Assessing the Magnitude of Mass Marketing Fraud

UNIVERSITY OF CALGARY

JACQUELINE M. DREW

A THESIS

SUBMITTED TO THE FACULTY OF GRADUATE STUDIES

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

DEGREE OF MASTER OF BUSINESS ADMINISTRATION

HASKAYNE SCHOOL OF BUSINESS

CALGARY, ALBERTA

AUGUST, 2011

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Abstract

This study examines ways in which Mass Marketing Fraud (MMF) has been measured in the past, points out deficiencies in these methodologies, and suggests ways in which measurement might be done more scientifically and with better accuracy. Specifically, the author examines existing academic literature regarding Mass Marketing Fraud, and then analyzes two major surveys which attempted to estimate the magnitude of MMF: one study conducted in the UK in

2006 and one study conducted in Canada in 2007. As a professional member of the marketing industry, the author also suggests new, non-survey methodologies which could be used to measure the magnitude of MMF and which are not reliant on the public’s ability to recognize and report victimization when questioned in the context of an after-the-fact survey.

Author Note

This author of this research owns a private marketing consulting business in Calgary, Alberta,

Canada. She completed an informal preliminary literature review in 2008 under a paid contract for the Competition Bureau of Canada to develop messaging for an awareness campaign for commercial mass marketing fraud. Although she has not been compensated or contracted for any work from the Competition Bureau since 2008, she did receive some guidance, support, and materials for this literature review from her contacts at the Competition Bureau.

Acknowledgements

The author wishes to express her sincere appreciation and gratitude to the many individuals who have contributed to this work, especially:

To Dr. Robert Schulz, my supervisor, for his encouragement, mentorship and support throughout the course of this work. You have a rare creativity and boundless energy for problem solving and it has been a tremendous benefit to have your insight.

To the professionals at the Competition Bureau, Industry Canada, and the Office of Fair Trading for providing valuable reports, data and advice which were used in this study.

To my children, George and Elizabeth, who have managed to grow up to be exceedingly strong, supportive, and independent in accommodation of a mother who is endlessly pursuing her dreams. I hope that the completion of my MBA will inspire your educational plans in the long run, and help you know that dreams and educational goals are independent of chronological age.

Finally, to my husband, Gary, you are my best friend, soul mate, and endless believer in me. A lifetime of love will always be my thanks to you.

Dedicated to START Marketing Inc.

Thank you for 15 years of serving honourable, go-getting businesses

and teaching me all about the world in the process.

TABLE OF CONTENTS

1. CHAPTER 1: THE ISSUE OF MASS MARKETING FRAUD (MMF)...... 1 1.1. Definition Of Mass Marketing Fraud...... 5 2. CHAPTER 2: LITERATURE REVIEW...... 8 2.1. Literature Review Part 1: Marketing Literature...... 8 2.2. Literature Review Part 2: Overview Of Government Documents...... 15 3. CHAPTER 3: OVERVIEW OF THE DATA PROVIDED ...... 21 3.1. Methodologies For Measuring MMF...... 22 3.2. Key Results Of Recent MMF Studies ...... 25 3.3. Specific Scam Comparisons ...... 30 4. CHAPTER 4: ANALYSIS OF DATA STUDY RESULTS...... 33 4.1. Gender Comparison...... 34 4.2. Age Groupings ...... 35 4.3. Education vs. Social Class...... 36 4.4. Income Groupings...... 37 4.5. Statistical Analysis by Type of Scam...... 39 4.5.1. African Advance Fee (419 Fraud) Scam...... 39 4.5.2. Prize and Sweepstakes Scam...... 41 4.5.3. Work-At-Home or Business Opportunity Scam...... 43 4.5.4. Miracle Health or Bogus Cure Scam ...... 44 4.5.5. Property and High-Risk Investment Fraud...... 46 4.5.6. Holiday or Vacation Club Scam ...... 48 4.5.7. Advance Fee for Loans or Credit Cards Scam ...... 50 4.5.8. Other Scams...... 51 5. CHAPTER 5: VICTIMIZATION AND DEMOGRAPHIC RELATIONSHIPS...... 54 5.1. Relationship Between Gender and Victimization...... 55 5.2. Relationship Between Age and Victimization...... 56 5.3. Education, Income, and Social Class Relationships ...... 59 5.4. Amounts Lost Per Scam ...... 62 6. CHAPTER 6: MEASUREMENT OPTIONS ...... 63 6.1. Measuring Other Insidious Crimes ...... 63 6.2. Suggested Methodologies to Measure MMF...... 66 7. CHAPTER 7: TACKLING THE RESEARCH...... 78 8. CHAPTER 8: BENEFITS OF SUGGESTED RESEARCH...... 82 9. CHAPTER 9: AREAS FOR FUTURE STUDY...... 84 10. CHAPTER 10: CONCLUSIONS ...... 88 11. REFERENCES...... 89

LIST OF TABLES

Table 1: Top Marketing Journals Addressing MMF Related Topics...... 8 Table 2: Other Journals Addressing MMF-Related Topics ...... 11 Table 3: Types of Fraud Included in the 2005 FTC (U.S.) Fraud Survey ...... 19 Table 4: Overview of Data Provided...... 22 Table 5: Comparison of Methodologies of Recent MMF Studies ...... 24 Table 6: Comparison of Results of Recent MMF Studies ...... 25 Table 7: Scam Types “Rampancy” Comparison...... 31 Table 8: Scam Types “Rampancy” Comparison Summary ...... 32 Table 9: Gender Comparison ...... 34 Table 10: Age Comparison ...... 35 Table 11: Education vs. Social Class...... 37 Table 12: Income vs. Social Class...... 38 Table 13: African Advance Fee (419 Fraud) Scam: Not Adjusted for Recentness...... 40 Table 14: African Advance Fee (419 Fraud) Scam: Adjusted for Recentness ...... 41 Table 15: Prize and Sweepstakes Scam: Not Adjusted for Recentness...... 42 Table 16: Work-at-Home or Business Opportunity Scam: Not Adjusted for Recentness...... 44 Table 17: Miracle Health or Bogus Cure Scam – Not Adjusted for Recentness ...... 45 Table 18: Miracle Health or Bogus Cure Scam – Adjusted for Recentness ...... 46 Table 19: Property and High-Risk Investment Fraud: Not Adjusted for Recentness ...... 47 Table 20: Holiday or Vacation Club Scam: Not Adjusted for Recentness...... 49 Table 21: Holiday or Vacation Club Scam: Adjusted for Recentness...... 49 Table 22: Advance Fee Loan Scams: Not Adjusted for Recentness ...... 51 Table 23: Overall Targeting and Victimization Comparison: Not Adjusted for Recentness ...... 54 Table 24: Overall Targeting and Victimization Comparison: Adjusted for Recentness ...... 54 Table 25: Relationship between Gender and Victimization: Environics (Canada)...... 56 Table 26: Relationship between Gender and Victimization: OFT (UK)...... 56 Table 27: Age and Victimization: Environics (Canada) Study...... 57 Table 28: Age and Victimization: OFT (UK) Study ...... 58 Table 29: Education and Victimization: Environics (Canada) Study...... 59 Table 30: Income Level and Victimization: Environics (Canada) Study...... 60 Table 31: Social Class and Victimization: OFT (UK) Study...... 61 Table 32: Average Reported Loss by Type of Scam...... 62 Table 33: How Other Insidious Crimes Are Measured ...... 65

LIST OF FIGURES AND ILLUSTRATIONS

Figure 1: Mass Marketing Fraud Knowledge Resources 14 Figure 2: Gender Comparison 34 Figure 3: Age Groupings 35 Figure 4: Education vs. Social Class 36 Figure 5: Income vs. Social Class 38 Figure 6: Calculating MMF 68 Figure 7: Deriving the Targeted Rate (TR) 71 Figure 8: Deriving the Victimization Rate (VR) 74 Figure 9: Deriving the Average Losses (AL) Per Scam 75 Figure 10: Methodology for Calculating Consumer Mass Marketing Fraud 76 Figure 11: Methodology for Calculating Commercial Mass Marketing Fraud 76 Figure 12: Methodology for Measuring Total MMF 77 Figure 13: "Funnel" Logic for Measuring Total MMF 78 Figure 14: Research Sequencing 79 Figure 15: Areas for Future Study 84

1. CHAPTER 1: THE ISSUE OF MASS MARKETING FRAUD (MMF)

Mass Marketing Fraud (MMF) is a serious national issue in Canada, but the extent of the problem is not fully understood, nor fully measured. Public Safety Canada states that about $1 billion annually is being swindled from Canadian consumers from criminal telemarketing operations alone (Public Safety Canada, 2010). Unfortunately, this is only a rough estimate; because of its insidious nature, the size and impact of the problem are very difficult to measure, meaning governments do not have good information on which to base resource allocations to educate and forewarn the public. What is known is that MMF cheats the public from hard- earned money and has connections to dangerous, organized crime rings (Glickman, 2005; Public

Safety Canada, 2010).

MMF also has more deeply-reaching consequences beyond monetary losses, such as reduced effectiveness of marketing messages from legitimate businesses, possible loss of jobs in the marketing and media sector, reduced benefits that should result from new marketing technologies, increased operating costs due to enhanced regulation and especially the long-term effects of losing consumer trust in marketing (Bhandari, Hassanein, Head, & Sproule, 2009).

With this in mind, allocating resources to combat MMF should be a priority for governments attempting to nurture their national economies. However, lack of reliable measurement as to the magnitude of MMF, thus not knowing how much should be invested in its eradication, appears to be a major hindrance to undertaking such initiatives.

The author is an independent marketing consultant based in Calgary, Alberta and operates a firm called START Marketing Inc. A contract secured by START Marketing Inc. with the

Competition Bureau of Canada in 2008 initially piqued the author’s interest in the subject of

MMF. The contract involved doing some background research on the types of commercial

MMF (i.e. MMF that targets businesses as victims, since almost all existing research at the

Bureau concerned only MMF which targets consumers), and then developing a campaign to be delivered to businesses that are potential victims. The FACT (Fraud Awareness for Commercial

Targets) campaign was very well-received by the Competition Bureau, and the messages regarding types of scams and proactive awareness were eye-catching and informative

(Competition Bureau of Canada, 2010a).

Unfortunately, a very modest communications budget on the part of the Bureau ($25,000

CAD to reach across Canada for the whole project) meant that the public service messages regarding scams were very thinly delivered to Canadian businesses, with most receiving only a one-time postcard-style mailing. This meant the campaign could deliver little impact, except for a slight increase in traffic to the Bureau’s new FACT website, which consisted of a few sub- pages of the Bureau’s existing website. The Bureau staff lamented at the time that without any

“real numbers” regarding the size of MMF, they would be unlikely to receive sufficient funding to effectively combat the problem.

The Competition Bureau referred to a 2006 UK study, and later on, to a 2008 Canadian study that made estimates regarding the magnitude of MMF in Canada. The Bureau regarded these studies as their best resources to measure fraud, although these studies were quite divergent in both the types of frauds measured and in the reported results.

Indeed, the Bureau’s staff indicated on many occasions that they felt certain that MMF was much larger than estimated by either survey because victims were unwilling to report the problem or had no knowledge that they had been swindled. However, unless one is able to determine a “number” for MMF in Canada, and a substantial number at that, important anti-fraud

3 messages are unlikely to receive the required funding to be able to reach the Canadian public with enough frequency to have an impact.

There is another reason why the problem is important to the author. As a marketing consultant for 15 years, the author has often observed people in general to be quite mistrustful of

“marketers,” as well as having false expectations that a marketer should be able to “guarantee” results, as guarantees are common promises made by unscrupulous marketers. In fact, being an

“honest marketer” almost reads like an oxymoron – to the extent that people simply expect a good marketer to sell “ice to Eskimos.” So why try to be an honest marketer in a sea of sharks?

The following story, taken from a CBC Radio column the author wrote and delivered in

March of 2007, made a lasting impression that has given the author a sense of lasting resolve to abide by ethical practices, and provides a case in point:

I was about seven, and the ad was on the back of an Archie comic book: “100 dolls for $1.00.” Wahoo! I thought! I can get a hundred dolls for only one dollar? So I promptly cut out the order form, sent off my money and eagerly checked the mailbox every day. Of course, I didn’t quite get the concept of “allow six to eight weeks for delivery.” Well, eventually the package arrived. Hmmm…the box was a lot smaller than I expected. Hardly big enough for even one doll. I opened it. Inside – small white, thin pieces of plastic, about 2 inches high. What were these? Packing material? I squinted at them. Well, yes they did look like little people. Then the shock set in! The company was passing off these formed plastic bits of junk as dolls - and had just duped me - an innocent kid! (Author’s personal files, 2007).

Even without knowing the full magnitude of MMF, loss of consumer trust is a crucial reason why business managers should care about MMF. For example, according to a 2009 private literature review undertaken by a group of researchers for the Competition Bureau of

Canada, trust is a critical factor in economic transactions:

Trust is the foundation of human interaction and communication and is critical for economic transactions. Generalized trust needs to be fostered through a value system that rewards trustworthy behaviours and appropriately punishes fraudulent or deceptive behaviours. People are found to develop a generally stable pre-disposition to trust, but this predisposition is subject to erosion when trust is betrayed. It would appear that MMF can

lead to a general loss of trust in messages received through mass marketing media (Bhandari, et al., 2009; Irvine, Theresa, & Michael, 2005).

Consistent with the above research, the author’s own experience was to mistrust the media in which the message was received. Never again were purchases made from advertisements placed on the back of comic books featuring the red-freckled teenager.

Regarding trust, and the importance to business, the authors go on to conclude:

It is the conclusion of this report that by contributing to a general lack of trust in Internet media such as e-mail and websites, MMF will deprive Canadian businesses (especially small and mid-sized businesses) of the benefits that should arise from e-commerce and other digital technologies. Furthermore, a lack of trust in new mass marketing media also limits the ability of Canadian businesses to innovate and expand (Bhandari, et al., 2009; Irvine, et al., 2005).

This conclusion has serious implications. E-mail might be a convenient and nearly cost- free way to reach a business’ customer base or potential customer base, but if those customers are mistrustful to excessive fraudulent spam messaging, the business certainly needs to find other, more expensive ways to communicate with customers. Even without knowing the magnitude of MMF, anyone with an email account can immediately appreciate the excessive volume and spurious nature of spam. Further, email users can easily identify with losing or overlooking important business emails within spam that continually leaks through software filters, as well as the related costs of viruses that are often attached to these offers.

The net result is that marketing as an industry has a worsening name. For example, according to a study of various career types, the public’s perception of marketing professions rated these careers among the least respected (Gallup, 2008). In addition, increasing misuse of marketing channels (such as e-mail, internet advertising, telemarketing, and many others) serves to encourage government intervention, increases costs to use the media, impedes the economy, and has the potential to affect employment in the legitimate industry of marketing (Bhandari, et

5 al., 2009; Irvine, et al., 2005).

