The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
Don’t Fall for Fraud! Advance Fee Scams Explained
Scammers are always scoping out new ways to steal people’s identities and money. One way you can protect yourself is by learning about advance fee scams, including the types of scams that exist, how you can protect yourself and what to do if you become a victim.
This is how advance fee fraud works: You’re contacted by an imposter who may claim to be from an organization (like a financial institution or fictitious government agency) offering money, products, services or something of value to you.
But before you can access it, you’re asked to pay an upfront fee, which a scammer could claim to be refundable. Next, you pay the fee and then they swiftly disappear with your money, and without a trace. They may also continue to request a series of fees after you’ve already sent one (big red flag).
A thief can use this tactic for all types of situations, and the following highlights common advance fee scams to keep on your radar.
In this scheme, the scammer is known as a “finder” who offers a service for finding financing arrangements. To connect with the financing source, the target must agree to pay the finder’s fee and sign a contract using language that can easily trick the customer. Once the finder is paid, the customer, turned victim, learns they’re not eligible for the financing. Unless the victim can prove that the finder intended to falsely facilitate the financing, these can be valid and legal contracts.1
Investor.gov, overseen by the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy, explains that scammers will ask for an upfront fee to make a transaction in which the investor receives “proceeds, money, stocks or warrants.” Common scams include offering to sell an investor’s underperforming securities or to help “recover their stock market losses by exchanging worthless stock”— as long as a security deposit is paid, or an insurance or performance bond is posted in advance.
Other types of bait include these financial instruments listed by Investor.gov:
- Bank guarantees
- Old government or corporate bonds
- Medium or long-term notes
- Standby letters of credit
- Blocked funds programs
- “Fresh cut” or “seasoned” paper
- Proofs of funds
The requested payment may be disguised as a “fee, tax, commission or incidental expense.”2,3
Dating and Romance Scams
Using dating apps to meet people is the norm these days; however, there’s still risk involved. First, a cybercriminal could fool someone into handing over some cash by using the catfishing technique, which is a form of deception in which the criminal will assume a fake online identity for the purpose of financial gain.
Think twice anytime a love interest tries to convince you to send money, a gift card or a prepaid card for reasons like to buy a plane ticket to meet in person or to cover an emergency hospital bill. In these cases, trust your gut and not your heart.
Sweepstakes or Lottery Scam
Notified that you’ve won a prize through a giveaway or the lottery? Hold your excitement: You’ll want to make sure you’re not being scammed. The biggest tip-off is that in order to collect your winnings, you must confirm your identity by providing your personal information and send money for taxes or fees. The scammer may also ask for your bank account number so they can deposit the funds. Here’s some advice:
- Never provide your personal or financial info.
- A sign of fraud is if you never entered a sweepstakes or contest or bought a lottery ticket.
- You’re likely being scammed if you’re told to keep your winnings confidential.
- Winners never have to pay money to collect their prize.
- Verify the legitimacy of the organization by searching for its contact information through your own research and inquiring about the sweepstakes or lottery.
- If you’ve been sent a check and asked to wire money to cover expenses, the check is probably counterfeit.
Inheritance or Beneficiary Scam
From winning the lottery to receiving a large amount of money, sometimes the biggest sign of a scam is when it’s too good to be true. This type of scam informs you that a distant relative has died and you’re the beneficiary. You could also receive a letter informing you that someone overseas, who shares your surname, has died and their unclaimed estate belongs to you since no living relatives could be identified. The scammer makes money by asking you to wire money or provide your credit card information to pay an administrative/legal fee or taxes. The con artist could also ask for your banking details so they can wire the funds. Before you know it, your money and identity are stolen.
A perpetrator can turn any type of scheme into an advance fee scam by requesting an upfront payment in order to receive money, a product, service or something valuable in return. In addition to the list above, scammers could offer debt elimination, a loan, rental, employment opportunity, scholarship, fraud recovery services or investments for a small business or startup — all requiring a fee in advance.
Advance Fee Fraud-Prevention Tips
Here are some things to know to help you outsmart any of the above ploys:
- Communication that looks and reads official can still be fraudulent. Many scammers use fictitious firm and agency names like the Department of Financial Regulators, real logos and letterheads, and your personal information that a scammer bought or sold during another fraudulent activity.
- Spelling and grammar errors often signal a scam.
- The fee could be called a membership, participation, administrative, handling, loan processing or credit/background check fee, as well as taxes or closing costs.4,5
- Don’t let your guard down if you’re asked to wire money to a fake (or sometimes even existing) lawyer or third party who holds the money in an escrow account. This is just a strategy that scammers use to make you feel comfortable and trust them.
- Never respond to a possibly fraudulent letter, email, text, social media message or phone call — or click on any links. By responding, scammers could learn that your personal/financial information is correct, and they have reached a real person.
- Research the organization, company, firm or agency. Contact them using the info on their website or search for them on the Better Business Bureau to verify legitimacy.
- Carefully review the terms and conditions, agreement or contract. Ensure you understand it and check for anything suspicious. Reach out to an attorney if needed.
If you believe you have been a target or victim of advance payment fraud, visit FightCybercrime.org for steps you can take.