediately. They can help you investigate and determine how the information was stolen. By taking this step, you might be able to limit your liability in a future lawsuit.