This report examines the existing research on the nature and magnitude of Mass Marketing

Fraud (MMF) and compares the methodologies of two recent studies which purported to estimate the size of MMF in Canada and in the United Kingdom respectively.

1.1. Definition of Mass Marketing Fraud

MMF was defined in the aforementioned 2009 private literature review conducted for the

Competition Bureau of Canada as “consumer frauds committed through the use of mass marketing media” (Bhandari, et al., 2009). These researchers used Dacko’s definition of “mass marketing” as the “promotion of standardized, undifferentiated offerings to a large market”

(Dacko, 2008).

This definition is limiting when applied to MMF for two key reasons. First, the use of the word “undifferentiated” is inaccurate in relation to MMF. Mass Marketing Fraud research indicates that frauds are often carefully tailored to the victim, with health and weight loss scams directed at women, lottery scams targeting the elderly, and investment scams aiming at high- income males (American Association of Retired Persons, 2003).

A second problem is the use of the word “large” in relation to market size. This implies that scam artists contact hundreds of thousands of people. However, if a perpetrator calls just ten people and victimizes even one person with a telemarketing scam, this certainly can be prosecuted under MMF laws if that victim actually reports the scam (Competition Bureau of

Canada, 2010b). This means MMF need not be executed on a wide scale by any given perpetrator, although the actions of many scam artists together might have a mass effect on a national level.

A final limitation in the aforementioned definition exists with specification of “consumer” frauds. The Competition Bureau of Canada clearly states that MMF is not only committed against consumers, but also against businesses and non-profit organizations (Competition Bureau of Canada, 2010b). In fact, the Competition Bureau commissioned an awareness campaign called

Fraud Awareness for Commercial Targets (FACT) in 2008 to raise awareness of frauds affecting businesses and non-profit organizations, and the author was directly involved in the qualitative research, messaging, and formation of that campaign (Competition Bureau of Canada, 2010b).

Unfortunately, no known studies which specifically address the size and scope of commercial

MMF have subsequently been conducted.

Therefore, this thesis will use the definition provided by the Competition Bureau of

Canada, as follows:

Mass Marketing Fraud is defined as fraud committed via mass communication media using the telephone, mail, and the Internet. Provisions under the criminal regime of the Competition Act prohibit all materially false or misleading representations made knowingly or recklessly, deceptive telemarketing, and deceptive prize notices (Competition Bureau of Canada, 2010b).

The relevant legislation follows:

A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, (a) makes a representation to the public that is false or misleading in a material respect; (b) makes a representation to the public in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product that is not based on an adequate and proper test thereof, the proof of which lies on the person making the representation; or (c) makes a representation to the public in a form that purports to be (i) a warranty or guarantee of a product, or (ii) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result, if the form of purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that it will be carried out (Section 74.01 of the Competition Act of Canada).

As per the Competition Bureau’s definition of MMF, the Bureau focuses on “direct marketing” strategies such as telephone, mail, and the Internet, as noted in the 2009 literature review commissioned by the Bureau. These techniques are the most commonly used by fraudsters given that direct marketing channels allow for two-way communication to a specific person. This is a key characteristic of MMF crimes. For reasons described in the recent

Competition Bureau study, “It is not a coincidence that the media used for direct marketing are also the media most commonly used for MMF. Once they engage victims in two-way communications, fraudsters are able to use persuasion and high-pressure tactics” (Bhandari, et al.,

2009). Therefore, this thesis will focus on MMF as committed through direct marketing channels which may include mail, e-mail, telephone, website, fax, or a combination of these communication channels. Research into newer communication technologies, such as web conferencing, social media, and text messaging, is not yet available for study of MMF.

2. CHAPTER 2: LITERATURE REVIEW

2.1. Literature Review Part 1: Marketing Literature

Upon examination of the top-ranked marketing journals in North America, the following table indicates the number of articles addressing the subject of marketing-related fraud. The journals searched in this table were based on the Association of Business Schools’ ranking of academic journals (Association of Business Schools, 2010).

Table 1: Top Marketing Journals Addressing MMF Related Topics Name of Journal Number Closest topical article(s) related to subject of MMF related articles published GRADE FOUR JOURNALS: Journal of Marketing 0 1978: Fraudulent Behavior by Consumers (Wilkes, 1978). Discusses consumers as the perpetrators, not the marketers. Journal of Marketing 0 2001: Truth or Consequences: An Analysis of Research Vaporware and New Product Announcements (Barry, Sanjay, & Ambar, 2001). Discusses ethics surrounding marketing of unfinished software. Journal of Consumer 0 None. Research Marketing Science 1 2006: Does Marketing Products as Remedies Create “Get Out of Jail Free” Cards? (Lisa, Joel, & Paul, 2006). Discusses the idea that misleading advertising harms consumer welfare. Journal of Retailing 0 1989: Deterrence and Consumer Fraud (Cole, 1989). Discusses consumers as the perpetrators, not the marketers as perpetrators. GRADE THREE JOURNALS: International Journal of 0 None. Research in Marketing Journal of the Academy of 0 2000: The Antecedents and Consequences of Marketing Science Customer-Centric Marketing. Discusses effects and possibilities of better tailoring marketing messages/activities, with brief mention that customer-centric marketing could lead to anti-trust problems (competitors sharing information) and privacy issues (Sheth, Sisodia, & Sharma, 2000).

Name of Journal Number Closest topical article(s) related to subject of MMF related articles published European Journal of 0 2010: Consumer Cynicism: Antecedents & Marketing Consequences (Matthew & Anna, 2010). Discusses effects of cynicism on consumers and how businesses might handle such cynicism. Industrial Marketing 1 2010: The CAN-SPAM Act (Irvine, et al., 2005). Management Discusses how government regulation in the U.S. makes using e-mail marketing riskier for businesses. Psychology and Marketing 1 2001: Consumer Vulnerability to Scams, Swindles, and Fraud: A new theory on visceral influences on persuasion. (Langenderfer & Shimp, 2001). Introduces theory on what makes certain consumers more vulnerable to scams and swindles. International Marketing 0 1995: Direct Selling Perceptions in Australia Review (Kustin & Jones, 1995). Discusses views/opinions of multi-level marketing and direct selling. Journal of Advertising 1 2009: The Current State of Advertising Ethics (Drumwright & Murphy, 2009). Discusses overall ethics in advertising, mentioning that new technology facilitates unethical marketing. Journal of Business Research 1 2005: Federal Mail and Wire Fraud Cases. (William, Linda, & Ferrell, 2005). Listing and description of various federal (U.S.) mail and wire fraud cases. Marketing Letters 1 2005: Cognition, Persuasion and Decision Making in Older Consumers (Carolyn, et al., 2005). Mentions abuse and scamming of older consumers. Also cites the elderly’s disinclination to report being scammed as an “area for future research.” Journal of Advertising 1 1991: The United States Postal Service's Role in Research Fighting Survey Research Abuse (Ludwig, 1991). Discusses how the US Postal Service’s Consumer Protection branch is fighting companies who attempt to use surveys as tools for gathering and misusing personal information. Journal of Marketing 0 No documents relating to fraud or scams. Management

The above literature review of top marketing journals demonstrates that there is only

10 minimal published academic research in marketing journals, indicating that the marketing community pays little attention to MMF. Of the articles found, the main points are summarized on the following pages:

• The Can-Spam Act is a 2005 article that reviews new US legislation surrounding e-mail

marketing (spam) and consequences of e-mail misuse. Requirements specify inclusion of

“unsubscribe” programs, truthfulness of subject line headings, and detailed sender

information. Penalty amounts are also described (Irvine, et al., 2005).

• Consumer Vulnerability to Scams, Swindles, and Fraud: A New Theory of Visceral

Influences on Persuasion is a 2001 theory on how consumer vulnerability is affected by

using “visceral influences” in advertising which appeal to human carnal instincts and

entice consumers to fall for scams. Interestingly, the authors also state, “consumer fraud

has been largely ignored by academic researchers, remaining largely the almost exclusive

domain of specialized fraud investigators and reformed con artists themselves”

(Langenderfer & Shimp, 2001).

• The Current State of Advertising Ethics is a 2009 article on the current state of advertising

ethics which indicates that new media is allowing more rampant contraventions of

advertising ethics, and incites industry, educational institutions and academia to become

more proactive, stating, “Disagreement is not the problem; avoidance of the topic and/or

failure to engage in a collaborative dialogue is” (Drumwright & Murphy, 2009).

• An Analysis of Federal Mail and Wire Fraud Cases Related to Marketing is a 2005 listing

of federal fraud cases defines several types of fraud (mail, wire, telemarketing, and

internet) and provides briefs on specific cases using a Lexis search. This article offers no

theories as to why such incidents occur or how they might be prevented, only a listing of

cases (William, et al., 2005).

• Cognition, Persuasion and Decision Making in Older Consumers is a 2005 article on

cognition, persuasion and decision-making in older consumers which draws on

psychology resources, and discusses the how the minds of older consumers work in terms

of how aging and memory affects cognition, persuasion and decision making (Carolyn, et

al., 2005).

• The United States Postal Service's Role in Fighting Survey Research Abuse is a 1991

article that reviews a case where a U.S. company was gathering personal data for mailing

lists under the guise of conducting a market research survey (Ludwig, 1991).

With no strongly direct articles on MMF in the top (Grade Three and Four) marketing journals, the literature focus shifts to Grade Two journals, as well as business-related disciplines outside the academic business arena, such as international relations and the law.

Table 2: Other Journals Addressing MMF-Related Topics Name of Journal Number Most recent article(s), and description of MMF related articles published Journal of 2 Consumer Vulnerability to Fraud: This column used the Consumer Affairs data from a 1993 AARP survey, and using a LOGIT analysis, determined that scam vulnerability was heightened with poverty, lack of education, and/or living without a spouse (Lee & Soberon-Ferrer, 1997).

Confidence Swindles of Older Consumers: Reports on a survey conducted in 1990 with fraud investigators from 331 local police departments (Friedman, 1992).

Name of Journal Number Most recent article(s), and description of MMF related articles published Journal of Public 1 Elderly Consumers’ Receptiveness to Telemarketing Policy & Fraud: Uses data from the 1996 and 1997 AARP surveys Marketing to determine older consumers’ receptiveness to fraud. Other than the elderly and ethnic minorities showing partial correlation to scam receptiveness, factors such as living with spouse, not working, and gender have no relationship (Lee & Geistfeld, 1999). Journal of 1 Legal Update: End of the Line for Phone Scams: Database Discusses recent rash of scams in UK and the increased Marketing & regulatory control being rolled out to prevent it. At the Customer Strategy end of 2005, restrictions were placed on business-to- Management business cold calling for companies who had registered their numbers with the Telephone Preferential Service. This has serious implications for legitimate businesses (Nettleton, 2006). Journal of 1 The Future Rise of Legal Unfairness: Discusses FTC Interactive actions taken against fraudulent marketing practices and Marketing suggests new legislation will be coming with new internet technology (Petty, 1998). Canadian Journal 1 The Nigerian 419 Advance Fee Scams: Prank or Peril? of African Studies Discusses the level of seriousness of scams originating from Nigeria, which can lead to hostage-taking, arms trafficking, murder, and torture in addition to swindling millions of dollars from consumers (Glickman, 2005). Arizona Law 1 Deception, Economic Loss and Mass-Market Customers: Review Protection Statutes as Persuasive Authority in the Common Law of Fraud. Discusses the need to have good statutes in place for consumer protection that are properly enforced, since not every minor purchase transaction can be expected to have a detailed contract in place. Also argues for punishment beyond simple economic loss (Braucher, 2006). Crime Prevention 1 Personal Fraud: The Victims and the Scams: A brief Studies update and discussion of a study Titus released in 1995 regarding a survey on MMF patterns. Contains revealing research on mean/median amounts lost in each type of scam. Authors state that enhanced and routine data collection on a national level is necessary, as no solid data was available on internet-based scams as of 2001 (Titus & Gover, 2001).

The above literature search demonstrates that with regard to MMF, there is little published academic literature in any key business-related discipline and the literature that does exist is scattered across disciplines. Therefore, it is useful to look outside the academic realm to find

MMF research.

Instead, most of the research literature about MMF is contained in government documents.

Currently in Canada, there is statistical tracking of reported complaints through the Canadian

Anti-Fraud Centre (CAFC), specifically the Criminal Intelligence Analytical Unit, formerly known as “Phonebusters”. Another good resource is the National White Collar Crime Centre

(NW3C) in the U.S., whose membership consists of law enforcement agencies from 50

American States, which keeps research and statistics on economic and high-tech crimes. In addition, federal governments of countries worldwide-- including Canada (the Competition

Bureau of Canada), the United States of America (Federal Bureau of Investigation and the

Federal Trade Commission), and the United Kingdom (Office of Fair Trading)-- have published their own research and reports are available from their online databanks. Therefore, the author drew extensively on publications by these government organizations for purposes of this thesis, sourcing MMF fraud reports, government-commissioned private research reports, annual reports of various government organizations, and tracking reports of reported MMF.

This thesis emphasizes North American and UK research on the magnitude of MMF and suggests international conferences which might be useful areas for future study. To provide a clearer understanding of the scope of this research, the following diagram is illustrated:

Figure 1: Mass Marketing Fraud Knowledge Resources

This study does not aim to consolidate all MMF knowledge as a part of this review, but rather has focused on one key aspect: measuring the magnitude of MMF in an academic and scientific manner.

If this study’s proposed methodologies for measuring MMF are at least partially implemented, further international literature research could be undertaken, including possible participation or research into proceedings from key conferences such as:

• Preventing Fraud in a Digital Age. Presented by the Competition Bureau of Canada,

Ontario Provincial Police, Royal Canadian Mounted Police, Canadian Bankers’

Association, and the Consumers Council of Canada, this conference occurs each March,

during Fraud Prevention Month in Ottawa. Dates for 2012 have yet to be announced.

• 8th Annual Integrated Law Enforcement and Private Sector Fraud Workshop. Presented

by the RCMP, the Ontario Provincial Police (OPP) and the Competition Bureau Canada,

this workshop shares best practices in combating mass marketing fraud from an

international approach. Over 100 participants from four countries participate. Held in

North Bay, Ontario in February each year. Dates for 2012 have yet to be announced.

• International MMF Working Group (IMMFWG). Canada and seven other countries

participate in this conference specifically focused on MMF. Dates and location for the

next conference have yet to be announced, although the last conference occurred in June

of 2010.

• International Consumer Protection and Enforcement Network (ICPEN). This is an annual

conference on general consumer protection issues, with 150 participating countries. Held

in Washington DC, in May of each year. Dates for 2012 have yet to be announced.

• Corporate Fraud and White Collar Crime Conference. This was a small conference held

at McMaster University, in Hamilton, Ontario Canada in November of 2010. It is

unknown whether the conference will be repeated in the future.

