Fighting fraud during the COVID-19 pandemic: A CSR-based approach

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Introduction

In the midst of the COVID-19 pandemic, fraudsters and scammers have taken the maxim “never waste a good crisis” to heart.  With anxiety and uncertainty rampant, consumers are highly vulnerable to fraud and deceptive economic practices. A report in the Wall Street Journal noted that the U.S. Federal Trade Commission (FTC) had received over 36,238 reports of COVID-19 scams through May 5th, with roughly 80% of those complaints being lodged in the last five weeks; and in the U.K., the Charity Commission warned that charities face an increased risk of fraud by scammers.

Regulatory action is vital to protect consumers and charities against fraud in the midst of this crisis.  But businesses of all sizes, particularly those which provide platforms that scammers may take advantage of, also need to do their part by self-regulating and monitoring their platforms for scammers.  By acting proactively to remove fraudsters and scams from their platforms, and by voluntarily acting in tandem with federal authorities, businesses can emerge from the crisis with their reputations intact — not as enablers of fraud, but as responsible corporate citizens.

During this crisis, we can identify roughly two types of corporate actors: those taking advantage of consumers for their own gain, and those whose platforms have often been unwittingly manipulated by scammers, allowing the public to fall prey to fraud. By examining the different methods scammers and unscrupulous entities are using to defraud the public, stakeholders can both identify unscrupulous behavior, and develop strategies to act responsibly by either working independently or with regulatory authorities to protect individuals and businesses using their platforms.

Bad Faith COVID-19 Scammers

A small but nefarious cohort of corporate and individual scammers have taken to preying on individuals, charities, and legitimate businesses during the COVID-19 epidemic.

Preying on the public’s desperation, scammers have positioned themselves as selling personal protective equipment (PPE), masks, or have taken to hawking ineffective and unproven coronavirus “cures” with no evidentiary backing. Meanwhile, other scammers have looked to defraud the government through programs established to benefit small businesses struggling under the weight of the economic slowdown wrought by COVID-19.  According to the U.S. Small Business Administration (SBA), scammers are increasingly targeting small businesses seeking relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES), a law meant to provide assistance to small businesses impacted by the coronavirus.  

U.S. District Attorneys for the District of Columbia and the Middle District of Florida have also identified other emerging fraud schemes meant to prey on unscrupulous consumers, including: (1) impersonating testing services and charging consumers for tests never administered; (2) impersonating medical providers and scamming consumers into paying fictional medical expenses for a friend or relative; (3) posing as global or national health authorities via email in order to conduct online phishing expeditions; (4) using mobile apps that claim to track the spread of COVID-19 to insert malware in consumers’ phones; (5) investment scams; (6) malicious websites that appear to display information on COVID-19 but then lock a user’s computer until payment is received; among other types of schemes. As fallout from the crisis continues, other fraud schemes will undoubtedly emerge.

A host of corporate and individual bad faith actors are putting these schemes into practice in real-time. The U.S. Food and Drug Administration (FDA) and Federal Trade Commission (FTC) jointly sent warning letters to seven businesses – Vital Silver, Quinessence Aromatherapy Ltd., Xephyr, LLC (doing business as N-Ergetics), GuruNanda, LLC, Vivify Holistic Clinic, Herbal Amy LLC, and The Jim Bakker Show – threatening seizure or injunction if they continued to falsely claim they were selling proven treatments for COVID-19. Later, on May 14th, a federal judge entered a temporary injunction against Xephyr, LLC on grounds that it was violating the U.S. Federal Food, Drug, and Cosmetics Act, by distributing colloidal silver as an unapproved drug to treat COVID-19.

Impropriety is not limited to those selling consumer products. In the U.S., various entities have submitted fraudulent applications for Small Business Administration loans allocated for small businesses affected by the coronavirus. According to Reuters, The U.S. Department of Justice (DOJ) has subpoenaed large banks as part of an investigation into fraudulent abuse of a $660 billion small business loan program passed to relieve the economic downturn wrought by the coronavirus. And as early as May 5, 2020, the DOJ indicted two businessmen for fraudulently applying for $500,000 USD under the CARES Act,  who claimed they had dozens of employees working for four businesses when, in fact, they had none.

