Types of Financial Fraud

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Key takeaways

  1. Financial fraud occurs when a person causes you to lose money or harms your financial health in any way through deceit or illegal means.
  1. There are different ways financial fraud can happen and sometimes, they are interwoven.
  1. To prevent financial fraud, you have to be extremely cautious and take preventive measures.

What is financial fraud?

Financial fraud happens when a person causes you to lose money or harms your financial health in any way through deceit or illegal means.

A lot of people fall victim to financial fraud all the time. Scammers keep inventing new ways and methods to defraud people of their money. You have to be extremely cautious about your online and offline interactions so you will not fall victim to financial fraud.

Financial fraud can happen in a lot of ways. Let’s look at the different types of financial fraud.

Types of financial fraud

1. Identity theft

Identity theft is a financial crime where someone wrongfully obtains your name or personal identifying information to commit fraud. It can be used to steal money from you or defraud other people. 

2. Tax fraud

Tax fraud is when an individual or company intentionally evades paying their taxes or falsifies their financial records to pay fewer taxes. This type of financial fraud is against the government. 

3. ATM fraud

ATM fraud is when someone gains illegal access to your ATM card and personal details like your PIN either by theft, skimming, or using cash machines to collect your data to withdraw money from your account.

4. Loan fraud

Loan fraud happens when an individual uses your identity to illegally take loans. It is commonly seen with identity thefts. Loan fraud can happen in several ways but the goal is usually to take financial advantage of the loan application process under pretences. It can also happen when loan agencies put out fraudulent and misleading information on their loan applications.

5. Investment fraud

This is when people try to trick you into investing money or present investment plans with fraudulent details that are misleading in order to have financial gain. Scammers who perpetrate this fraud often pose as financial advisors, fund managers or investment service providers.

6. Embezzlement

Embezzlement is a kind of financial fraud where an individual mismanages assets and resources that have been entrusted to them for personal gain. While other types of fraud are usually obtained through theft or illegally, embezzled funds are obtained legally but mismanaged by the person entrusted to manage them.

7. Advance fee fraud

Advance fee fraud occurs when individuals and businesses are convinced to pay an upfront fee to get goods, services, or financial gains from investments that don’t exist. Victims of this fraud are convinced to pay money for goods or services that will not materialize. 

8. Phishing

Phishing is an online fraud where scammers send malicious messages to their victims disguised as reputable companies through emails, calls, text messages, advertisements, or other means in order to get them to reveal sensitive information. Financial fraud occurs when scammers use phishing to get information from victims to defraud them financially.

Consequences of financial fraud

  • Losses for investors and creditors: The investors or creditors who are scammed are left to deal with a devastating loss.
  • Mental and physical trauma for victims: Victims of fraud usually experience physical and mental trauma in reaction to losing money and the realization of being victims of fraud.
  • Loss of opportunities: Fraud can lead to loss of opportunities, either with the money gone and no longer available to use to pursue opportunities or by being emotionally distraught and not able to carry on.
  • Victims become skeptical: Another thing is that victims become extremely skeptical and cautious about subsequent investment opportunities and may be closed to them.
  • Bankruptcy: Fraud can lead to bankruptcy as scammers usually attempt to get as much money as they can get from their victims.
  • Debt: In cases where the money that was stolen has to be repaid, victims might be tempted to borrow money. It could be the money stolen didn’t belong to them and that automatically leaves them in debt.

How to prevent financial fraud

  1. Protect your personal information.
  2. Learn about common fraud schemes.
  3. Avoid leaving your private information on public websites.
  4. Conduct research before committing to any investment.
  5. Avoid being tempted by high returns on investments.
  6. Report any suspicious activities to the relevant authorities.

What to do if you fall victim to financial fraud

If by any chance you fall victim to financial fraud, you should do the following;

  1. Don’t panic.
  2. Contact your financial service providers.
  3. Change all your sensitive information.
  4. Report the fraud to authorities.
  5. Access the level of damage done.
  6. Gather data and documents in case you need to go to court.

Bottom Line

Financial fraud is a crime and is punishable by law. It is important to be vigilant and protect yourself from scammers to avoid falling victim to their schemes. They keep looking for new ways to scam and defraud people. Don’t get complacent and give them a lapse to get to you. Keep learning about ways to outsmart them and do your due diligence before you commit to any investment.


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