2.2. Literature Review Part 2: Overview of Government Documents

A preliminary investigation into government documents in Canada, United States, and the

United Kingdom was undertaken to get an understanding of the current methods of measuring

Mass Marketing Fraud.

In Canada, The Canadian Anti-Fraud Centre (CAFC) is a joint forces operation consisting of the Royal Canadian Mounted Police, the Competition Bureau of Canada, and the Ontario

Provincial Police. According to the organization’s website, “The CAFC plays a crucial role in

16 educating the public about specific fraudulent telemarketing pitches and in collecting and disseminating victim evidence, statistics and documentation, all of which are made available to law enforcement agencies” (Canadian Anti-Fraud Centre, 2011). As a note, the CAFC’s reporting segregates identity theft complaints, which fall beyond the Competition Bureau’s definition of Mass Marketing Fraud and thus beyond the scope of this analysis.

The method used to gather the MMF data for the CAFC is based on complaints received by telephone calls from the Canadian public. This means that the only data captured in the CAFC database is that which is actively reported by targets and victims. In addition, the CAFC partners with only Ontario’s police department, while not partnering with police units in the other

Canadian provinces or territories.

In the 2010 CAFC report, Toronto, Ontario was cited as the leading Canadian city generating MMF complaints, which could be associated the CAFC’s greater awareness in

Ontario. In addition, in 2010, only about 59% (74,519) of the 126,655 complaint calls placed to the 1-800 hotline were physically handled by staff (an improvement from 52% in the 2009 report) and the remainder were counted as “phone calls abandoned” which was defined in the

2009 version of the report as those which “occur when the caller has opted to disconnect their call prior to speaking to a live call taker or leaving a message with voice mail” (Canadian Anti-

Fraud Centre, 2009). In addition, the CAFC operates only during business hours of 8:30am –

4:30pm, EST Monday through Friday, which is not necessarily in alignment with when telemarketing calls are being received at consumers’ homes. Further, there is no convenient online reporting form to capture after-hours complaints effectively, but only an e-mail address.

With these limitations of the CAFC, the total dollar losses reported to the CAFC amounted to

$53.8 million in 2010 (Canadian Anti-Fraud Centre, 2011).

High rates of abandoned complaint calls shed light upon the difficulty of measuring the

17 size of the problem based on complaint data. Specifically, an unknown percentage of victims will attempt to report fraud and a substantial portion of those who intend to report fraud will abandon their efforts. Further, the complaints are regionally skewed to reflect the geographic area in which the complaint hotline has the best level of awareness. Perhaps this is why a 2008 study was undertaken by the Competition Bureau of Canada to measure MMF in Canada, the comprehensive Canadian study reviewed in detail within this document.

The United States’ counterparts to the CAFC and the Competition Bureau of Canada are the National Consumers League (NCL), which tracks inbound telephone and online complaints and the Federal Trade Commission (FTC) which tracks complaints in its Consumer Sentinel database (Cross Border Crime Forum, 2008). In 2010, the Consumer Sentinel database reported

725,087 complaints that were fraud-related and total reported losses were $1.7 billion USD, for an average of $2,344 USD per complaint.

In addition, the United States commissioned two studies, one in 2003 (published in 2004) and one in 2005 (published in 2007). These studies used telephone surveys which analyzed

2500 and 3888 survey calls respectively to determine consumer experiences with various types of consumer fraud, arriving at 16.3% and 13.5% respectively as fraud victimization rates nationally (Federal Trade Commission, 2004 and 2007). Victimization is the proportion of those surveyed who actually reported a financial loss for at least one of several frauds described in the study.

These U.S. reports do not focus solely on MMF, but on consumer frauds in general. In addition to posing questions about various MMF scenarios, frauds such as bait-and-switch pricing from retailers, misleading advertising, 1-900 numbers, surprise invoices, and memberships in discount clubs were also included. Due to the breadth of the questioning, the key results cannot be easily correlated to surveys that focus exclusively on MMF. That said, key

18 results of the most recent study (Federal Trade Commission, 2007) include:

• Fraudulent weight loss products were the largest specific fraud. This type of fraud is not

necessarily through active two-way contact being initiated with the consumer (i.e. MMF

channels), but can simply refer to an incident where any product being purchased, even

from a store, does not deliver on its promise, usually to 50% satisfaction as a minimum.

Fraudulent prize promotions and work-at-home scams were also very rampant.

• African-Americans and Hispanic-Americans reported higher victimization, as did those

people with heavier debt loads.

• Younger age groups experienced more fraud than older consumers.

The following is a summary of the various frauds included in the most recent FTC Survey and the verbatim definitions provided in that report. It is interesting to note that many of the frauds evolved and were substantially redefined within the 2-year period from 2003 to 2005.

Table 3: Types of Fraud Included in the 2005 FTC (U.S.) Fraud Survey Fraud Description (verbatim from report) Was this included in the 2003 Survey? Weight Loss Purchased weight-loss products that were promoted as No Products making it easy to lose weight or allowing one to lose weight without diet and only lost a little of the weight anticipated or lost no weight. Prize Promotions Paid money, made a purchase, or attended a sales Yes – Questions presentation to receive a promised prize and did not changed in 2005 receive the prize or the prize was not as promised. Foreign Lotteries Consumer told that he or she had won a foreign lottery No that he or she had not entered, and made a payment or provided personal information as a condition of receiving the promised winnings. Unauthorized Billed for a buyers’ club membership consumer did Yes Billing – Buyers’ not agree to purchase. Clubs Work-at-Home Purchased a work-at-home program that failed to No Programs deliver at least one-half of the promised level of earnings. Credit Card Purchased insurance against the misuse of a lost or Yes – Questions Insurance stolen credit card. changed in 2005 Unauthorized Billed for Internet services consumer did not agree to Yes – Questions Billing – Internet purchase. changed in 2005 Services Advance Fee Loans Paid an advance fee to obtain a promised or guaranteed Yes – Questions loan or credit card; promised credit was not received. changed in 2005 Credit Repair Paid someone who promised to remove negative, but Yes – Questions accurate, information from the consumer’s credit changed in 2005 report or promised to provide information on how the consumer could establish a new credit record that would not contain negative information in the consumer’s current credit report. Pyramid Schemes Purchased membership in a pyramid scheme; failed to Yes – Questions earn at least half of the amount that the promoter changed in 2005 promised would be earned. Business Purchased a business opportunity, but did not earn at Yes – Questions Opportunities least half as much as promised or did not receive changed in 2005 promised assistance.

Fraud Description (verbatim from report) Was this included in the 2003 Survey? Debt Consolidation Paid money to someone who promised to help No consumers pay off debts. However, seller did not in fact make it easier for consumers to pay off their debt. Seller also failed to make payments to the consumers’ creditors as promised, if the service promised to make such payments. Government Jobs Made a payment to someone who falsely represented Yes that the purchaser would receive a government job. Unauthorized Billed for information services provided either over the Yes Billing – Internet or by pay-per-call that consumer had not Information agreed to purchase Services Paid for Something Paid for a product, but did not receive it. Yes Never Received Unauthorized Billed for a product or service consumer did not agree Yes Billing – Other to purchase, products other than those identified above. Products The above table is reproduced from the 2007 FTC report (Federal Trade Commission, 2007).

In the United Kingdom, the counterpart organizations are the National Fraud Authority and the Office of Fair Trading (OFT). The National Fraud Authority publishes a website called the

Action Fraud Website which is used by consumers to report fraud. The organization has a 24- hour online reporting service and telephone numbers that consumers can access. Action Fraud reported through its Annual Fraud Indicator (AFI) report that 70,000 complaints were made,

10,000 crimes were reported, and £93 million was lost by individuals to fraudsters over the past

12 months (National Fraud Authority, 2011). The AFI report also refers to another important study, conducted by the OFT in 2006, and which will be analyzed in detail in the next section.

The 2011 AFI made the following comment regarding the 2006 OFT report:

At the time the last AFI was published, it was expected that this survey would be repeated in 2010 in order to provide a more up-to-date measure of mass marketing fraud; however the survey was not repeated last year. Therefore the OFT estimate of £3.5 billion has been used as the basis of an individual fraud measure (National Fraud Authority, 2011).

This 2006 OFT (UK) study is compared in detail to the 2008 Canadian study as part of this analysis. Both the UK and Canadian studies focus exclusively on MMF.

3. CHAPTER 3: OVERVIEW OF THE DATA PROVIDED

To support this thesis, the author requested data from both the Office of Fair Trading in the

United Kingdom and from Industry Canada. The OFT allowed access to select raw SPSS data tables with specific case data removed to protect individual privacy. Industry Canada provided the banner tables, which are an aggregated form of the data, but did not provide the individual raw case data.

Table 4: Overview of Data Provided Type of Office of Fair Trading (2006 Report) Industry Canada Data (Environics 2008 Report) Report Summary report received. Did not include full Summary report received. survey abstract. Included full survey abstract.

Data Sent Received 15 SPSS tables of separate frauds. Banner tables in an MS Word Most tables contained: Document format were • Amount lost for each type of scam (in provided. ordinal groupings) • Age bands that were victimized in each Banner tables included type of scam aggregated responses to all questions, broken down by A few tables contained data indicating how several demographic questions recently the losses occurred. and regions.

Also received a combined summary file that Specific cases were not included: provided. • Aggregate targeting • Aggregate victims • Aggregate friends/colleagues who were victims or targets • By-scam awareness • Age groupings • Social Class groupings • Gender Groupings Only age, class and gender information was provided for each case.

3.1. Methodologies For Measuring MMF

Surveying has limitations. When requesting information and feedback from a respondent for research purposes, careful scrutiny must be applied regarding the research reliability and validity, as well as screening for compromises that could result from the respondents’ honesty, memory, and other motivations. This means surveying may not be effective for every research application. For example, consider trying to estimate revenue of a large corporation such as Tim

Horton’s Inc. by asking its customers, “How much did you spend at Tim Horton’s on coffee last

23 month?” Such a question challenges the memory, but if the question also contains a level of embarrassment, such as, “Have you ever called a 1-900 phone chat line?” this also challenges the respondent’s honesty, and could have a large impact on results. Yet, to date, this is how MMF measurement has been conducted, despite research validity questions that arise from respondents’ faulty memory, embarrassment, and awareness when considering the nature of being swindled by an effective scam.

Since 2006, two studies have attempted to ascertain the magnitude of consumer MMF.

These studies were highlighted by the author’s contacts at the Competition Bureau as being the most pertinent studies on the magnitude of MMF. The first study was conducted in the UK by the Office of Fair Trading in December 2006. The second study was conducted in 2007 specifically for the Competition Bureau of Canada by Environics Research Group and completed in February 2008.

On the surface, the results of the two studies appear substantially different from one another. The most striking difference was the amount lost (per adult) in each country. The UK study conducted by the Office of Fair Trading resulted in an estimate of £74 GBP per adult (77

EUR) or about $105 CAD. The Canadian study conducted by Environics in 2007 estimated

MMF of only $17 CAD per adult, a much lower result. Thus, it is important to understand the accuracy and differences between these two studies, starting with an overview of the methodology for each study.

As can be observed from the following table, the Canadian study interviewed about half as many people and focused exclusively on MMF. The UK study began with some exploratory research and interviews, but its quantitative research methodology used questions which were included in omnibus surveys, in which a single respondent is typically questioned on a wide variety of topics for several research studies. This may not have allowed for as much in-depth

24 questioning, as only four questions could be added to each of 8 omnibus surveys.

Table 5: Comparison of Methodologies of Recent MMF Studies Key Parameters OFT 2006 (U.K.) Environics 2008 (Canada) Methodology 1. Focus groups 1. Telephone Interviews 2. In-depth interviews 3. 1900 CATI Telephone interviews (including targets, victims, and friends/family of victims) 4. Omnibus Surveys (approx. 6000 face-to-face, 5000 by telephone) Number Surveyed 11,214 6,116 Time Period 4 questions on 8 different omnibus 35 questions (+ sub questions surveys conducted during and demographics) June 13, December 2005 and January 2006 2007 – August 14, 2007 (precise dates not provided) Number of Scams 15 12 Included Number of Victim 701 221 Interviews Number of Family/Friend 554 0 Interviews Number of Target-only 645 Not measured Interviews (targeted, but not victimized)

The key results reported by each study are summarized in the following table. Currency for the

OFT Study, which was originally calculated in British pounds, was converted into 2006

Canadian dollars for comparison.

3.2. Key Results of Recent MMF Studies

The following table is a comparison of the key results of the two key studies.

Table 6: Comparison of Results of Recent MMF Studies Key Measurements OFT (January 31, Environics 2007 Environics vs. 2006) (August 31, 2007) OFT when compared (2006 CAD based figured) Reported Average Loss £850 GBP in 2006, $557 = $545 CAD 31% of OFT’s (RAL) which converts to (2006) figure $1732 CAD (2006) Mean Amount Requested Not reported $4700 = $4599 No direct (MAR) CAD (2006) comparison Reported Targeted Rated 48% 58% 10% higher (RTR) targeting Number of solicitations/year Not reported, but 16 times/ year 16 times frequency treated as at least once/year Amount lost per adult in 74 GBP = $151 $17.40 = $17.03 11.3% of OFT whole country CAD (2006) CAD (2006) result Reported Victimization Rate 3.46% 3.79% Similar in past 12 months Estimated Victimization Rate 6.5% Not provided No direct Annually comparison http://www.x-rates.com/cgi-bin/hlookup.cgi used for converting GBP to CAD in January 31, 2006= 2.0379. http://www.bankofcanada.ca/en/rates/inflation_calc.html used for the Canadian inflation rate. The conversion rate between 2006 and 2007 was 2.14.

There are some interesting observations to be made regarding the above data summary, which are the primary reasons for initiating this analysis. According to a study conducted in the

US which verified losses to lottery victims, only 17% admitted having lost money to a scam, while law enforcement records showed that everyone (100%) on the list had lost between $25

USD and $2500 USD (American Association of Retired Persons, 2003). This problem also occurred in the same study in the case of investment scams, in which only 21% admitted to losing money to a scam, when 100% were confirmed victims. Regardless whether there is a

26 sense of humiliation in admitting one’s mistakes, an issue of forgetfulness, or whether the victim was unaware throughout, this low propensity to report actual victimization does call the reliability of surveying into question when trying to determine or measure MMF.

The mean amount requested (MAR) by the scammer is an interesting question to ask potential victims and could be a tempting number on which to base a measurement regarding the size of fraud. Perhaps the rationale is that this number could use the same logic as that used to generate a salesperson’s revenue forecasts. For example, if a salesperson is selling a $10,000 item, makes ten phone calls, and succeeds an average of twice in a day (a 20% success rate – which here might be compared to a “victimization rate”), then the salesperson can forecast a daily sales level of $20,000.