Healthcare fraud also abounds. The Office of Inspector General of the U.S. Department of Health and Human Services warned that a portion of COVID-19 scams was targeting Medicare and Medicaid beneficiaries, and attempting to obtain personal details. A woman in the U.S. state of Georgia was also indicted for her role in a conspiracy to submit false claims to federal healthcare programs for COVID-19 tests.

Manipulation of Legitimate Online Services

Scammers’ efforts to defraud consumers would not be possible without their use of highly trafficked online marketplace platforms.   A May 4th, 2020 report in The Guardian exposed how fraudsters are taking advantage of eBay customers by posting fake listings for motorhomes, copying legitimate listings to pique a buyer’s interest and then requiring that money be placed into a holding account prior to delivery of the (fictional) motorhome.

And new fraud schemes are not only appearing on online marketplaces — they are also cropping up on social media platforms and in online games, which both have increasingly active user bases due to stay-at-home orders.  The Better Business Bureau has received hundreds of reports of COVID-19 fraud, and its “Scam Tracker” reports 939 different COVID-19 fraud schemes reported from February 13th to May 16th. Some internet users have even fallen prey to scams on Twitter, where scammers entice users to supply their banking information and make transfers under the auspices that the user won a giveaway by being one of a certain number of users to “like” a Tweet.

Numerous companies claim that they have increased moderation in order to fight new COVID-19 fraud schemes — for its part, in a statement to The Guardian, eBay claimed to maintain “dedicated fraud prevention teams” to protect consumers. But merely doubling down on traditional moderation strategies is not enough.  Online marketplaces and media platforms need to alert their users to common online fraud schemes, and create dedicated moderation teams to uncover and delete solicitations by COVID-19 scammers.  Companies need to follow the lead of the most responsible corporate actors in order to truly safeguard consumers from ever-present and ever-increasing fraudulent activities.

CSR Self-Regulatory Strategies for Fighting Fraud

Thankfully, many businesses have taken steps to warm consumers using their platforms of potential COVID-19 scams. In a statement to Reuters, Amazon barred over one million products for sale on its platform, both for claiming their products defended or cured COVID-19, as well as for price-gouging. Amazon, Google, and eBay have all also acted to remove products fraudulently claiming to “protect” customers from 5G, in connection with a conspiracy theory which claims that 5G causes COVID-19.

Public-private partnerships are also an effective way to prevent scammers from using legitimate online marketplaces as storefronts for their fraud schemes.  Luckily, a number of businesses have opted to enter into public-private partnerships during the epidemic, to great public benefit.  Notably, on April 22, 2020, in tandem with a number of private partners, the DOJ disrupted hundreds of websites being used to perpetrate COVID-19 scams by either soliciting users to enter their personal information or directly infecting a user’s computer with malware.  As part of the operation, the DOJ notified the companies managing the domains, which voluntarily removed the suspect websites and pledged to establish teams to monitor their services for COVID-19 related fraud. Additionally, the Homeland Security Investigations (HSI), which is the investigative arm of the U.S. Department of Homeland Security, partnered with representatives from Pfizer, 3M, Citi, Alibaba, Amazon and Merck as part of Operation Stolen Promise, which is aimed at preventing and investigating illegal criminal activity, including fraud, arising from the COVID-19 pandemic.

In order to incentivize corporate self-regulation, government regulators need to aggressively pursue scammers and the bad corporate actors taking advantage of this crisis.  Businesses should also note that following the lead of those self-regulating or entering into public-private partnerships carries substantial benefits.  Consumers are likely to flock to businesses offering more secure platforms where consumers are not at risk of falling prey to fraud.  Additionally, if businesses fail to take action to thwart scammers on their platforms, consumers may flock to competitors offering more secure services.

Conclusion

Effectively fighting criminal fraud schemes undoubtedly requires government action.  But regulators can only do so much.  Executives and other decision-makers in companies need to do their part by not only cooperating with regulators but also by creating internal procedures for identifying and removing COVID-related fraud schemes aimed at consumers.  Public-private partnerships and dedicated fraud monitoring teams have, thus far, proven fulsome in fighting against COVID-related fraud.  These efforts need to continue, and businesses everywhere need to follow suit.  The physical and economic welfare of consumers depend on it.

Disclaimer

The views, opinions, and positions expressed within all posts are those of the author alone and do not represent those of the Corporate Social Responsibility and Business Ethics Blog or of its editors. The blog makes no representations as to the accuracy, completeness, and validity of any statements made on this site and will not be liable for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with the author.

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