Red flags to heed in scams

There are many red flags that can alert you to the possibility of a scam occurring says the Banking Ombudsman.

Nicola Sladden and banner

It might seem obvious in hindsight but often so-called ‘investment opportunities’, romance scams or approaches by phone or computer are run by very sophisticated fraudsters.

“They work on all sorts of social engineering techniques by developing friendships,” says Nicola Sladden, the Ombudsman.

“They particularly prey on people who may be isolated without social support, they might be living alone. They also discourage people from discussing the ‘great investment opportunity’ with friends or family."

The scammers make initial contact and ramp it up from there.

“They make cold calls, develop relationships, encourage people to subscribe to various ventures, to support a ‘friend’ while they’re overseas, and continue to seek money,” says Ms Sladden.

“Eventually the victim, the person who’s the subject of the scam, realises that those funds have gone, and the relationship or the business venture disappears.”

Photo: Nicola Sladden says her Office is often contacted when scams occur

Warning signs

Anyone contacted should take heed of the warning signs.

“Definitely whenever anyone makes a cold call and offers you a ‘real’ opportunity, that should be a red flag,” advises the Banking Ombudsman.

“Another red flag is if the so-called friend or business adviser recommends you don’t discuss it with family or support people.

“Also, if you never get to meet them and it’s purely an online relationship, that’s another red flag - if someone you’ve never met in person is asking you for money.”

Some victims of scams will approach the Banking Ombudsman’s office.

“We often get contacted by bank customers when they realise they’ve become victim to a scam and they ask why the bank didn’t warn them about what was happening,” says Ms Sladden.

“Our role is then to look at whether or not the bank knew or ought to have known that there were some red flags, or that they were likely to be defrauded and, if so, why they didn’t act.

“While a bank doesn’t have a role in questioning or looking behind why a customer might want to withdraw large sums of funds, if there are warning signs that suggest they might be subject to a fraud, a bank does have a duty to warn and take some steps to try and prevent that.”

Life savings lost

Ms Sladden highlights a recent case of a couple in their late 70s who had worked all their lives and had significant savings held in a term deposit.

“Within the space of seven or eight weeks, they withdrew all of their life savings in about eight different transactions and then started taking out personal loans with the bank.

“The bank asked about the reason for breaking the term deposit and withdrawing the funds but the couple had been told not to disclose the nature of the investment or any details to anyone so they simply said it was for family or travel reasons.

“In those circumstances, it was difficult for the bank to understand what was going on.”

Nicola Sladden at desk

The couple were the target of a Hong Kong-based investment scam.

“Initially, they were asked to put in just a couple of thousand dollars, and then they were told that to receive their interest, they needed to invest some further funds and they basically got engaged and entwined in a very significant scam.”

The older couple lost their life savings of more than $70,000.

Although the bank made enquiries as their clients were doing this, the Ombudsman believed the probing should have been taken further.

“When the couple ended up taking up personal loans for so-called court proceedings to release their investment, we felt the bank should have made some further enquiries to better understand it when they came back a week later to take out more lending,” says Ms Sladden.

“We found that the bank didn’t undertake reasonable enquiries about the nature of the lending and therefore didn’t meet its obligations as a responsible lender.

“We recommended the bank compensate the customers for half the loan.”

The couple was compensated but still lost half their savings as they also had a responsibility to undertake their own due diligence.

Preventing fraud

The Ombudsman says most banks have very good systems and procedures in place to try and identify fraud early, and prevent it.

Under no circumstances should you hand over your banking details on the phone or via email, as no bank asks for that.

Ms Sladden says some fraudsters attempt to get this information through what is known as a “phishing scam”.

“In phishing scams, a customer receives an email from someone who purports to be their bank and the email says the customer needs to confirm some personal details and usually their internet banking user name and password.

“It will contain a link to a website which looks like the bank but it’s fake and it’s made to gather all the relevant information and once the scammers have these details, they can then access the customer’s account and take the money.

"Banks will not ask you for your password in emails or on the phone.

"Also be wary of clicking links within emails.

“If you do enter your details into a fake website, as a result of a phishing scam, you may be liable for any losses because you have intentionally disclosed your internet banking password.”

From a first principles basis, a bank is responsible for any losses a customer incurs unless the customer has contributed or has been negligent in relation to their financial affairs.

So if a cyber criminal hacks into a bank and takes money from a customer, the bank is generally obliged to compensate the customer because the customer hasn’t contributed to that loss in any shape or form.

“However, what we find is that the criminals normally prey on the customers as the human or weak link in the chain and through these elaborate scams, manipulate them to release their password or PIN information,” says Ms Sladden.

“They can then access their funds through that means, and in those circumstances, often the responsibility lies with the customer in terms of any losses or any impact of that disclosure.”

Ombudsman's guide on banking
  • Make sure you know who you’re dealing with.
  • Check with someone independent and trustworthy before you commit to anything
  • Do not give out account details unless the business is established and trusted
  • Never accept money into your account for subsequent transfer to others
  • Never give out your password
  • Check your accounts regularly to ensure money is only going to the right places
  • If you are emailing somebody about financial matters involving transferring money, check the arrangements with the person using a means of communication other than email. Each year we receive complaints from people who have lost money through email accounts being hacked and fraudsters assuming the identities of others.
  • Contact your bank immediately if you suspect you have been scammed. It may be able to reverse the charges but it may not be able to if you have authorised the payment.