Asking an item’s price tag and multiplying by the units sold in a legitimate business is a fairly clear way to forecast sales. Questioning a prospective victim as to how much money a skilled telemarketer was attempting to swindle is another issue altogether, due to techniques such as up-selling and cross-selling which are common ways to increase the revenue per customer through adding volume purchase incentives or related accessories (Target, 2010). In fact, according to the Office of Fair Trading (OFT), it is common for fraudsters to ask for small amounts at the outset of an MMF “attack” and then return for repeat victimizations and escalating amounts over time, which is why the OFT refers to MMF scams as “high-volume, low-value” crimes (Office of Fair Trading, 2006).

Evidence of escalating victimization is further corroborated by the fraudster community.

Bruce Easley (if that is his real name) in his book Biz-Op: How to Get Rich on “Business

Opportunity” Frauds and Scams states, “The object of the first phone pitch call is to get the mooch to accept your Fed-Ex package of information” (Easley, 1994). Psychology researchers studied this phenomenon extensively, calling it the “Foot in the Door” technique– an expression

27 still well-known in sales circles today, 45 years after the concept’s introduction (Freedman &

Fraser, 1966). Fraud psychology researchers also state, “Although saying yes to a small favor may not seem like a big deal, making a small commitment to a behavior, a belief, or even to an individual can be used later as a powerful means of persuasion” (Shadel & Pak, 2007). Indeed, such research does call into question the validity of using a question such as, “Still thinking about that most recent time, how much was the bill or amount that you were requested to pay?”

(Question 22, Environics 2008). Because the survey response is very likely to be only the tip of the proverbial iceberg, each estimated amount is unlikely to be very accurate.

The reported targeted rate (RTR) is another problematic number to assess when asking the question directly of the victims, e.g. “Have you yourself ever been contacted or come across ads or offers related to this type of scheme?” (Environics 2008). An effective fraudster will often provide official-sounding assurance that the company he or she represents is legitimate, and in doing so, will increase the difficulty of the victim’s ascertainment regarding whether or not a fraud attempt is being made (Competition Bureau of Canada, 2010a). Since research shows that only 17% of proven victims report they have been victimized when directly questioned

(American Association of Retired Persons, 2003), then surely trying to get a reliable answer as to whether an attempt is made is even more difficult. For example, how should hang-ups on telemarketers be counted? It is quite possible that some of these calls are legitimate sales calls, while others are scam attempts. However, without processing such telemarketing calls through to completion, it is unscientific to determine an accurate targeted percentage simply by asking prospective victims if they were being targeted.

The number of solicitations-per-year survey question, as queried by Environics, “How many times in the past 12 months did you come across [various types of scams scenarios]?” for the same reasons stated above, is also unreliable. However, if a researcher could obtain an

28 accurate account of the number of attempts being made on a given victim, such information would definitely be a meaningful consideration when considering the magnitude of fraud. This is because calculating a single “mean” or average loss amount per victim (assuming a given victim has one loss amount) does not capture the full extent of the problem. This is due to chronic victimization, as with this example cited by the Office of Fair Trading:

I am writing with regard to my 82-year-old mother…she was receiving up to 70 letters per day. I realised last year that she had gone through her entire life savings and was running up considerable debts in the belief that she had won a lot of money. She had given out her personal details including her credit card number to a large number of companies and her credit card was hit repeatedly for small amounts of money which mounted up to 7000 GBP of debt in a very short space of time (Office of Fair Trading, 2006).

The above excerpt was deemed by the OFT’s researchers to be “typical” of the stories gleaned by the Office of Fair Trading when conducting the exploratory research phase of their 2006 study.

Therefore, it is curious as to why the OFT did not question respondents on the subject of repeat victimization in its 2006 study.

The amount lost annually per adult, which both studies provide as a calculation, is a politically-sensitive number which either creates or dissipates political attention around the entire issue of MMF. This number would also likely be used for news and media. Citizens might become excited about an average of $151 per adult lost to fraud in a year. However, it is doubtful that $17 per adult annually would capture much attention.

The final two numbers listed in the previous table are perhaps the most disconcerting.

These numbers are purported victimization rates (VR) and hence were used to calculate the amounts lost based on the percentage of the population that is falling prey to the various scams.

In the OFT study, the researchers reported 6.5% as the annual estimated victimization rate (VR).

It is not clear how this number was derived, as no calculation is provided in the report.

However, there appears to be a mistaken scaling in deriving this number. Actually, 6.5% is

29 much closer to the Reported Victimization Rate that aggregates all previous years (7.6%), not just the previous 12-month period. The Reported Victimization Rate (RVR) specified in the study’s data for the previous 12 months was calculated at only 3.46%. However, the OFT report stated, “Based on the research findings, we estimate that 6.5% of the UK adult population, around 3.2 million people fall victim to scams every year.” No rationale for such a statement was provided.

In the Environics study, prospective victims were asked, “Have you ever been a victim of this type of scam?” for each of several types of scams. Knowing that asking actual victims this question can result in an incorrect negative response 83% of the time (as only 17% of known victims affirmed their victimization the 2005 AARP study), then asking people in the general population whether they have been victims is unlikely to generate accuracy with which to calculate a dollar figure on the magnitude of MMF. Unfortunately, this is the methodology used by Environics, which risks dramatic under-representation of the problem, with far-reaching consequences. That said, the Environics study did report its results faithfully, using the actual

12-month only Reported Victimization Rate (RVR), rather than over-representing the rate without numeric backup, as presented in the OFT study.

At best, asking the victims what types of pitches they have heard provides a relative frequency (not a measured amount) as to which types of scams are being perpetrated most commonly and perhaps can assist in planning awareness campaigns to tell people about the most rampant scams. In this regard, the studies probably have some usefulness, assuming researchers are asking the right questions, are not misinterpreting the results, and are not purporting that reported rates are an estimate of real rates of victimization or real amounts of losses.

3.3. Specific Scam Comparisons

In order to examine these studies more closely, it is important to assess which types of scams (or MMF) were included in each comparative study. The following is a summary, but is actually somewhat of a mismatched comparison.

The OFT percentages represent the proportion of the total MMF losses that each type of scam “contributed” to the total fraud losses (i.e., a percentage of the scam dollars). In a way, these numbers convey relative importance to the “rampancy” of each type of scam in the UK.

Higher percentages represent the best scam “rainmakers” for the MMF fraud “industry.”

In the Environics study, the percentages reported are actually “Reported Victimization

Rates” per scam. The higher the percentage for a given type of scam, the more commonly people reported being victimized by a specific scam, which is another way to look at rampancy.

To clarify, the Environics percentages are not tied to dollars, but rather to the commonness of victimization. In fact, if a researcher knew the actual dollar amounts extracted from victims of various crimes, this might change the relative percentage of the rampancy appearance considerably, especially in cases such as investment fraud, wherein a smaller number of people likely each lose a relatively large amount of money.

At any rate, looking at these numbers side-by-side does indicate significant differences in the overall rampancy of types of scams in the UK compared to Canada. Note that in some cases, categories were consolidated. For example, Loan Scams is one category in the OFT study, but can be viewed as having two categories in the Environics study: Credit Card Scams and Advance

Fee Loan Scams.

Table 7: Scam Types “Rampancy” Comparison

Environics ENV* OFT losses Number of RVR (millions OFT % of TYPE OF FRAUD Victims % of pounds) total MMF Holiday or Vacation Club 36 14.0% 1170 34% High-Risk Investment 9 3.5% 490 14% Pyramid Chains 0 N/A 420 12% African Advance Fee (419) 0 0% 340 10% Prize and Sweepstakes 11 4.3% 320 9% Loan Scams (Environics: includes: Loan Advance Fee, Credit Card Fee) 2 0.8% 190 5% Property Investor 0 N/A 160 5% Other Scams 2 0.8% 100 3% Premium Rate Telephone 0 N/A 80 2% Work-at-Home or Business Opportunity 18 7.0% 100 3% Internet Dialer 0 N/A 60 2% Clairvoyant Mailings 0 N/A 40 1% Miracle Health or Bogus Cure 78 30.5% 20 1% Matrix Schemes 0 N/A 10 0% Overpayment for Merchandise/ Unsuitable Bill for Merchandise 100 39.1% N/A N/A TOTAL 256 100% £3500 100% * Environics did not break down dollars on a scam-by-scam basis. The Environics numbers are based on the number of victims counted for each scam within only the past 12 months.

In Canada, the Environics study shows that the following scams are most rampant, at least in terms of number of victims:

1. Bill for Unsuitable Merchandise/ Overpayment of Merchandise

2. Miracle/Health Products

3. Holiday Club (better known in Canada as “time share” pitch)

Interestingly, the most rampant Canadian scams are centred on everyday purchases. Consumers in Canada are typically buying something they believe will be useful and then grossly

32 overpaying in relation to the value of the purchase.

Also from Table 7, it appears that the UK’s most rampant frauds are:

1. Holiday Club Scams

2. Investment Scams

3. Pyramid Scams

4. African Advance Fee Scams

Three of the above four scam types (numbers 2, 3 and 4) have a “money-making” orientation, wherein the victim might believe it is possible to make money from the scam.

The following is a brief summary of the Table 7, showing the most rampant scams in each country.

Table 8: Scam Types “Rampancy” Comparison Summary Degree of Canada United Kingdom Rampancy Most rampant scam Bill for Unsuitable Merchandise or Holiday or Vacation Club: 34% Overpayment of Merchandise: 39% Second most Miracle Health or Bogus Cure: 30% High-Risk Investment: 14% rampant Third most Holiday or Vacation Club: 14% Pyramid Chains: 12% rampant Fourth most Work-at-Home or Business African Advance Fee (419): rampant Opportunity: 7% 10%

4. CHAPTER 4: ANALYSIS OF DATA STUDY RESULTS

The Environics (Canadian) study surveyed 6,116 people specifically regarding Mass

Marketing Fraud and the Office of Fair Trading study (United Kingdom) surveyed 11,214 people as part of an omnibus survey. Given that the data was not provided to the researcher in its full original SPSS data files, the summary data from banner and SPSS tables of each study was entered into spreadsheets and summarized.

Chi-square tests were used to compare categorical data for statistically significant differences to a Type 1 error probability tolerance of 0.05. When analyzing differences between observed and expected values, the author cautiously ensured that none of the expected cell values fell below a count of 5, to ensure the validity of the chi-square tests. In addition, only questions with closely similar definitions or phrasing were compared so that proverbial “apples to apples” comparisons could be made. The only exception to this is the handling of the UK consideration of Social Class as compared to the Canadian questions surrounding Income and

Education. To address this definition difference, the author compared Social Class to Income and

Education each separately, to see whether differences in the data might be partly caused by significant demographic differences of the respondents.

The analysis begins with basic demographic comparisons.

4.1. Gender Comparison

Figure 2: Gender Comparison

Table 9: Gender Comparison

OBSERVED: Canada UK TOTAL Male 2954 48.3% 5229 46.6% 8183 Female 3162 51.7% 5985 53.7% 9147 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Male 2888 47.2% 5295 47.2% 8183 Female 3228 52.7% 5919 52.7% 9147 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, 17330) = 4.43, p ! 0.035

When analyzing observed and expected values, chi-square is calculated at 4.43, with a significance of p ! 0.035, which is statistically significant, with a Type 1 error tolerance of p <

0.05. However, if the tolerance were lowered to p < 0.01, this gender difference would not be significant. Any apparent significance of this result likely has more to do with large sample

35 size, as the aggregated number of respondents in the two studies is over 17,000 people, which is a vast amount of data.

4.2. Age Groupings

Unfortunately, data was provided only for age groupings and not the precise ages of each participant, so the researcher was unable to regroup the data for direct comparison.

Figure 3: Age Groupings

Table 10: Age Comparison STATISTIC Environics (Canada) OFT (UK) Mean 45.5 years. Cannot be calculated, but if the data is treated so that each group member is given a value from 1 – 6 (youngest to oldest) the mean is 3.75. This suggests an average age falling in the upper end of Group 3 or lower end of Group 4, which suggests 44- 54 years. Median Falls somewhere in 30-44 group Falls somewhere in the 45-54 group Mode 30-44 age group was the largest 65+ age group was the largest group of group of respondents respondents

It appears that despite the UK study’s inclusion of teens aged 15 -17 years, the age profile of UK respondents overall is a bit older, given that the median (the point at which half the respondents are younger and half are older) falls in an older group. These age differences could cause differences in how participants responded to questioning.

4.3. Education vs. Social Class

Unfortunately, only the Canadian study inquired about level of education. The UK study asked, or made a judgment, regarding social class. The methodology regarding how a respondent’s social class was determined is unclear. However, if well-educated people are considered members of an “upper” social class, then the sample profiles may indeed be quite different.

Figure 4: Education vs. Social Class

Table 11: Education vs. Social Class

OBSERVED: Education Canada Social Class UK TOTAL HS or less 1503 25.0% Working/Lower 3277 29.2% 4780 College 1814 30.2% Skilled Working 2375 21.2% 4189 Some Univ 606 10.1% Lower Middle 3200 28.5% 3806 Univ. Grad 2084 34.7% Upper Middle 2362 21.1% 4446 TOTAL 6007 100.0% 11214 100.0% 17221

EXPECTED: Education Canada Social Class UK TOTAL HS or less 1667 27.8% Working/Lower 3113 27.8% 4780 College 1461 24.3% Skilled Working 2728 24.3% 4189 Some Univ 1328 22.1% Lower Middle 2478 22.1% 3806 Univ. Grad 1551 25.8% Upper Middle 2895 25.8% 4446 6007 100.0% 11214 100.0% 17221 ! 2 (3, N=17221) = 1039.48, p < 0.001

If one assumes that level of education shares a strong association to the British consideration of social class, then there would be significant differences in the results that might be derived from social class and education variations, as p<0.001. However, a conclusive judgment cannot be made because no clear definition of social class is provided in the OFT report.

4.4. Income Groupings

The OFT (UK) study did not ask respondents about their income brackets, but indirectly assesses the question of income by including social class groupings. However, the Environics

(Canada) study did question respondents directly about their income groupings. In this analysis, the four Canadian income brackets are compared with British social class groupings.

Figure 5: Income vs. Social Class

Table 12: Income vs. Social Class OBSERVED: Income (000’s CAD) Canada Social Class UK TOTAL up to 30 935 20.0% Working/Lower 3277 29.2% 4212 30 - 60 1573 33.7% Skilled Working 2375 21.2% 3948 60 - 100 1352 28.9% Lower Middle 3200 28.5% 4552 100+ 811 17.4% Upper Middle 2362 21.1% 3173 TOTAL 4671 100.0% 11214 100.0% 15885

EXPECTED: Income (000’s CAD) Canada Social Class UK TOTAL up to 30 1239 26.5% Working/Lower 2973 26.5% 4212 30 - 60 1161 24.9% Skilled Working 2787 24.9% 3948 60 - 100 1339 28.7% Lower Middle 3213 28.7% 4552 100+ 933 20.0% Upper Middle 2240 20.0% 3173 4671 100.0% 11214 100.0% 15885 ! 2 (3, N=15885) = 335.38, p < 0.001

Although the data in Table 12 is not an exact comparison, it does appear that variation in the overall wealth profile from one study to the other could produce significantly different results when comparing MMF experiences, as the chi-square test results in a significance level of p<0.001.

