Fraud Report 29/10/02 12:37 PM Page i M E I A N L T R O A F P V I I A C T O R PARLIAMENT OF VICTORIA DRUGS AND CRIME PREVENTION COMMITTEE INQUIRY INTO FRAUD AND ELECTRONIC COMMERCE: EMERGING TRENDS AND BEST PRACTICE RESPONSES Discussion Paper October 2002 by Authority Government Printer for the State of Victoria Fraud Report 29/10/02 12:37 PM Page ii Submissions are invited The Committee welcomes written submissions in response to the issues raised in this Discussion Paper or on any matter related to the Terms of Reference of the Inquiry. To assist interested parties in making submissions a number of questions have been posed throughout the Discussion Paper. Details of how to make a Submission are included in the Insert. The Committee requires all submissions to be signed hard copy originals but would also appreciate an electronic copy. Submissions should be sent by 30 January 2003 to: Inquiry into Fraud and Electronic Commerce The Drugs and Crime Prevention Committee Level 8, 35 Spring Street, Melbourne Victoria 3000 Telephone: (03) 9651 3541 Facsimile: (03) 9651 3603 Email: [email protected] http://www.parliament.vic.gov.au/dcpc The Discussion Paper was prepared by the Drugs and Crime Prevention Committee. Drugs and Crime Prevention Committee Inquiry into Fraud and Electronic Commerce: Emerging Trends and Best Practice Responses – Discussion Paper DCPC, Parliament of Victoria ISBN: 0-7311-5292-1 The Drugs and Crime Prevention Committee: Level 8 35 Spring Street, Melbourne Victoria 3000 Telephone: (03) 9651 3541 Facsimile: (03) 9651 3603 Email: [email protected] http://www.parliament.vic.gov.au/dcpc page ii Fraud Report 29/10/02 2:50 PM Page iii Drugs and Crime Prevention Committee Members The Hon. Cameron Boardman, M.L.C. – Chairman Mr. Bruce Mildenhall, M.L.A. – Deputy Chairman The Hon. Robin Cooper, M.L.A. Mr. Kenneth Jasper, M.L.A. Mr. Hurtle Lupton, M.L.A. The Hon. Sang Minh Nguyen, M.L.C. Mr. Richard Wynne, M.L.A. Committee Staff Ms Sandy Cook Executive Officer Mr Peter Johnston Senior Legal Research Officer (Inquiry into the Use of Amphetamines and ‘Party Drugs’) Ms Michelle Heane Office Manager Consultants, Inquiry into Fraud and Electronic Commerce Dr Russell G. Smith Deputy Director of Research Australian Institute of Criminology Mr Stuart Candy Research Analyst Australian Institute of Criminology page iii Fraud Report 29/10/02 12:37 PM Page iv Functions of the Drugs and Crime Prevention Committee The Victorian Drugs and Crime Prevention Committee is constituted under the Parliamentary Committees Act 1968, as amended. Parliamentary Committees Act 1968 (Vic) Section 4 EF. To inquire into, consider and report to the Parliament on any proposal, matter or thing concerned with the illicit use of drugs (including the manufacture, supply or distribution of drugs for such use) or the level or causes of crime or violent behaviour, if the Committee is required or permitted so to do by or under this Act. Terms of Reference Received from the Legislative Assembly on Wednesday 28 November 2001. To the Drugs and Crime Prevention Committee – for inquiry, consideration and report by 30 September 2002 on: (a) the extent and nature of fraud and white-collar crime in Victoria; (b) the impact of new technology supporting E-commerce on the opportunities for fraud; (c) the current and proposed state, commonwealth and international strategies and initiatives in relation to dealing with fraud and white- collar crime, and (d) the need for policy and legislative reform to combat fraud and white- collar crime in Victoria. page iv Fraud Report 29/10/02 12:37 PM Page v Contents Drugs and Crime Prevention Committee iii Functions of the Drugs and Crime Prevention Committee iv Terms of Reference iv List of Tables and Figures vii Acknowledgments ix 1. Introduction 1 The current Inquiry 1 Definitional issues 2 Sources of information 7 Conclusion 7 2. The Nature of Fraud in Victoria 8 Introduction 8 Motivating factors 8 Fraud in the public sector 13 Fraud in the professional sector 15 Fraud in the corporate and business sector 20 Fraud and consumers 30 Conclusion 35 3. The Extent of the Problem 37 Introduction 37 Undetected, unreported and other ‘not proceeded with’ offences 37 Official statistical sources of information 39 Fraud victimisation surveys 47 Electronic crime and eFraud surveys 52 Quantifying loss in Victoria 57 Conclusion 61 4. Fraud Risks of Electronic Commerce 62 Introduction 62 The nature of electronic commerce 62 Risks for government 71 Risks for business 76 Risks for individuals 79 Conclusion 88 5. Responses to the Problem 90 Introduction 90 Public sector responses 90 Private sector responses 95 page v Fraud Report 29/10/02 12:37 PM Page vi Inquiry into Fraud and Electronic Commerce: Emerging Trends and Best Practice Responses Organisational responses 97 Technological responses 112 