The Serious Fraud Office remains concerned at the number of New Zealanders and New Zealand businesses being targeted by local and international “Advance Fee” fraud schemes. The Office has had a number of such schemes brought to its attention.

Advance Fee fraud is not a new phenomenon, but it can and does, appear in a variety of forms. All are designed to extract money from an unsuspecting victim.

In its most basic form, Advance Fee fraud involves a victim paying money upfront in return for goods and/or services which the fraudster has no intention of supplying. The money paid in advance will be lost and the fraudster will move on to the next victim.

Perhaps the best known variation of an Advance Fee fraud operating internationally and in New Zealand, are the infamous Nigerian letters. These letters are once again quite prevalent in New Zealand.

Nigerian letters are a scam - pure and simple - but they use a relatively straight forward “Advance Fee” approach. The would-be victim is offered the opportunity to access multi-million dollar funds said to have been generated by government or quasi government contracts. It is asserted that all that is required to unlock these riches is the payment (by the victim) of certain monies to Nigeria (or to bank accounts set up by the Nigerian fraudsters) in order to settle “outstanding taxes”, “government commissions”, “local ministry costs”, “local official bribes” - to name but a few.

Once the money is paid, the fraudster will cease contact, except if he believes there is more money to be extracted from the victim. The victim, being already “on the hook”, pays more to ensure that money already paid, is not lost.

Taking one particular view, Nigerian letters are invitations to participate in money laundering schemes. The huge gains offered attract the greedy, the desperate and the naive. Everyone should realise (notwithstanding that money laundering is an offence in New Zealand) that there are no funds to launder. The real goal is the extraction of the Advance Fee.

Another variation of Advance Fee fraud, the one seen most frequently, involves individuals or businesses legitimately seeking finance which they have not been able to obtain from trading banks or regular providers. These would-be borrowers can often fall victim to fraudulent Advance Fee schemes.

Posing as a venture - capitalist or the agent of one, the Advance Fee fraudster first convinces the would-be borrower that the required funding is available, but that a fee or commission must first be paid to a nominated account as “security” or as “a sign of good faith” or as a “non-refundable deposit”. A number of techniques are used to convince the victim of the legitimacy of the scam. Once the money is paid however, the fraudster’s goal is completed and the fraudster will disappear, along with the money.

A further recent variation seen in New Zealand is for shareholders in illiquid or rarely traded stocks (particularly those traded on foreign exchanges) to be approached by entities purporting to be overseas sharebrokers, investment houses or securities firms.

These entities “disclose” that they act for an unnamed client who is purportedly building a strategic stake in the shares of the company and that in order to obtain the required shareholding, they have been instructed to offer prices which (on occasions we have seen) are some 15-20 times the quoted market price.

The fraudster requests that the would-be victim agrees to sell his/her shares, and that he/she then lodges a certain sum (in an account nominated by the fraudster) as an “upfront commission”, “a brokerage” or as a “sign of good faith”, refundable on delivery of the shares. As soon as the fee is paid, the fraudster departs. No-one comes along later to buy the shares.

Another development of Advance Fee fraud is the so-called PBI secret market. Please refer to the Alert on Prime Bank Instrument Fraud schemes.

The Office repeats its call for New Zealanders to proceed cautiously when dealing with entities or individuals about whom they know very little, or nothing. Get rich quick schemes or offers that appear too good to be true should put people on their immediate guard. Upfront payments can occur in legitimate business transactions but those being asked to make them must first ensure they are dealing with reputable parties. It only takes a little time and care on the part of an investor to avoid becoming a victim of such a scam

If an approach is made which seems suspicious, the person approached should consider taking professional advice before proceeding and, as well, alert the appropriate regulatory or enforcement authorities.

The Office considers an educated investing populace is the best deterrent to thwarting would-be fraudsters. The Office will act decisively whenever it comes across fraudulent schemes.

Updated 14/10/2002