4.5. Statistical Analysis By Type Of Scam

Analysis can also be conducted on differences in the victimization rates by each type of scam, at least in those cases in which scam definitions are reasonably similar.

4.5.1. African Advance Fee (419 Fraud) Scam

The African Advance Fee (also known as 419 fraud) is defined by the OFT 2006 Study in the following manner:

Consumers receive a letter, fax or e-mail from someone who says they need help in transferring money overseas, usually US $20-30 million. Typically the writer claims to be a senior government official, an accountant with a state-owned corporation, or perhaps a relative of a deposed or dead politician. The writer will tell the recipient he needs to transfer his cash to a bank in their country, and that if the recipient lets him use his or her bank account, they can keep a big slice for themselves, usually 25 or 30 percent. If the recipient replies and gives banking and personal details, they will be sent fake bank statements and similar documents, all intended to prove the money exists and is heading their way. The scammers use the information given them to empty the victim’s bank account or might convince them to send cash by money transfer (Office of Fair Trading, 2006, p. 55).

The Environics study defines African or 419 Fraud similarly, albeit more briefly:

In the West African or 419 fraud, the target is requested to assist in transferring a large sum of money from another country to Canada. The person is asked to pay a fee before the “fortune” can be released but the fortune is fictitious and the target of the fraud never receives what is promised (Environics Research Group, 2008, p. A-9).

Table 13 shows a comparison of the data derived from the two studies to investigate whether results are significantly different:

Table 13: African Advance Fee (419 Fraud) Scam: Not Adjusted for Recentness OBSERVED: Canada UK TOTAL Non-Victims 6116 100.0% 11083 98.8% 17199 Victims 0 0% 131 1.2% 131 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6070 99.2% 11129 99.2% 17199 Victims 46 0.8% 85 0.8% 131 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 71.99, p < 0.001

Given that the probability of this result occurring randomly is lower than 0.001, this is a very significant difference, with the Canadian reported victimization rate (RVR) being dramatically lower than expected.

That said, there is a difference in the manner in which Environics (Canada) and the OFT

(UK) counted victims. Environics counted respondents as victims only if they had reported victimization within the previous 12-month period. The OFT study counted anyone who was ever a victim, no matter how far back the victimization incident occurred. In some cases, the

OFT provided data regarding the recentness of the victimization. African Advance Fee scam is one such example. The data indicates that only 101 of these were victims within the previous 12 months.

Table 14 provides a comparison adjusted for recentness.

Table 14: African Advance Fee (419 Fraud) Scam: Adjusted for Recentness

OBSERVED: Canada UK TOTAL Non-Victims 6116 100.0% 11183 99.1% 17199 Victims within previous 12 mo. 0 0% 101 0.9% 101 TOTAL 6116 100.0% 11184 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6080 99.4% 11119 99.4% 17199 Victims within previous 12 mo. 36 0.6% 65 0.6% 101 TOTAL 6116 100.0% 11184 100.0% 17330 ! 2 (1, N=17330) = 55.40, p < 0.001

Even when adjusted for comparable recentness, with p<0.001 it is clear that for the African

Advance Fee Scam, the UK reported victimization numbers are still significantly higher when compared to the Canadian study.

4.5.2. Prize and Sweepstakes Scam

This is another type of fraud for which both studies have similar definitions. The Office of Fair Trading (UK) defines Prize and Sweepstakes Scam as:

Consumers receive an official looking letter or e-mail notifying them that they have already won a large cash prize, government payout or other major award. To claim the win the recipient must often send a fee of between £5 and £30, variously described as a “processing” or “administrative” fee. Or it is implied that an order must be placed from an accompanying mail order catalogue in order to claim the prize. Often in faint small letters on the reverse of the notification, the “Terms and Conditions” or the “Official Rules” will explain that the recipient is only being offered the opportunity to enter a prize draw or sweepstakes with a very small chance of winning the major cash payout. Some promoters send a cheque for a nominal sum, but not the promised large win. Others send cheap prizes or nothing at all (Office of Fair Trading, 2006, p. 44).

Environics (Canada) study defines prize, lottery or sweepstakes fraud as follows:

In the prize, lottery or sweepstakes fraud, the target of the fraud is advised that they have won (or have a chance to win) something, but are required to purchase something or pay an advance fee in order to receive the prize (Environics Research Group, 2008, p. A-9).

Arguably, the Environics definition is broader, as the OFT scam definition includes only mail, fax and e-mail, while Environics also adds victimization by phone or in person, which is why the results are somewhat surprising.

Table 15: Prize and Sweepstakes Scam: Not Adjusted for Recentness OBSERVED: Canada UK TOTAL Non-Victims 6105 99.8% 10839 96.7% 16944 Victims 11 0.2% 375 3.3% 386 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 5980 97.8% 10964 97.8% 16944 Victims 136 2.2% 250 2.2% 386 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 181.95, p < 0.001

Again, since the probability of attaining this result by chance is extremely low (p<0.001), this result is highly significant, with the Canadian reported victimization rate being dramatically lower than expected, or conversely, the UK victimization being higher than expected for prize and sweepstakes scams. On the surface, the data implies that UK citizens are much more likely to fall for prize and sweepstakes fraud than are Canadians.

This significance must be considered in light of some data limitations. The stark difference in victimization could partially be a reflection of how recently the victimization was reported. Specifically, the UK study did not provide a breakdown of when the 375 victimizations occurred for this scam, meaning that many of these cases could have occurred further in the past than just within the previous 12-month period. However, the Canadian study’s

11 victimizations were specifically qualified as occurring within the past 12 months. Thus, it is unclear whether adjusting for this difference would have produced comparable results.

4.5.3. Work-at-Home or Business Opportunity Scam

Another scam wherein the definitions are reasonably well-matched is the Work-at-Home or Business Opportunity Scam. The definition by the Office of Fair Trading follows:

A work or business opportunity is advertised in a local newspaper, magazines, shop windows, or lamp posts, on the web or in a letter which claims to offer a quick way to make a lot of money from home without having any qualifications, skills or expertise. The catch is that before starting any work the victim has to pay money up front. This is in the form of a registration fee or to buy goods. After this money has been paid the victim either finds that there is either no work to do or will not be paid for any work done (Office of Fair Trading, 2006, p. 48).

The OFT then provides some common examples such as stuffing envelopes, home assembly kits, or home-working directories. The Environics (Canada) definition follows:

In the employment or work from home fraud, the target of the fraud is offered employment and requested to pay an advance fee to secure the job or to obtain material to work from home. The job offers promise more earning[sic] than are possible (Environics Research Group, 2008, p. A-13).

Arguably, the Environics definition is broader, since it states that the job simply promises more than it delivers, whereas the UK version is more precise and also more specific in its description. The result is that the Canadian reported victimization is much lower than expected when compared to the UK study, again with very statistically significant results.

Table 16: Work-at-Home or Business Opportunity Scam: Not Adjusted for Recentness OBSERVED: Canada UK TOTAL Non-Victims 6098 99.7% 11037 98.4% 17135 Victims 18 0.3% 177 1.6% 195 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6047 98.9% 11088 98.9% 17135 Victims 69 1.1% 126 1.1% 195 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 58.66, p < 0.001

While the above results appear very significant (p<0.001), the significance is mitigated by the fact that recentness was not provided for this type of MMF, and therefore the high rates of victimization in the UK might be aggregated over several years, while the Canadian victimization figures include only occurrences within the previous 12-month period.

4.5.4. Miracle Health or Bogus Cure Scam

One rare example in which the reported victimization rates from Canada and the UK studies were not significantly different was in the case of the Miracle Health or Bogus Cure

Scam. The Office of Fair Trading (UK) defines this type of fraud as follows:

Consumers receive a mailing or e-mail promising a health “miracle.” These pills, lotions, creams and other products will supposedly cure baldness, arthritis, rheumatism, heart disease, multiple sclerosis, Parkinson’s disease, cancer, obesity, impotency, and other ailments. Or they may promise easy weight loss without the need to diet or exercise. But is it unlikely that they have been properly tested or proven medically effective. Some might even be dangerous. The advertising often includes fake testimonials from “satisfied customers,” unsubstantiated claims about product effectiveness, false claims that the product has been clinically proven in trials, and a worthless “money back” guarantee (Office of Fair Trading, 2006, p. 53).

The Environics (Canada) definition, again arguably broader, yet less vivid, is simply, “In the bogus health product or cure fraud, the target purchases a health product or cure which does not work as advertised” (Environics Research Group, p. A-5).

Table 17: Miracle Health or Bogus Cure Scam – Not Adjusted for Recentness OBSERVED: Canada UK TOTAL Non-Victims 6038 98.7% 11078 98.8% 17116 Victims 78 1.3% 136 1.2% 214 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6040 98.8% 11076 98.8% 17116 Victims 76 1.2% 138 1.2% 214 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 0.13, p = 0.72

The UK numbers adjusted for recentness (only those reporting victimization within the past 12 months) result in reducing the number of victims from 136 to 113, a 17% lower value for the victimization of this scam:

Table 18: Miracle Health or Bogus Cure Scam – Adjusted for Recentness

OBSERVED: Canada UK TOTAL Non-Victims 6038 98.7% 11078 98.8% 17116 Victims 78 1.3% 113 1.0% 191 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6049 98.9% 11067 98.7% 17116 Victims 67 1.1% 124 1.1% 191 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 2.60, p = 0.11

Regardless of the adjustment for recentness, there is no significantly measurable difference between the Canada and UK result, since p > 0.10 for this scam.

4.5.5. Property and High-Risk Investment Fraud

The Office of Fair Trading has two categories to describe Property and High-Risk

Investment Frauds, with the following definitions. The first category is referred to as Property

Investor Scams:

Consumers see an advert [sic] or glossy brochure inviting them to attend a free presentation about making money from property investment. At the presentation they are persuaded to hand over money to sign up to a seminar or course promising to teach them how to make money dealing in property. They will be invited to sign up to a scheme offering access to the company’s methods for building a portfolio of properties. Schemes may offer the opportunity to buy properties which have yet to be built at a discount. Victims lose their substantial joining fees and end up with no property. A variation is a buy-to-let scam where companies offer to source, renovate and manage properties, claiming good returns from rental income. In practice the properties are near derelict and the tenants non-existent (Office of Fair Trading, 2006, p. 60).

The second OFT definition is referred to as High-Risk Investment Scams:

Consumers are contacted by letter, telephone or e-mail and offered the opportunity to invest money into things like shares, fine wine, gemstones, art, or other “rare” high value items. The promise is that these will rocket in value. But what is offered is often over- priced, very high risk or difficult to sell on [sic] (Office of Fair Trading, 2006, p. 72).

The Environics (Canada) definition is again brief, yet broad, “In the [sic] investment fraud, the target is offered an investment opportunity promising higher than normal returns, but loses most or all if [sic] the money that he or she supposedly invested” (Environics Research

Group, 2008, p. A-11).

As a comment on the Environics definition, the author would argue that many legitimate investments could be described as such, but whether investment losses are the result of a decline in the stock market or actual fraud is difficult to determine. One would thus expect that the reported victimization rate in Canada should be higher than that reported in the UK, as most

Canadian adults have likely had a “poor investment” at one time or another.

Instead, the following results were observed.

Table 19: Property and High-Risk Investment Fraud: Not Adjusted for Recentness OBSERVED: Canada UK TOTAL Non-Victims 6107 99.85% 11103 99.01% 17210 Victims 9 0.15% 111 0.99% 120 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6074 99.31% 11136 99.31% 17210 Victims 42 0.69% 78 0.69% 120 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 14.79, p < .001

Again, there is a significantly lower result from Environics (Canada) despite the extremely broad, arguably “liberal” definition of investment fraud. Unfortunately, recentness of the UK data for Property and High-Risk Investment frauds was not provided.

4.5.6. Holiday or Vacation Club Scam

The Office of Fair Trading has a specific definition of what it calls “Bogus Holiday Club

Scams”:

Consumers are approached on the street whilst on holiday and given a scratch card which reveals that they have won a “free” prize or they are phoned at home or receive a letter at home telling them that they have won a “free” holiday. All they need to do is go to a presentation to collect their prize and learn more about a new holiday venture. They will be made to feel as though they are joining an exclusive holiday club which will offer exciting and great value holidays all over the world in top class accommodation. They will be pressured into signing up on the spot. In reality, dates or destinations are not guaranteed and holidays are often not available when and where wanted. Victims later find out that the “free” holiday isn’t free, as they must pay extras, such as flights and other add-ons and go somewhere they don’t want to go at a time that doesn’t suit (Office of Fair Trading, 2006, p.65).

Again, the Environics (Canada) definition is brief, broad, and less visual, but does parallel the UK description closely, stating, “In the high-pressure sales pitch vacation fraud, the target is offered a free gift or reward to attend a sales presentation where he or she is subjected to high-pressure sales tactics and/or misleading offers” (Environics Research Group, 2008, p. A-1).

Table 20: Holiday or Vacation Club Scam: Not Adjusted for Recentness

OBSERVED: Canada UK TOTAL Non-Victims 6095 99.66% 10891 97.12% 16986 Victims 21 0.34% 323 2.88% 344 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 5995 98.02% 10991 98.02% 16986 Victims 121 1.98% 223 1.98% 344 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 130.92, p < .001

Again, chi-square is statistically significant (p<0.001), with the Canadian results being dramatically lower than expected.

Table 21: Holiday or Vacation Club Scam: Adjusted for Recentness

OBSERVED: Canada UK TOTAL Non-Victims 6095 99.66% 10891 98.57% 16986 Victims 21 0.34% 160 1.43% 344 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 5995 98.96% 10991 98.96% 16986 Victims 121 1.04% 223 1.04% 344 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 44.94, p < .001

Even when adjusted for recentness, the UK victimization rate is significantly (p<0.001) higher than the Canadian rate for Holiday or Vacation Club Scam.

4.5.7. Advance Fee for Loans or Credit Cards Scam

Another common scam occurs when victims pay an advance fee in the hopes of receiving a loan or credit card. The Office of Fair Trading (UK) defines such “Loan Scams” as follows:

Consumers see an advert in the classified sections of free or local newspapers offering fast loans regardless of credit history. Targets are asked to call a freephone [sic] number. They are told that their loan has been agreed but that before they can have the money they will need to pay a fee to cover insurance of the loan. They are asked to pay this advance fee by money transfer. Once this advance fee is paid the victim never hears from the company again and the loan is never received. (Office of Fair Trading, 2006, p. 77)

The Environics (Canada) definition states simply, “In the advance fee loan fraud, the target is offered a loan (regardless of credit rating) for which an advance fee must be paid. The loan is never received” (p. A-17). In addition, Environics describes a similar scam, but this time involving getting a credit card, as follows, “In the upfront fee for credit card fraud, the target is offered a credit card if an advance fee is paid, but the card is never received” (Environics

Research Group, 2008, p. A-21).

