Boom in E-Commerce Has Created Fertile Ground for Fraud: FTC

The Federal Trade Commission today told Congress that the boom in e-commerce has created a fertile ground for fraud. Testifying before the House Committee on Energy and Commerce, Subcommittee on Commerce, Trade and Consumer Protection, Eileen Harrington of the FTC's Bureau of Consumer Protection said, "Internet technology is the latest draw for opportunistic predators who specialize in fraud. The rapid rise in the number of consumer complaints related to online fraud and deception bears this out: in 1997, the Commission received fewer than 1,000 Internet fraud complaints; a year later, the number had increased eight-fold. In 2000, over 25,000 complaints - roughly 26 percent of all fraud complaints logged into the FTC's complaint database, 'Consumer Sentinel,' by various organizations that year - related to online fraud and deception. The need - and challenge - is to act quickly to stem this trend while the online marketplace is still young."

The testimony says the FTC is developing new tools to combat fraud, including the use of its Consumer Sentinel database. The database contains over 300,000 consumer complaints culled from the FTC's Consumer Response Center and from public and private consumer protection and law enforcement partners, including the Better Business Bureaus, the National Consumers League's National Fraud Information Center, and Project Phonebusters in Canada. The U.S. Postal Inspection Service has recently agreed to begin sharing consumer complaint data from its central fraud database with Consumer Sentinel. "The Commission provides secure access to this data over the Internet, free of charge, to over 300 U.S., Canadian, and Australian law enforcement organizations - including the Department of Justice, U.S. Attorneys' offices, the Federal Bureau of Investigation, the Securities and Exchange Commission, the Secret Service, the U.S. Postal Inspection Service, the Internal Revenue Service, the offices of all 50 state Attorneys General, local sheriffs and prosecutors, the Royal Canadian Mounted Police, and the Australian Competition and Consumer Commission. Consumer Sentinel is a dynamic online law enforcement tool to use against all types of fraud, especially online fraud," the testimony says.

The testimony says that the FTC is stretching its available resources to combat Internet fraud and deception, and that, "This effort has produced significant results. Since 1994, the Commission has brought 182 Internet-related cases against over 593 defendants. It obtained injunctions stopping the illegal schemes, and ordering more than $180 million in redress or disgorgement, and obtained orders freezing millions more in cases that are still in litigation. Its federal district court actions alone have stopped consumer injury from Internet schemes with estimated annual sales of over $250 million," it says.

Because of the globalization of e-commerce, " . . . U.S. law enforcement must look for more effective cross-border legal remedies, and must work more cooperatively with law enforcement and consumer protection officials in other countries." the testimony says. "To meet this challenge, the Commission is increasingly cooperating with international counterparts in a number of venues. One is the International Marketing Supervision Network (IMSN), a group of consumer protection agencies from the 30 countries that are members of the Organization for Economic Cooperation and Development (OECD). The FTC has also executed cooperation memoranda with agencies in Canada, the United Kingdom, and Australia." Another initiative involves a cooperative effort between the FTC and twelve other countries and the OECD. "The project has two parts: a public Web site at www.econsumer.gov, and a restricted access law enforcement site. The public site provides - in English, French, German, and Spanish - an online consumer complaint form and various other consumer protection information. The law enforcement site, using the FTC's existing Consumer Sentinel network, will provide the econsumer.gov complaints and other investigative information to participating enforcers," the testimony says.

"The Commission has been involved in policing the electronic marketplace for more than six years - before the World Wide Web was widely used by consumers and businesses. The Commission has strived to keep pace with the unprecedented growth of the electronic marketplace by targeting our efforts, making innovative use of the technology, and leveraging our resources to combat fraud on the Internet."

The Commission vote to approve the testimony was 5-0.

Copies of the testimony are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.