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Ecommerce Fraud Prevention

Combating the growth in illicit trade and cybercriminality

ecommerce fraud prevention

7 August, 2020

Author: Walter Trezek Twitter Linkedin

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At A Glance

  • Ecommerce is fast becoming the primary focus for illicit products [1], illicit trade, and cybercrime. Criminals are exploiting the opportunities offered by a corona-led economic downturn and continued supply chains disruptions.
  • Over the medium term, the volume of illicit trade and number of routes are growing, potentially leading to the increased abuse of Free Trade Zones.
  • Countermeasures have been initiated by the OECD, UPU and EU to create more secure and compliant major trade lanes and trade “super-highways”.
  • This is an update to the article: Postal Identity Management

Ecommerce failing to comply with customs & import VAT regulations

Experts estimate that each year the EU loses well over EUR 7 billion in revenue as a result of import VAT and customs fraud. They calculate that up to 7% of all commercial items are either counterfeit [2] or do not comply with basic European safety, health, or environmental standards.

Effective 1 July 2021, the EU's ecommerce fraud prevention measures will stop the import of non-compliant commercial items (commercial letter post, packets and parcels) by introducing mandatory electronic advanced pre-declarations which must be lodged with the EU authorities prior to the shipment of any item to the EU.

Growth in ecommerce fraud

The growth in ecommerce goes hand in hand with increasing criminality. Buyers are drawn by low prices and special products offered on fake websites, hand over their money, but fail to receive their purchased items.

The number of complaints about fake delivery companies demanding additional payments to deliver goods is also increasing – often a non-existent product is sold via a fake website, with the fraudsters then posing as the delivery company and extorting more money from their victims to ostensibly cover import duties, etc.

Young adults are increasingly the focus of such scams, usually via social media channels.

Illicit trade in times of the pandemic

According to the OECD Trade Task Force on Countering Illicit Trade [3], criminal networks have reacted quickly to the crisis, adapting their strategies to take advantage of the shifting online delivery landscape.

The following trends are being observed:

  • The pharmaceutical industry is particularly at risk for fraud and illicit activity. Law enforcement agencies and the industry report a precipitous rise in flows of fake and substandard medicines, test kits and personal protective equipment, as well as other medical products.
  • Due to the lockdown, the online environment has become more intensely misused, and cyber law enforcement has reported skyrocketing volumes of e-crime.
  • Change in customs control priorities (e.g. focus on COVID-19-related products) and labour shortages among law enforcement officials are increasing the potential for illicit trade in other areas.
  • Illicit trade in counterfeits is becoming a growing threat for many industries that suffer from broken supply chains and shortages of components, including the food, automotive and chemical industries.

Over the medium and longer term, the COVID-19 pandemic will have several other effects on illicit trade and increase the need for active ecommerce fraud prevention.

The economic downturn and continued disruptions in supply chains will undoubtedly create additional opportunities for criminals; over the medium term this is forecast to result in substantial changes in illicit trade volumes, routes and composition.

In addition, limits on air transport and enhanced compliance regulations that are expected in global value chains will re-shape the trade routes and patterns for illicit trade, which could also lead to increased abuse of Free Trade Zones.

A reaction to this could be the establishment of more secure and compliant trade lanes, or even trade “super-highways”.

Digitalization depends on cybersecurity & preventing ecommerce fraud

Industry and political policymakers are examining the need for comprehensive, structured co-ordination and ecommerce fraud prevention measures to counter illicit trade, the impact of cybercrime on ecommerce, and related scams.

Several areas in which enforcement needs to be stepped up have been identified:

  • Strengthening of information sharing across borders is crucial for a comprehensive understanding of the new threat.
  • Digital vigilance and the involvement of financial services and ecommerce platforms in informing the public about scams and related cybercriminal activities.
  • Measures to ensure that highly secure networks and information systems in the EU also include ecommerce and its supply chain
  • Modern technological solutions (e.g., block chain, artificial intelligence, etc.) to counter illicit trade.
  • Ongoing risk monitoring: the OECD Task Force on Countering Illicit Trade (TF-CIT) is playing an essential role by developing a global standard for unbiased and robust evidence on illicit trade, and identifying the main challenges, victims, covert actors, and key governance gaps.
  • In-depth dialogue between all service providers with respect to the misuse of low value consignments, the digital retail business model, and the increasing digitalization of transport and logistic routes.
  • In pharmaceuticals, a sector particularly impacted by the coronavirus pandemic, proper rules must be established for shutting down the online trade in illicit medicines, and which in turn will serve as sufficient legal deterrence.

Stakeholders have presented a variety of ways in which to tackle challenges enhanced by the COVID-19 crisis in the online environment and strengthen ecommerce fraud prevention.

They recall the problem posed by GDPR that limits the transparency of the WHOIS database, and the sharp increase in ecommerce and small parcel shipments that make the international trade more difficult to identify.

Key recommendations by the OECD experts on Countering Illicit Trade:

  1. Focus on the domain name registration system and facilitated access to the WHOIS database that has been drastically reduced in recent years as a result of stakeholder interpretation of the EU’s GDPR data privacy laws. Ensuring the accuracy and openness of information within the WHOIS database is a critical component in identifying the sources of fraudulent medical products or misinformation online.
  2. Control access to domain names by policy [4] and make legislative changes to ensure registries and registrars are comprehensively accountable. “Know Your Customer” policies can have a positive impact on ensuring safety and legitimacy of information found on these sites.
  3. Immediately identify legitimate postal services and avoid confusion for individuals, business and stakeholders. The Universal Postal Union has developed the most secure sTLD available on the net to date. The UPU's .POST TLD aims to integrate the physical, financial, and electronic dimensions of postal services, enabling and facilitating e-post, e-finance, ecommerce and e-government services. It is the first sTLD to be 100% secured by Domain Name System Security Extensions (DNSSEC) [5]. Anyone can trust that a .POST domain will not direct you to a fake postal website.

Where sites are found to be peddling counterfeit drugs or false information, domain name registrars should lock and suspend those domain names immediately upon notice from law enforcement or trusted third parties.

[1] Including fake and substandard medicines, test kits and other COVID-19-related goods.   [2] Studies by the OECD and the EU Intellectual Property Office (EUIPO) show that trade in counterfeit and pirated goods amounted to up to 2.5% of world trade in 2013 / up to 5% of imports into the EU; Source: OECD/EUIPO (2018), Misuse of Small Parcels for Trade in Counterfeit Goods: Facts and Trends, Illicit Trade, OECD Publishing Paris. https://doi.org/10.1787/9789264307858-en    [3] The OECD published a Chairman's note on "Illicit Trade in a time of crisis". The document presents the Chair's summary of the Webinar "ILLICIT TRADE IN A TIME OF CRISIS” on 23 April 2020, organised by the OECD task force on countering illicit trade    [4] A “good practice” example of this has been achieved by the top-level country domain registry in Denmark, resulting in a significantly reduced number of suspicious and illicit websites in the country.   [5] A set of codes for securing the Domain Name System (DNS), the global database system that translates a computer's fully qualified domain name into an Internet Protocol (IP) address

Author: Walter Trezek Twitter Linkedin

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