Again, the OFT’s definition is quite specific, stating that the advance fee is for the purpose of covering insurance costs. Regardless of this specificity, the OFT reported significantly higher victimization in comparison to Environics’ results (see Table 22).

Table 22: Advance Fee Loan Scams: Not Adjusted for Recentness

OBSERVED: Canada UK TOTAL Non-Victims 6114 99.97% 11143 99.37% 17257 Victims 2 0.03% 71 0.63% 73 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED: Canada UK TOTAL Non-Victims 6090 99.58% 11167 99.58% 17257 Victims 26 0.42% 47 0.42% 73 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (1, N=17330) = 34.01, p < .001

Again, the effect of recentness in the data is questionable, as a breakdown was not provided.

4.5.8. Other Scams

There are also scams whose definitions are unique (or exclusive) to either the Canadian or

UK study. In Canada, the Environics study defined these additional scams:

1. Bill for Unsuitable Merchandise: “The target has ordered something through the Internet or mail order catalogue and paid for the item. The item does not arrive, arrives at a very late date or is not at all what was expected” (Environics Research Group, 2008, p. A-15).

2. Overpayment for Sale of Merchandise Fraud: “Target of this fraud is an individual selling or renting something. The target receives a counterfeit cheque or money order for more than the asking price and is asked to cash the cheque and send back the difference to the sender” (Environics Research Group, 2008, p. A-23).

3. Cheque Cashing/ Money Transfer Job Fraud: “Target is offered a job evaluating the services provided by cheque-cashing or money-transferring companies. The target is given cheques or funds to cash or transfer, but theses [sic] turn out to be counterfeit or stolen” (Environics Research Group, 2008, p. A-19).

Likewise, there are seven scams defined in the UK study that are not captured in the

Canadian study’s fraud definitions.

1. Foreign Lottery Scams: “Consumers receive a letter, telephone call or e-mail telling them that they have won a major cash prize in an overseas lottery. They will often be told to telephone a sales agent who will ask the victim to send money to cover administration, customs and taxes. The winnings do not exist and are never received” (Office of Fair Trading, 2006, p. 46).

2. Premium Rate Telephone Prize Scams: “Consumers receive a letter, SMS text or automated telephone message telling them that they have won a major prize and urging them to ring or text an 090 premium rate number to find out what they can claim. The impression is given that the recipient has won a large cash prize, holiday or other valuable award. Calls to the premium rate number cost up to £1.50 a minute and the caller is kept on the line listening to a recorded message for several minutes. Nearly everyone who responds ends up with a cheap “giveaway” item such as discount vouchers worth less than the cost of the call and may also be charged a delivery fee to receive their ‘prize’ ” (Office of Fair Trading, 2006, p. 51).

3. Clairvoyant and Psychic Mailing Scams: “Consumers receive a letter from a so-called psychic or clairvoyant promising to make predictions that will change the course of their life [sic] forever such as bringing good fortune – for a small fee. Sometimes these mailings are aggressive in tone, saying something bad will happen to the recipient or their relatives if they do not send money to purchase a lucky talisman, crystal, amulet or set of numbers. Although they are sent out in their millions, the mailings are personalized to make to make it look as if the recipient has been specifically chosen and is personally known to the sender” (Office of Fair Trading, 2006, p. 58).

4. Pyramid and Chain Letter Scams: “Pyramid schemes are advertised through mailings, newspapers, the Internet, or recruitment meetings, or consumers might hear about them through a relative or friend. They are asked to pay to become a member and are promised large commission earnings if they recruit others to the scheme. If enough new members join, the pyramid will grow, possibly enabling some members to make money. But in order for every member to make money, there would need to be an endless supply of newcomers. Pyramid schemes may try to appear legitimate by claiming that members will receive benefits such as discounted travel services, or will make money by selling goods to services, but the real purpose of the scheme is to encourage them to recruit new members” (Office of Fair Trading, 2006, p. 63).

5. Internet Dialer Scams: “Consumers open a spam e-mail, click on a pop-up box or visit a pay-per-view website and unwittingly download dial-up software which changes their computer settings. The rogue dialer connects them to the Internet via an expensive telephone line. They think that they are still connected via their usual Internet connection but in fact they are racking up huge bills on lines charging them more than the standard rate per minute” (Office of Fair Trading, 2006, p. 67).

6. Internet Matrix Scheme Scams: “Consumers see a website – or are directed to one via an advert placed on an Internet auction site – that promises the chance to getting a valuable ‘free gift’, such as a mobile phone, iPod, or palm pilot, but spending £20 on a low-value product such as a mobile phone signal booster, or a CD ROM containing ring-tones and fames. If the consumer buys the product they become a members and join a waiting list to receive their chosen ‘free gift.’ The person at the top of the list will be sent their ‘free gif’t [sic] only after a prescribed number of new recruits have signed up… The nature of these schemes means that the number of members who are waiting for their ‘free gift’ will always far exceed the number of ‘free gifts’ actually awarded” (Office of Fair Trading, 2006, p. 74).

7. Career Opportunity Scams: “Consumers see an advert offering to turn manuscripts into successful published books…Consumers see an advert offering fee information on how to patent or market inventions…Consumers see an advert in a newspaper encouraging them to attend meetings and casting seminars” (Office of Fair Trading, 2006, p. 69).

5. CHAPTER 5: VICTIMIZATION AND DEMOGRAPHICS RELATIONSHIPS

Examining the overall results, recentness can certainly have a greater impact on estimating the magnitude of fraud. The following are the results ignoring recentness.

Table 23: Overall Targeting and Victimization Comparison: Not Adjusted for Recentness OBSERVED Canada UK TOTAL Victims 232 3.79% 853 7.61% 620 Targets 3288 53.76% 5423 48.36% 7349 Neither Target nor Victim 2596 42.45% 4938 44.03% 9361 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED Canada UK TOTAL Victims 383 6.26% 702 6.26% 620 Targets 3074 50.27% 5637 50.27% 7349 Neither Target nor Victim 2659 43.47% 4875 43.47% 9361 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (2, N=17330) = 117.18, p < .001

Once adjusted for recentness, the results are quite different.

Table 24: Overall Targeting and Victimization Comparison: Adjusted for Recentness OBSERVED Canada UK TOTAL Victims (past 12 mo.) 232 3.79% 388 3.46% 620 Targets (past 12 mo.) 3288 53.76% 4061 36.21% 7349 Neither Target nor Victim 2596 42.45% 6765 60.33% 9361 TOTAL 6116 100.0% 11214 100.0% 17330

EXPECTED Canada UK TOTAL Victims (past 12 mo.) 219 3.58% 401 3.58% 620 Targets (past 12 mo.) 2594 42.0% 4755 42.0% 7349 Neither Target nor Victim 3304 54.0% 6057 54.0% 9361 TOTAL 6116 100.0% 11214 100.0% 17330 ! 2 (2, N=17330) = 522.81, p < .001

While chi-square is very high and the significance is less than 0.001, this is largely due to the notable difference in the targeted rates. The victimization rates with the previous 12-month period for the Environics (Canada) study and the OFT (UK) study are 3.79% and 3.46% respectively. The surprising result is that with this adjustment for recentness, the UK study had a lower victimization rate. It is perplexing then, as to why the UK report stated, “We estimate that

6.5 per cent of the UK adult population, around 3.2 million people, fall victim to scams every year” (Office of Fair Trading, 2006). This does not compute according to the OFT study’s data, which would either have to rely on “reported victimization,” i.e. 3.46%, or devise a new method to calculate such an estimate.

However, the most unfortunate aspect of these conclusions is that the Reported

Victimization Rate (RVR) is always treated as the Victimization Rate (VR), and therefore used to estimate victimization magnitude when there is no conclusive evidence to support such an inference. For added clarity, this researcher believes that both RVR and VR should be defined strictly as an annual number to avoid overestimations of the annual victimization. In other words, measurement should specifically count only incidents within the previous 12-month period, or certainly question the timing of victimization incidents.

5.1. Relationship Between Gender and Victimization

The Environics study did not show any relationship between gender and victimization. The

OFT study does show a statistically significant relationship between gender and victimization, with men being more susceptible (see Table 25). However, this result may simply mean more men were willing to report being victimized, not necessarily that more men were victimized.

Table 25: Relationship between Gender and Victimization: Environics (Canada) Environics (CA) OBSERVED: Males Females TOTAL Victims 125 4.19% 132 4.21% 257 Non-Victims 2857 95.81% 3002 95.79% 5859 TOTAL 2982 100.00% 3134 100.00% 6116

EXPECTED: Males Females TOTAL Victims 125 4.20% 132 4.20% 257 Non-Victims 2857 95.80% 3002 95.80% 5859 TOTAL 2982 100.00% 3134 100.00% 6116 ! 2 (1, N=6116) = .001, p = 0.97

Table 26: Relationship between Gender and Victimization: OFT (UK)

Office of Fair Trading (UK) OBSERVED: Males Females TOTAL Victims 207 3.96% 181 3.02% 388 Non-Victims 5022 96.04% 5804 96.98% 10826 TOTAL 5229 100.00% 5985 100.00% 11214

EXPECTED: Males Females TOTAL Victims 181 3.46% 207 3.46% 388 Non-Victims 5048 96.54% 5778 96.54% 10826 TOTAL 5229 100.00% 5985 100.00% 11214 ! 2 (1, N=11214) = 7.30, p = 0.01

5.2. Relationship Between Age and Victimization

According to the Environics (Canada) study, there is a strong relationship between age and victimization, with the younger groups being far more susceptible to MMF (or perhaps reporting victimization more frequently) than the older age groups, as shown in Table 27.

Table 27: Age and Victimization: Environics (Canada) Study OBSERVED: Victims Non-Victims TOTAL 18 - 29 76 30.77% 676 12.16% 752 30 - 44 90 36.44% 1519 27.33% 1609 45 - 59 50 20.24% 1821 32.76% 1871 60+ 31 12.55% 1543 27.76% 1574 TOTAL 247 100.00% 5559 100.00% 5806

EXPECTED: Victims Non-Victims TOTAL 18 - 29 32 12.95% 720 12.95% 752 30 - 44 68 27.71% 1541 27.71% 1609 45 - 59 80 32.23% 1791 32.23% 1871 60+ 67 27.11% 1507 27.11% 1574 TOTAL 247 100.00% 5559 100.00% 5806 ! 2 (3, N=5806) = 101.98, p < 0.001

The OFT (UK) study showed a similarly revealing relationship, with the younger age groups exceeding the expected proportionate victimization (see Table 28). This could be due to the growing incidence of crimes committed through e-mail and online, although no data breakdown was available from the OFT for study.

The UK study is broken down by recentness of victimization.

Table 28: Age and Victimization: OFT (UK) Study within 2 - 3 4 + OBSERVED: 12 mo yrs yrs Never TOTAL 15-24 49 12.63% 17 6.44% 9 4.48% 1256 12.12% 1331 25-34 62 15.98% 49 18.56% 24 11.94% 1561 15.07% 1696 35-44 97 25.00% 71 26.89% 37 18.41% 1917 18.50% 2122 45-54 63 16.24% 52 19.70% 54 26.87% 1607 15.51% 1776 55-64 53 13.66% 45 17.05% 39 19.40% 1647 15.90% 1784 65+ 64 16.49% 30 11.36% 38 18.91% 2373 22.90% 2505 TOTAL 388 12.63% 264 6.44% 201 4.48% 10361 12.12% 11214 100.00% 100.00% 100.00% 100.00%

within 2 - 3 4+ EXPECTED: 12 mo yrs yrs Never TOTAL 15-24 46 11.88% 31 11.86% 24 11.89% 1230 11.87% 1331 25-34 59 15.13% 40 15.11% 30 15.12% 1567 15.12% 1696 35-44 73 18.92% 50 18.94% 38 18.91% 1961 18.92% 2122 45-54 61 15.82% 42 15.83% 32 15.82% 1641 15.84% 1776 55-64 62 15.90% 42 15.91% 32 15.92% 1648 15.91% 1784 65+ 87 22.35% 59 22.35% 45 22.34% 2315 22.34% 2505 TOTAL 388 100.00% 264 100.00% 201 100.00% 10361 100.00% 11214 ! 2 (15, N=11214) = 81.97, p < 0.001

Note: Higher % observed victimizations are bolded. Where bolded, the observed value was higher than expected according to what would be proportionate for the number of respondents in that age group.

When comparing the expected values to observed, it is interesting to note that within the most recent 3 years, a) the younger age groups report higher than expected victimization rates, and b) the older age groups report lower than expected victimization. Referring back 4+ years, the younger age groups reported less than the expected amount of victimization, while more of the older age groups (covering those aged 45 – 64) were more highly victimized than expected.

This might encourage the researcher to theorize about a shift in MMF targeting in recent years, with fraudsters targeting or reaching younger age groups, likely through the internet.

5.3. Education, Income, and Social Class Relationships

The Environics (Canada) study and the OFT (UK) study looked at further factors which might have some relationship to reported victimization rates. Table 24 summarizes the

Environics data regarding the relationship of Education to reported victimization.

Table 29: Education and Victimization: Environics (Canada) Study OBSERVED: Victims Non-Victims TOTAL HS or less 72 28.80% 1488 25.85% 1560 College 73 29.20% 1707 29.66% 1780 Some University 27 10.80% 581 10.09% 608 Univ. Grad 78 31.20% 1980 34.40% 2058 250 100.00% 5756 100.00% 6006

EXPECTED: Victims Non-Victims TOTAL HS or less 65 25.97% 1495 25.97% 1560 College 74 29.64% 1706 29.64% 1780 Some University 25 10.12% 583 10.12% 608 Univ. Grad 86 34.27% 1972 34.27% 2058 250 100.00% 5756 100.00% 6006 ! 2 (3, N=6006) = 1.65, p = 0.65

Analysis of Table 29 indicates that, according to the Environics (Canada) study, the respondents’ level of education is not related their reported victimization, as Type 1 error probability is not statistically significant (p = 0.65).

Table 30 compares Income as related to reported victimization.

Table 30: Income Level and Victimization: Canadian Study OBSERVED: Victims Non-Victims TOTAL Up to 30K/yr 32 14.61% 955 21.22% 987 $30K - $60K/yr 104 47.49% 1449 32.19% 1553 $60K - $100K/yr 43 19.63% 1318 29.28% 1361 Over $100K/yr 40 18.26% 779 17.31% 819 219 100.00% 4501 100.00% 4720

EXPECTED: Victims Non-Victims TOTAL Up to 30K/yr 46 20.91% 941 20.91% 987 $30K - $60K/yr 72 32.90% 1481 32.90% 1553 $60K - $100K/yr 63 28.83% 1298 28.83% 1361 Over $100K/yr 38 17.35% 781 17.35% 987 219 100.00% 4501 100.00% 4720 ! 2 (3, N=4720) = 26.06, p < .001

Income does appear to be significantly related to victimization according to the

Environics (Canada) study. It appears the mid-lower ($30 - $60K CAD annually) income group is disproportionately reporting victimization. The rest of the categories are quite close to expected, or lower than expected.