Electronic commerce policy developments 120 Conclusion 123 6. Policy and Legislative Reform 125 Introduction 125 Substantive laws 125 Criminal justice system 139 Other avenues of redress 159 Conclusion 162 7. Key Issues for the Future 164 Introduction 164 Improving sources of information and statistics 164 Improving public and business education 165 Coordinating regulatory efforts 166 Using technology appropriately 167 Changing attitudes 167 Final observations 168 Appendices 171 Appendix A: List of Written Submissions Received 171 Appendix B: List of Oral Submissions Received 172 Appendix C–1: Deception Offence Descriptions Recorded in Victoria Police Statistics 173 Appendix C–2: Miscellaneous Fraud and Electronic Commerce-related Offence Descriptions Recorded in Victoria Police Statistics 177 Appendix D: Official Fraud & Deception Statistics 1960–2001 183 Appendix E: Number of Deception Offences Where Property was Recorded as Stolen/Affected by Year, Offence Type and Value Range of Property Affected – 1996–1997 to 2000–2001 193 Appendix F: Number of Miscellaneous Fraud and Electronic Commerce-related Offences Recorded by Police 1993–94 to 2000–2001 203 Bibliography 207 page vi Fraud Report 29/10/02 2:50 PM Page vii Inquiry into Fraud and Electronic Commerce: Emerging Trends and Best Practice Responses List of Tables and Figures Tables Tables Table 2.1: Reported Australian government credit card fraud and misuse 1987–94 . .15 Table 2.1. Reported Austra Table 3.1: Australian Federal Police number and value of economic crime cases referred for investigation, 1997–2000 . .40 Table 3.1: Australian Feder Table 3.2: Extent of fraud reported by surveyed Australian public service agencies . .41 Table 3.2: Extent of fraud Table 3.3: Perpetrators of major fraud . .49 Table 3.3: Perpetrators of Table 3.4: Small business crime survey – Australian statistics . .50 Table 3.4: Small business c Table 3.5: Small business crime survey – Victorian statistics for employee fraud . .51 Table 3.5. Small business c Table 3.6: Small business crime survey – Victorian statistics for cheque/credit card fraud . .51 Table 3.6. Small business c Table 3.7: Top Internet frauds, 1999–2001 . .56 Table 3.7: Top Internet fra Table 3.8: Average Internet fraud losses (US$), 1999–2001 . .56 Table 3.8: Average Interne Table 3.9: Payment methods used in top Internet fraud categories (percentage annual type), 2000–01 . .57 Table 3.9: Payment metho Table 4.1: Number of payment transactions, Australia, 1994–2001 . .70 Table 4.1: Number of pay Table 4.2: Value of payment transactions, Australia, 1994–2001 . .70 Table 4.2: Value of payme Figures Figures Figure 2.1: ASIC investigations commenced, 1993–2000 . .21 Figure 2.1: ASIC investigat Figure 3.1: Number of Victorian fraud offences recorded by Police, 1960–2001 . .43 Figure 3.1: Number of Vic Figure 3.2: Rate of Victorian fraud offences per 100,000 population, 1960–84 . .43 Figure 3.2: Rate of Victoria Figure 3.3: Rate of Victorian fraud offences per 100,000 population, 1987–2001 . .44 Figure 3.3: Rate of Victoria Figure 3.4: Electronic crime referrals received by the Australian Federal Police 1991–2001. .45 Figure 3.4: Electronic crim Figure 3.5: Computer-related offences recorded by Victoria Police 1993–94 to 2000–01. .45 Figure 3.5: Computer-rela Figure 3.6: Fraud offences reported to Police for Australian jurisdictions 1996–2001 (Rates per 100,000 population) . .47 Figure 3.6: Fraud offences Figure 3.7: Victorian deception offences – Total dollar value stolen, 1996–97 to 2000–01. .58 Figure 3.7. Victorian decep Figure 3.8: Victorian deception offences – Dollar value stolen categories, 1996–97 to 2000–01 . .59 Figure 3.8: Victorian decep Figure 6.1: Victorian Magistrates’ Courts, principal proven fraud offences, 1960–99 . .152 Figure 6.1: Victorian Magi Figure 6.2: Victorian higher courts, principal proven fraud offences, 1960–78 . .153 Figure 6.2: Victorian highe Figure 6.3: Victorian higher courts, principal proven fraud offences, 1979–96 . .153 Figure 6.3: Victorian highe Figure 6.4: Percentage custodial out of total Victorian principal proven fraud offences in higher courts, 1960–97 . .155 Figure 6.4: Percentage cus Figure 6.5: Victorian fraud prisoners in custody, 1970–2001 . .155 Figure 6.5: Victorian prison Figure 6.6: Percentage of prisoners’ fraud offences out of total prisoners’ offences, 1960–78 . .156 Figure 6.6: Percentage of Figure 6.7: Percentage fraud offence prisoners out of total prisoners in custody, 1980–2001 . .157 Figure 6.7: Percentage frau page viipagevii page vii Fraud Report 29/10/02 12:37 PM Page viii page viii Fraud Report 29/10/02 12:37 PM Page ix Inquiry into Fraud and Electronic Commerce: Emerging Trends and Best Practice Responses Acknowledgments This Discussion Paper incorporates, with permission, material previously published as Smith, R.G.