As Scammers Up Their Fraud Game, Consumers, Banks, And Law Enforcement Must Respond

Forbes

20 hours ago

Technology may make fraud easier—thanks to social media—but it may also be the way to stop it. getty
Fraud schemes and scammers are increasingly making headlines, with some scratching their heads to figure out why—and how to stop it. A recent study conducted by BioCatch, a global company focused on solving next-generation digital identity challenges through examining behavioral biometrics, might offer some clarity. The survey found that 81% of Americans cited artificial intelligence (AI) as contributing to more sophisticated financial crimes, with social media (75%) and the dark web (73%) playing key roles in the equation.
That data was pulled from a BioCatch survey of 800 senior fraud, anti-money laundering (AML), and risk and compliance professionals across 17 countries on five continents. The survey was an attempt to better understand how financial institutions are fighting fraud and financial crime, the impact of emerging technologies on the dark economy, and the level of collaboration among competing institutions, law enforcement, and governments.
The impact on consumer wallets is significant. Nasdaq's Global Financial Crime Report estimates that $3.1 trillion in illicit funds moved through the world's financial system in 2023. Scams and fraud added up to $485.6 billion in projected losses. Of those moves, U.S. victims have taken a beating: the U.S. ranks second globally for major fraud losses.
That likely explains why, in the U.S., almost all of those surveyed agree that combating activities that encompass the dark economy is important.
So what can be done to stop it? Many professionals aren't quite sure. Most of those surveyed (83%) believe that their financial institutions are winning the fight against fraudsters, while only 56% believe their individual efforts have an impact on combating financial crime.
That may not tell the whole story. Matt O'Neill, a former Secret Service agent, says there's a real disconnect between losses and what banks are prioritizing. Fraud losses hit individuals in the pocketbook, not banks. The banks aren't materially affected, and there hasn't been a real push to pivot from the status quo.
While U.S. banks may trust technology, they don't trust each other, O'Neill explains. That means there's no meaningful sharing of information. That's a break from behaviors other countries where statistics suggest that when other countries share at scale, their losses are decreasing.
(Part of the reluctance to share information may come from consumers. While 32% of those surveyed in the U.S. consider data privacy regulation as one of the main inhibitors to sharing data with other banks, 30% worry about the potential for misuse. These numbers are higher than global averages.)
Nearly all (93%) of those surveyed consider their organization to be effective in fighting financial crime, and four in five of those surveyed say their banks have incorporated behavioral analysis into their technology stack to detect financial crime. Those numbers may sound impressive, but O'Neill says that criminal networks are actually outpacing banks while banks are still playing catch-up. The Role Of Law Enforcement
Despite an increase in reports of fraud, law enforcement agencies are reaching out to banks less often. That means there may not be a unified effort to stop scammers. And, tellingly, it makes a real difference where the fraud happens—even when banks do contact local law enforcement, not all law enforcement have the means, ability, and time to respond to sophisticated scams and attacks.
The majority of Americans working in financial crime prevention believe that law enforcement should do more when a Suspicious Activity Report (SAR) is filed. By law, national banks are required to report known or suspected criminal offenses, transactions over $5,000 suspected to involve money laundering or violations of the Bank Secrecy Act (BSA), and transactions of $25,000 or more involving a criminal violation, even if no suspect is identified. The level of follow-up from those SARs may be inconsistent across banks and across demographics.
Banks also report that they don't receive regular contact from law enforcement about their investigations into criminal activity. When it does happen, the contact tends to be less frequent than on a monthly basis. Customer-Focused Communications
On the consumer side, banks and other financial institutions have tried to boost awareness about the potential for fraud, often by creating awareness campaigns. But Seth Ruden, Senior Director of Global Advisory at BioCatch, notes that can only go so far. 'Social engineering is so compelling,' he says, and efforts to combat it are not as effective as the tactics exercised by bad actors.
Social engineering is a form of manipulation which relies on human psychology to direct behaviors. In this context, scammers may spend significant resources to convince potential victims to take certain steps like revealing personally identifiable information or transferring assets to a third party.