To summarize, according to Environics, the reported victimization rate appears unrelated to education, but related to income, with the lower-middle income bracket reporting higher victimization within the past 12 months.

Since both income and level of education bear a relationship to the UK’s notion of social class, Table 31 summarizes Social Class as it relates to victimization rates.

Table 31: Social Class and Victimization: OFT (UK) Study within 2 - 3 4 + OBSERVED 12 mo yrs. yrs. Never Total Upper Mid 84 21.7% 45 17.1% 41 20.0% 2192 21.2% 2362 Lower Mid 105 27.1% 80 30.3% 59 29.4% 2956 28.5% 3200 Skilled Work 86 22.2% 56 21.2% 47 23.4% 2186 21.1% 2375 Working/Low 113 29.1% 83 31.4% 54 26.9% 3027 29.2% 3277 TOTAL 388 100.0% 264 100.0% 201 100.0% 10361 100.0% 11214

within 2 - 3 4 + EXPECTED 12 mo yrs. yrs. Never Total Upper Mid 82 21.1% 56 21.1% 42 21.1% 2182 21.1% 2362 Lower Mid 111 28.5% 75 28.5% 57 28.5% 2957 28.5% 3200 Skilled Work 82 21.2% 56 21.2% 43 21.2% 2194 21.2% 2375 Working/Low 113 29.2% 77 29.2% 59 29.2% 3028 29.2% 3277 TOTAL 388 100.0% 264 100.0% 201 100.0% 10361 100.0% 11214

! 2 (9, N=11214) = 4.30, p = .89

It is observed that there are no statistically significant relationships between reported victimization and social class, according to the OFT study.

5.4. Amounts Lost Per Scam

How much money does a victim typically lose in a given scam? The data indicates there is a wide variation between the amounts reported in Canada in comparison to the UK. Table 32 is a summary of specific scams and their mean and median losses per adult victim.

Table 32: Average Reported Loss by Type of Scam

ENVIRONICS: VICTIM LOSSES OFT: VICTIM LOSSES Mean Median Mean Median (in CAD 2006) (in CAD 2006) Prize or Lottery 835.7 391.4 Prize or Lottery 326.1 67.3 West African 0.0 0.0 West African 10189.5 5824.3 Employment/Work from Home 914.0 185.9 Work from Home 489.1 87.6 Cheque Cashing/Money Transfer 97.9 97.9 N/A 0.0 0.0 Overpayment for Merch 464.8 107.6 N/A 0.0 0.0 Advance Fee Loan Fraud 93.9 97.9 Loan Scams 3688.6 766.3 Upfront Fee for Credit Card 73.4 73.4 N/A 0.0 0.0 Bill for Merchandise Not Received 81.2 48.9 N/A 0.0 0.0 Bogus/Miracle Health 235.8 57.7 Miracle Health 183.4 93.7 Advance Fee Vacation Fraud 1046.1 585.2 N/A 0.0 0.0 High Pressure Vacation 754.5 145.8 Holiday Club 6174.9 1224.8 Investment Fraud 5150.4 3914.4 Investment 11534.5 5606.3 N/A Foreign Lottery 3872.0 85.6 Premium Rate N/A Telephone 163.0 28.5 N/A Clairvoyant Mailing 489.1 73.4 N/A Property Investor 8640.7 511.5 Pyramid/Chain N/A Letter 1895.3 350.5 N/A Internet Dialer 346.4 124.3 N/A Career Opportunity 1080.1 315.9 N/A Internet Matrix 224.2 110.0 Note: The mean takes the reported loss amounts of all victims of a given scam and averages them (total losses divided by total victims); them median takes these amounts, arranges them in order of lowest to highest, and chooses the amount at which half of the loss amounts are higher, and half are lower; it is another way of looking at the midpoint of the financial losses in a given category.

6. CHAPTER 6: MEASUREMENT OPTIONS

6.1. Measuring Other Insidious Crimes

As techniques presently used to quantify MMF are questionable for the reasons cited, it is useful to examine alternative methodologies from other disciplines.

Measuring the size of MMF is very much like measuring the size of an industry, albeit an underground industry. The convenient aspect of measuring the size of a legitimate industry is that its member businesses file annual tax returns and report earnings to the government. Illegal businesses certainly do not do so.

In order to find new methodologies to measure MMF, it could be enlightening to examine other types of criminal activity, such as the illegal drug trade and domestic violence, that are perhaps better studied, yet also difficult to measure.

In the article Measuring the Global Drug Markets, the authors discuss the methods used to measure global heroin use (Reuter & Greenfield, 2001). Factors cited include the total global production, the price per gram (which varies by country), and the degree of purity of the drug.

The authors suggest that the global heroin use estimates are too high because the United Nations

(U.N.) assumes a USD retail value on the drug.

Even if the U.N. did adjust for purity and currency corrections, this estimate has one concrete element to its advantage that MMF does not. Specifically, there are measures of agricultural production to use as a basis of the estimate. In measuring MMF, any product, service, or imaginative idea could be a “product,” meaning there could be either tangible or intangible items being sold at any perceived amount of value. Further, there is virtually no consistent dollar value which can be applied to a given scam, unlike a street value per gram, which at least has range that can be estimated reasonably.

Perhaps a better measurement comparison might be made by examining a crime without a tangible product at its base, and like MMF, only involves a human interaction-- specifically, domestic violence. Like MMF, domestic violence is a crime in which victims are reluctant to report, and one that does not necessarily have tangible or physical aspects to observe. Effects can be as insidious as psychological damage, while physical injuries are difficult to ascertain, and often hidden. Common measurement tools for this crime are surveys, based on specific, tested constructs developed over years of time (Dwyer, 1999). With these commonalities in mind, one might assume that surveys could be used to measure MMF.

A closer comparison of these methodologies and their similarity to MMF measurement techniques is summarized in the following table.

Table 33: How Other Insidious Crimes Are Measured COMPARISON M.M.F. Illegal Drugs Domestic Violence Tangibility Some tangible, but Tangible product. Intangible largely, can take any form. Specific agricultural only known as Money loss tangible, production. reported. Victims though unknown disinclined to report. amounts by victim. Victims disinclined to report. Inclination to Report Low, possibly due to Not applicable. Does Low, due to fear and Victimization embarrassment, and not depend on desire to protect lack of awareness as surveyed reporting. family reputation. to where to report. Measurement Tools in Surveys. Widely Agricultural figures Surveys based on Use varying questioning & multiplied by street established constructs. methods. No value estimated Many kinds. established constructs globally. Domestic here. estimates based on seizures and health reports. Marketing Profile Business-to- Business-to- Consumer-to- Consumer. (i.e. Consumer Consumer (i.e. Business victimizing (i.e. Business Consumer victimizing consumer) or victimizing Consumer). Business-to-Business. consumer), or Consumer-to- Consumer. CONCLUSION Neither surveying nor Reasonable estimation Surveying and measuring production exists and depends on hospital records is effective global agricultural appear effective. measurement. production.

It might seem that if given enough time, repeated surveys and development of standardized constructs would be capable of measuring MMF, as was done with domestic violence surveying.

Unfortunately, because the nature of MMF means perpetrators are constantly developing new kinds of scams, this is nearly impossible to do. In fact, even the two US fraud studies, both

66 conducted for the FTC, admitted that the results were not comparable, as there were such variations in the kinds of crimes described from one study (2003) to the next (2005):

The figures in the 2005 survey are not directly comparable to those in the 2003 survey. There are at least two reasons for this: • First, the 2005 survey included several types of frauds that were not included in the earlier survey. These included the purchase of fraudulent weight-loss products and fraudulent work-at-home programs – two of the more frequently cited specific frauds in the 2005 survey. • Second, for several of the specific frauds included in both surveys, the questions were reformulated in 2005 to more clearly determine the scope of the particular fraud (Federal Trade Commission, 2007).

For a review of the frauds included in each of the FTC surveys, please refer to Table 3:

Types of Fraud Included in the 2005 FTC (U.S.) Fraud Survey within this document.

Thus, defining MMF for the purposes of surveying is similar to aiming at a moving target.

Consistent definitions year-over-year would be nearly impossible to derive as criminals creatively evolve their scams.

6.2. Suggested Methodologies to Measure MMF

Measuring total MMF is somewhat similar to estimating a country’s Gross Domestic

Product (GDP). One needs to sum all of the money “earned” by hundreds and thousands of businesses (in this case, fraudulent businesses) to get the result. However, GDP is a clearer figure to derive, as legitimate corporate data is reported to the government. To find the amounts not reported for something as chameleon-like as MMF, it is likely that a more creative methodology is required.

Calculation of the total amount of MMF in a given country requires the following three components:

TR= targeted rate (% of people or businesses targeted of the total population) VR= victimization rate (that statistically mirrors that of the total population) AL= average loss per victim (per scam type, summed for all the types of known scams)

Once VR, TR and AL are established, MMF could be calculated as follows.

Equation 1: Calculation of Consumer MMF

Adult Population x TR x VR x AL = Total Consumer MMF

As a note to Equation 1, for this methodology’s purpose, we address only the adult population, as the suggested methodology will require participation from potential victims (as volunteers). At this stage, the author does not suggest this could be equally effective with minors. Determining the TR for Consumer MMF as it relates to minors (under 18) is a suggested area of future study.

Equation 2: Calculation of Commercial MMF

Business Population x TR x VR x AL = Total Commercial MMF

In the above equation for Commercial MMF, Business Population refers to the number of separate commercial locations in a given country, which could be either for-profit or not-for- profit organizations, and certainly includes charities. The author suggests that each commercial location with a different contact mailing address and reception phone number could be considered a separate target, as these are core contact points for initiating contact with a given

68 business.

Since the equations for consumer and commercial MMF are virtually identical, the methodology concept shown in Figure 6 applies to either commercial or consumer MMF.

Figure 6: Calculating MMF

1. TR: Targeted Rate. This refers to the proportion of the population that is being solicited with

a scam at least once within a given 12-month period. In order to determine TR, there are at

least two ways which are worth consideration:

a. BBM-STYLE DIARIZING: In the advertising industry, BBM Canada measures the

time Canadians spend watching, listening, and reading programming offered by

various broadcast media. This data is gathered by selecting a large group of volunteer

participants who are requested to keep diaries of their individual listening and

watching patterns. The data is later collected and tabulated (BBM Canada, 2010).

Therefore, it would be possible to select a number of volunteers (or work in

cooperation with BBM Canada) who would be asked to diarize all incoming phone

calls, direct mailings, and internet spam from any and all businesses. These

solicitations could later be cross-checked against those belonging to legitimate, tax-

paying businesses to determine how many “pitches” the average consumer is

receiving per week, and what proportion of those pitches is coming from questionable

(non-registered) businesses. A diarizing methodology would also help to measure

commercial (business-to-business) MMF, because consistent diarizing would be

handled quite efficiently by professional receptionists. Another benefit of this

methodology is that it could be repeated year-over-year to measure growth or

shrinkage in solicitation volume, regardless of the kind of solicitation. b. BAITING: This method is referred to as “baiting” because of its use of “bait”, i.e.

fake names, e-mail addresses, and telephone numbers, which will lure solicitations

from scam operators, much like the police use bait cars to entice and capture car

thieves. In this method, as long as the bait looks as legitimate as a real victim, the

scam operators would initiate contact with bait individuals or businesses and pitch

their fraudulent offers. In other words, to measure ongoing TR, which essentially is a

beacon on the volume of solicitations being made nationally, investigators could

create and purchase a series of fake names (personal or corporate), phone numbers, e-

mail addresses, mailing addresses, and credit card numbers across the country

(mixing urban and rural locations across a wide geographic area), and get this data

“listed” in public directories as though these police-owned identities are real people

and/or businesses.

Such phone numbers and addresses could then be forwarded to a single in-

bound hub which would receive telephone calls, mail, and e-mail using staff that is

trained to behave as victims would behave, while recording the phone calls and

mailings for later review. The inbound operators could be split – some could behave

as “chronic victims” whose names might end up on “mooch lists” and get repeat calls

and others might consistently refuse the pitches. This way, researchers would have a

continual influx of solicitation from which they could measure the proportions of

legitimate and fraudulent pitches. An added bonus would be that this information

would help the authorities to be at the cutting edge of new scams, and provide quick

prosecution with verifiable details. This approach is very much like getting a random

sample of all the scams being solicited, but with law enforcement officials on the

receiving end.

Using either of these options, assuming the sample sizes are sufficient, in order to arrive at a targeted rate by ongoing measurement over a period of time would yield a percentage that reflects the amount of solicitation that the general population would be experiencing with statistical significance. Alternately, a hybrid option of the previous two mentioned (such as using volunteer citizens who then forward incoming solicitations to a trained call centre or a forwarding e-mail or mail address) could also work in an effective manner.

Further, rather than just gathering information in order to more accurately measure

MMF, those people perpetrating the scams can be brought to justice by being exposed in a much more immediate manner.

Figure 7: Deriving the Targeted Rate (TR)

Summarizing, Figure 7 shows that the targeted rate could be found from either diarizing or using baiting. If multiplied by the adult or business population, one could calculate the total number of people or businesses in the population targeted.

2. VR: The victimization rate. This is not a reported victimization rate (RVR) number, as used

in the previous studies. A better solution to estimate VR could be found using one of two

methods, and preferably both, for verification:

a. POLICE RECORDS: VR could be found in records of apprehended businesses whose

files were seized, and a mean VR could be calculated for various types of scams. In

the case of telemarketing, telephone records stating the number of calls made

combined with sales records could yield “closing rates” that estimate VR. Such

records may also yield the dollar amounts generated per phone call. Telemarketing

research suggests that 5 – 15%, or up to 30% when combined with direct mail, is not

an unreasonable “closing rate” for a legitimate business (Tehrani, March 1997). This

suggests actual VR, once examined in police records, could be significantly higher

than RVR as reported through surveys.

Checking these ratios with a convicted fraud business would definitely be a

worthwhile place to start. The author’s preliminary work in speaking with

professionals experienced in the prosecution of such crimes indicates that these

records do exist. Also, a colleague of the author also has a business relationship with

the head of the Competition Bureau’s investigation team who could assist in

gathering such records for study. b. SCAM SIMULATION: VR could be calculated using a simulation experiment

method. In this method, investigators could utilize real pitch scripts taken from actual

telemarketing, e-mail, and mail fraudsters (or those uncovered in the author’s

suggested “baiting” program) available through police and court records. Regarding

a telemarketing portion, these pitches could be executed by actors or experienced

telemarketers (whether paid or volunteer), who are trained to deliver the scam pitches

over a period of time (preferably a year – to calculate the average loss per victim

(AL) as well).

While carefully considering ethical issues, a target pool of potential victims

could be sourced as volunteers who sign up to participate in a marketing study for a

fee and told that they will soon be contacted about a research study.

Replications of various spam and mail pitches would be solicited to this

volunteer base to investigate the victimization rate. Of course, no actual money

would be taken from simulation victims, nor could these volunteers be told in

advance that they may be solicited. However, once the target rejects the offer or

supplies credit card data (or bank information, whatever the goal of the scam may be),

the simulation could be concluded and treated either as a victimization or non-

victimization incident upon which the volunteer is informed that he or she had

completed the volunteer requirements. Of course, all personal information would

have to be handled securely and destroyed immediately before any consideration

exchanges hands with the volunteers.

Some further study into the ethical logistics of this method would need to be

investigated carefully, although scam simulation experiments have already been

executed successfully in North America. For example, in a study conducted by the

American Association of Retired Persons in 2005, several pitch attempts were made

to seniors to test their vulnerability before and after various warning interventions

were given. At the conclusion of each simulation scam in that study, a letter was

mailed to each participant explaining the survey along with a warning to be more

careful of such pitches in the future (AARP, 2005).

There is one additional “golden nugget” to executing scam simulations. In

addition to estimating the victimization rate for a given scam, demographic data

would be collected which could be used to understand of which types of people fall

for which types of frauds. In this manner, the researcher could develop target

market segmentations for various scams that would assist in later targeting

intervention (warning) messages to specific groups of people. This approach has the

potential to make public service messages much more efficient and effective.

After the methodology involving police records and scam simulation is complete, the researcher will develop a reasonable cross-check of data to estimate the Victimization Rate.

To summarize, the methodology to estimate Victimization Rate (VR) is detailed in the following illustration, labeled Figure 8.

Figure 8: Deriving the Victimization Rate (VR)

3. Average $ Loss per Victim: AL. The final research parameter needed to estimate MMF is

Average $ Loss per Victim. This amount is a dollar quantity that represents the average

amount lost per victim over the course of a year. There are two at least ways to estimate AL.

a. RECORDS EXAMINATION: As described above, police records likely also contain

the amounts collected by fraud-perpetrating businesses, if financial records are stored

and intact within police files.

b. SCAM SIMULATION: The scam simulation methodology presented in the

preceding discussion could also provide information on the amounts that could be

extracted from a given victim over the course of a year, using the various scam

pitches. Volunteer “victims” who participate in the scam simulations would need to

be contacted multiple times (especially victims who fall prey to the various pitches)

to uncover the true financial (or informational) value that could be extracted through

application of the various fraud pitches. The scripting and techniques for these repeat

scam solicitations could be derived from the “chronic victim” law-enforcement

operators mentioned in the baiting research, which would reveal the amount sought

by the fraud perpetrators.

To summarize AL, the third component:

Figure 9: Deriving the Average Losses (AL) Per Scam

Once a VR, a TR and an AL are established, calculating the Total MMF could be conducted as in

Figures 10 and 11. Observe that each key parameter of data can be verified by more than one source.

Figure 10: Methodology for Calculating Consumer Mass Marketing Fraud

Figure 11: Methodology for Calculating Commercial Mass Marketing Fraud

Although no known studies have been undertaken to measure Commercial MMF, the author suggests that this component must not be overlooked in future studies when estimating the true magnitude of MMF. This is due to the fact that Commercial MMF schemes can be very large in nature. For example, in one scam that occurred within a six-month period in Canada between

May and December of 2000, a single perpetrator generated over $1 million CAD in revenue from a phony invoice scam targeting businesses and charitable organizations (Competition Bureau of

Canada, 2010a).

Now that Consumer and Commercial MMF have each been modeled, Figure 12 summarizes the author’s suggested methodology for calculating the true size of total MMF in a given country.

Figure 12: Methodology for Measuring Total MMF

7. CHAPTER 7: TACKLING THE RESEARCH

From a logical and mathematical viewpoint, presenting the Targeted Rate, Victimization

Rate, and Average Losses in their respective sequence (TR, then VR, then AL) is the simplest way to understand the methodology. This is because of what could be called “funnel” logic, since calculating MMF is much like calculating a sales funnel:

Figure 13: “Funnel” Logic for Measuring Total MMF

However, the research need not be conducted in this order.

Figure 14 outlines the sequence in which the author suggests undertaking the research.

Figure 14: Research Sequencing

• PHASE 1: POLICE RECORDS. Likely, the least expensive and most readily available

aspect of the suggested research is examining the police records. If permission is granted,

police and court records should shed light on the Victimization Rate (VR) and the Average

Losses (AL) for various charged and convicted MMF criminals as well as statements from

personal and commercial victims. Each year, the Competition Bureau convicts a few major

MMF cases as detailed in its annual report, so researching these most recent cases and their

related victim reports would ensure the best opportunity to find valuable information that

could be used to estimate the magnitude of MMF.

• PHASE 2: BBM-STYLE DIARIZING. The author believes recruiting volunteers to

participate in the BBM-style diarizing would be the next most logical step. Volunteers could

be sampled using randomized market research methodologies, or advertisements and

publicity from the Competition Bureau could be used to solicit willing participants.

Although the latter method would not technically be random, if the volunteer list is

sufficiently large, diverse, and stratified, this approach should not bias the result in any

significant manner. Creating an online (real-time) website in which participants could

immediately log the received solicitations would be an effective way to gather this data.

Another idea is to create a smart-phone application that categorizes, records, and logs all

solicitation calls and then forwards these records immediately to an organized law-

enforcement database.

• PHASE 3: INBOUND BAITING. Creating an inbound “baiting” call centre using a large set

of telephone, e-mail, and mailing addresses would involve somewhat greater logistical

planning and costs. For this substantial undertaking, the author suggests asking for

participation and funding from telecommunications companies, internet service providers,

Canada Post, search engine companies such as Google or Yahoo, e-mail service providers

such as Microsoft, banks, and perhaps industry associations such as the Canadian Marketing

Association. These organizations should have a vested interest in participating due to the

desire to clean up fraudulent activities that misuse and tarnish their delivery media. Reducing

harassing calls, spam, and mail fraud is important to the members of these organizations

because such activities ultimately increase government legislation on their services, serving

as a hindrance to profitability (Bhandari, et al., 2009). For example, new anti-spam

legislation though the Can-Spam Act in Canada threatens businesses whose electronic

messaging formats deviate from the legislation’s guidelines with fines of up to $10 million

CAD for a single violation (Blake Cassels & Graydon LLP, 2011).

• PHASE 4: OUTBOUND SCAM SIMULATION. Outbound scam simulation may be the

most difficult aspect of the research to undertake. This is due to the excruciating care that

must be taken to observe ethical boundaries when executing a fraud sting on a potential

victim. For example, if a potential victim gives credit card information, the researcher must

take great care regarding how the credit card number is handled. Disciplined handling of

data is also critical in cases wherein personal information is gathered by researchers.

Notwithstanding, it must be noted that scam simulation experiments were successfully (and

presumably legally) carried out by the FBI in the United States. The author suggests that

with involvement from the FBI researchers and statistical experts, the proposed methodology

could be further refined and successfully executed.

8. CHAPTER 8: BENEFITS OF SUGGESTED RESEARCH

There are several important benefits of conducting research using the suggested methodologies.

• Accurate, measurable numbers for MMF would facilitate appropriate government

budgeting for public awareness and intervention strategies. With a more complete

assessment of the amounts of money that fraudsters are stealing from citizens,

politicians and law enforcement agencies will better realize the value in spending

appropriate amounts to combat Mass Marketing Fraud.

• The suggested methodologies would provide an excellent barometer on the growth or

shrinkage of the targeted rates, victimization rates, and average losses year-over-year.

This would allow investigators to uncover whether the problem is shrinking or

growing in relation to the interventions used.

• Acquiring details of the scams through baiting will allow rapid tracing of perpetrators

and accelerate apprehension of criminals. This has the potential to uncover

connections to organized crime, which are closely connected to Mass Marketing

Fraud. For example, an MMF call could be quickly traced to its physical origin once

the call is forwarded to a well-equipped professional call centre. Scam calls could be

received and a perpetrator identified, apprehended, and stopped immediately. In

addition, the full and recorded details of the scam can be directly used in simulations

to assess effectiveness and key targets, thereby enabling rapid forewarning of the

targeted segment of the public through the appropriate channels.

• In the interest of professionals within the marketing industry, conducting this research

(especially when done in conjunction with the academic community) can spur interest

in MMF within academic circles and preserve valuable direct marketing channels. If

academic thought leaders “take up the torch” to investigate public awareness and

other intervention strategies to reduce MMF, this could help preserve direct media

channels for legitimate marketers to use, instead of being bogged down by excessive

legislation. Certainly, if businesses in Canada started adding their phone numbers to

a “Do Not Call” list to prevent all business-to-business sales calls (as occurred in the

UK) this would be an unimaginable hindrance to the economy (Nettleton, 2006).

In addition to the above listed benefits, the suggested research has the potential to enhance Canada’s contribution to the international MMF community at large, perhaps helping Canadians to become global leaders on the subject. Once such methods are tested and refined in Canada, the approach could be implemented in other countries. With international partnering to implement the methodologies around the globe, there is significant potential to have an impact on cross-border MMF crime around the globe.

9. CHAPTER 9: AREAS FOR FUTURE STUDY

The scope of this thesis was limited to gaining an understanding of methodologies for measuring the magnitude of MMF. It must be noted that once the magnitude of MMF is measured, this is merely the beginning of the journey. Figure 15 presents an illustration which builds upon the scope previously defined.

Figure 15: Areas for Future Study

The author proposes several areas for future study that have the potential to assist in reducing MMF globally, which when considered, build the “two-dimensional” literature study scope previously conceived into a “three-dimensional” attack on MMF.

• International Conferences. Although this thesis included current published

literature and was further aided by the Competition Bureau’s 2009 unpublished

literature review, the author has not personally contacted international

organizations which may have new studies in their research pipelines. Attending

international conferences would allow the author to become aware of such

international research. This would also aid in the refinement of research

methodologies proposed herein.

• Intervention Messages for MMF Targets. It would be highly beneficial to study

the types of intervention messaging most likely to prevent potential victims from

falling prey to MMF. A future study similar to the research conducted by the

American Association of Retired Persons in 2005 could be conducted with the

general public in Canada. This study tested messaging methods use in “reverse

boiler rooms” (telemarketing for the purpose of forewarning), using techniques

such as forewarning targets with vivid scam descriptions, positioning the target as

a “fraud fighter” charged to receive and report scams, and asking the target to

make his or her own suggestions as to what might be effective, in order to

mentally “engage” him or her in thinking about MMF (AARP, 2005). These and

other methods could be tested on the general public, which would aid effective

tailoring of public awareness messages.

• Communications Strategies for MMF Targets. Given that much of the media

being used by fraudsters to reach targets may be suffering from eroding trust from

consumers and businesses, research may be needed to gain an understanding of

how to reach targets with appropriate intervention (warning) messaging.

Furthermore, since two-way communications are undoubtedly the most

persuasive methods and used by fraudsters, it may be a challenge to find a way to

better distinguish legitimate anti-fraud messaging which can overcome the

persuasiveness with which criminals are delivering their messaging.

• New Media Used in MMF. As mentioned previously, existing studies only cover

communications channels such as e-mail, mail by post and telephone. This does

not begin to capture the potential of MMF to grow through new social media

sites, text messaging, video gaming communities, or even virtual reality sites.

Experimentation with creating “bait identities” in these areas would likely yield

MMF crimes that are currently under the radar of law enforcement.

• International MMF & Cross Border Crime. While each of the MMF studies

examined in this study pertains to a single country, specifically the U.K. and

Canada, these studies did not begin to address how MMF is perpetrated across

international borders or how countries can and should cooperate to report and

share information on MMF. Certainly, attending international conferences would

assist in this regard, but specific cross-border MMF research is also a large and

very complex area of future study.

• Private Industry Databases. Partnering with telecommunications companies,

internet service providers, Canada Post, search engine companies such as Google,

Mozilla or Yahoo, e-mail service providers such as Microsoft, anti-virus

companies such as Norton and McAfee and perhaps industry associations such as

the Canadian Marketing Association might also open up other databases of

research surrounding new scams. These organizations might be able to track

traffic and trends in their respective media which would help to ensure the

suggested baiting programs are kept current.

• Information Systems and Online Security Community. Finally, the online

technical and information security community would be another excellent

resource for information regarding MMF. Industry and academic professionals in

these disciplines must stay on the cutting edge of online crime and security

techniques and would therefore offer valuable insight into how to trace online

MMF to its origin, assess its reach and response rates, and perhaps track online

financial transactions. This community must rapidly share information to avert

the latest creative hacking threats, and so is likely to be among the first to know

about new online schemes, some of which could be for-profit MMF schemes.

• Children as Targets of MMF. Children are clearly targets of all types of criminal

activity, and MMF is likely no exception. In order to determine young people’s

awareness and victimization, some of the suggested methodologies (such as

police records or baiting) may work, if call centre staff could be found that can

effectively simulate children’s voices. However, new methodologies would likely

need to be devised to assess MMF targeted at children, which would also coincide

with the suggested future research into the newest online media such as video

game advertising, social media, text messaging, and popular “virtual reality”

websites.

10. CHAPTER 10: CONCLUSIONS

The author views this thesis as the beginning of career-long pursuit to better understand and combat MMF. While the research suggested herein will certainly shed light upon the magnitude and nature of MMF, it will likely take two to four years to complete only Phases 1 and 2 of the suggested research. However, the complexity and creativity inherent in Mass

Marketing Fraud provides a fascinating area of career study that can supply endless intellectual challenge. Further, the experience of undertaking this thesis has kindled the author’s enthusiasm for the value of research that can be used to protect MMF targets. With this in mind, the author believes that undertaking the pursuit of MMF research has significant potential to contribute meaningfully to the professional community of marketing, to Canada’s economic well-being in the long run, and possibly to the international community.

It is hoped that by conducting such research, the marketing academic community may begin to take a greater interest in studying MMF in order to find ways to defend against MMF’s assault on the profession of marketing, and preserve valuable communication channels for legitimate businesses.

Finally, with children more commonly using the internet, mobile phones, and social media the need for a pro-active vigilante regarding MMF is evident.

11. NOTE: Report fraud to the Canadian Anti-Fraud Centre (CAFC) Toll Free: 1 (888) 495-8501 (North America) or Overseas and Local: 1 (705) 495-8501 Toll Free Fax: 1 (888) 654-9426 Mailing Address: Box 686 North Bay, Ontario P1B 8J8 E-mail: [email protected]

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