To combat that manipulation, institutions need new controls to fight scammers, including those to alert potential victims. Oftentimes, banks may notice the potential fraud before the victim does, or before third parties do. But it may be too difficult to break the spell.
Creating some friction at the consumer level could delay funds from being released. That, combined with the sharing of information between financial institutions, could be a difference maker. When funds leave an account, there's a narrow window of time before they're captured at the receiver bank. 'What if,' Ruden asks, 'we could connect in real time?' That could present an opportunity to stop or mitigate the damage.
O'Neill agrees, suggesting that while precision analytics can be a real game-changer for banks, additional resources—including a human touch—can also make a difference. For example, when a potential victim is determined to send funds to a new payee, like a new romantic interest, asking the right questions could result in a pause in activity. Asking a question as simple as, 'Why would send money to someone you have never met before?' could trigger a conversation that could result in enough information to reveal that the payment is very suspicious.
The key, of course, is to create friction without making it a competitive disadvantage. That, says Ruden, requires resources. Those on the other side of the equation—the fraudsters—are sophisticated actors and are willing to dedicate time and money to see a scam through. Fighting will require the same dedication from financial institutions. But it may well be the case that those spends are welcome since nearly two-thirds of those surveyed say they'd like to increase their investment in technology (those in the U.S. said so at a much higher rate than the global average). What Can Consumers Do?
So much of fighting fraud still rests with the consumer. So, what can consumers do to protect themselves?
O'Neill is quick to offer his advice, emphasizing, 'Never ever send money to anyone that you've never seen or touched before.'
If you make a mistake, 'The cavalry isn't coming,' he says, noting that the likelihood is slim to recover the funds. 'There isn't a magic button to recover those funds,' so it's important to think it through. 'If it's going to hurt you to lose it, don't send it,' he warns.
Ruden says that it's going to take a technology revolution to protect consumers. He thinks such a move should be welcomed, noting that it's in the interest of financial institutions and fiduciaries to help protect their customers. Some do a better job than others—and those are the organizations that consumers should seek out.
'Look for a culture of protection,' he advises, saying that consumers should keep an eye out for institutions that place an emphasis on fraud-fighting. This can mean existing trained fraud prevention teams or otherwise demonstrating a commitment to protect consumers through their business practices. Tax Rules For Losses
If you are a victim of a scam, while you may not be able to recover your losses, you may be entitled to tax relief. Earlier this year, the IRS Office of Chief Counsel released a memo providing clarification on the deductibility of theft losses for scam victims.
The memo was welcome for taxpayers who were confused about limits resulting from the Tax Cuts and Jobs Act (TCJA) made another tweak. Under the TCJA, for the tax years 2018 to 2025, personal casualty and theft losses are deductible only to the extent that the losses are attributable to a federally declared disaster. The One Big Beautiful Bill Act made the limits to losses permanent, with one exception: it has been expanded to include state-declared disasters.
That means the theft loss deduction is still available for businesses and individuals who incur losses in transactions entered into for profit. There is no statutory definition of "a transaction entered into for profit." However, courts have determined that to meet the criteria, a primary profit motive is required. Next Steps
As scammers develop new schemes to steal money and information from consumers (you can read about a new one here), the commitment to fraud prevention must evolve even faster. Understanding what kinds of scams exist and how they operate, as well as the roles that consumers, law enforcement, and financial institutions can play in mitigation and prevention, are all key. That means that education will continue to be a big part in stopping scammers.
You can read the Biocatch global survey here. Forbes FBI Warns Scam Victims To Be On The Lookout For Fake Law Firms Offering To Help Recover Losses By Kelly Phillips Erb Forbes IRS Issues Warnings On Tax Scams Driven By Bad Advice Often Found On Social Media By Kelly Phillips Erb Forbes Some Scam Victims May Be Able To Deduct Related Losses On Their Tax Returns By Kelly Phillips Erb