How have changes in technology impacted wire fraud over the years?

How Changes in Technology Have Impacted Wire Fraud Over the Years

Wire fraud has been around for over a century, but the ways criminals carry it out have evolved dramatically with new technologies. In the late 1800s, the telegraph was the cutting-edge communication technology that enabled one of the first major wire fraud schemes in the United States. Fast forward to today, and criminals are exploiting everything from email to blockchain to steal millions from unsuspecting victims.

While the fundamentals remain the same, the scope and scale of wire fraud have increased exponentially thanks to new tech. Understanding how fraudsters have adapted their techniques can help individuals and organizations better protect themselves going forward.

The Telegraph Enables the First Major Wire Fraud Scheme

In the 19th century, the telegraph was revolutionary, allowing long distance communication in near real-time for the first time. It also opened up new opportunities for enterprising criminals, leading to one of the first major wire fraud schemes in the US.

In 1873, financier Jay Gould worked with associates to spread false information that the price of gold was about to rise dramatically. They transmitted these lies over the telegraph lines to investors nationwide. As the rumors spread, the price of gold did spike, allowing Gould’s ring to sell off their holdings at a huge profit. Their telegraph disinformation campaign netted around $4 million, an astronomical sum at the time.

This scheme revealed how new communications tech could be exploited to perpetrate fraud on a much larger scale than previously possible. No longer was geographical proximity required – with the telegraph, criminals could target victims across states and regions simultaneously. This incident presaged how new technologies would continue to expand the horizons for wire fraudsters over the next 150+ years.

Phone Phreaking: Wire Fraud to Control Communications

Following the telegraph, the telephone became the next vital communications technology, and savvy criminals again adapted their techniques. In the 1960s and 70s, groups of hackers known as “phone phreaks” figured out how to manipulate telephone networks and systems to make free long distance calls.

While some phone phreaks were driven by curiosity, others used their hacked phone skills to enable fraudulent schemes. They might route calls through other people’s accounts, allowing them to make untraceable long-distance calls without being charged. Or they would clone other individuals’ phone numbers, intercepting calls and enabling social engineering scams. Phone phreaking demonstrated how hacking into communications infrastructure could facilitate new forms of wire fraud.

Email Opens Up New Possibilities for Wire Fraudsters

The rise of email in the 1990s provided new fertile ground for wire fraud. Most famously, the “Nigerian prince” scam became ubiquitous. Criminals posing as Nigerian officials spun tales about needing help to transfer millions out of the country, promising a hefty cut to any victim who would provide bank account access or an initial “good faith” payment.

Beyond the notorious Nigerian prince scam, email allowed wire fraud to scale up exponentially. Criminals could blast out scam messages to millions of addresses at once, harvesting information from the small percentage of recipients who took the bait. Phishing emails also enabled new forms of identity theft, as fraudsters could mimic banks and other organizations to trick victims into entering their login credentials.

Email brought wire fraud fully into the digital era, while also allowing scammers to impersonate trusted businesses more convincingly than ever before. It opened up new avenues for targeting victims globally through cheap, instantaneous communication.

Online Banking and eCommerce Set the Stage for New Schemes

As financial services and shopping moved online in the early 2000s, wire fraud followed. The digitization of banking and credit cards made these accounts more vulnerable. Criminals developed spyware and Trojan horses to steal login credentials entered online or harvest credit card numbers from infected computers.

Techniques like phishing continued evolving as well. Scammers created fake ecommerce sites and payment portals to trick victims into entering sensitive information. The online environment provided the opportunity for more elaborate social engineering through convincing websites and emails.

At the same time, online corporate accounting opened up new avenues for business email compromise (BEC) schemes. By hijacking legitimate email conversations between companies, criminals could fool staff into making fraudulent wire transfers, stealing millions.

Social Media Provides Fertile Ground for Wire Fraud

In the Web 2.0 era, social media brought new risks. Scammers use Facebook, Instagram, Linkedin and other networks to target victims through direct messaging. They often impersonate family members or friends, spinning tales of emergency needs for wire transfers. Romance scams also proliferate, with fraudsters forming online relationships to eventually ask their “lovers” for money.

Social media provides a wealth of personal information that criminals can leverage for more personalized, effective targeting. Who your friends and family are, what you’re interested in, where you work – it’s all out there. And “check-in” features on networks like Facebook and Instagram provide fraudsters with potential targets who are on vacation and therefore vulnerable.

The social nature of these platforms makes it easy for scammers to hide behind fake profiles, building trust before eventually asking for money. And social proof features, like friend counts and follower numbers, help criminals appear more legitimate.

Mobile Banking Opens New Risks

As banking and finance have become mobile, new wire fraud risks have emerged. Stolen smartphones can provide criminals with direct access to mobile banking apps and account information. Hackers have also developed mobile malware to harvest login credentials and intercept SMS-based two-factor authentication codes.

The ubiquity of smartphones makes mobile banking wire fraud a particular risk. A device that’s always with you can be more easily stolen, hacked, or infected with malware. At the same time, the convenience of banking on the go means people often let down their guard on mobile.

Criminals have developed sophisticated techniques to bypass security measures like biometrics. And they take advantage of users’ tendency to reuse passwords across multiple apps to gain account access once they compromise login credentials.

Cryptocurrency and Blockchain Enable New Types of Fraud

The rise of cryptocurrencies like Bitcoin introduced new avenues for wire fraud. Their decentralized nature makes crypto transactions hard to trace and reverse, which appeals to criminals. We’ve seen ransomware schemes where hackers demand payment in Bitcoin. And online black markets like the infamous Silk Road marketplace rely on crypto to enable the sale of drugs and other illegal goods.

At the same time, the popularity of crypto has led to plenty of old-fashioned investment fraud. Scammers promise unrealistic returns from fake crypto investment opportunities, bilking victims out of millions in cash or cryptocurrency payments. And crypto’s technical complexity enables more tech-savvy criminals to perpetrate elaborate frauds around topics like initial coin offerings (ICOs) and DeFi lending.

The blockchain technology underlying cryptocurrencies also facilitates new types of wire fraud. Criminals can create lookalike cryptocurrencies to trick victims into buying or investing in worthless coins. And crypto’s anonymity makes it easy for fraudsters to hide their identities and movements of ill-gotten gains.

AI and Machine Learning Will Transform Wire Fraud Yet Again

Just as past generations of technology enabled new wire fraud schemes, AI and machine learning will inevitably allow criminals to perpetrate scams in new ways. AI can automate phishing and social engineering, making these techniques more effective. Chatbots will allow fraudsters to scale up impersonation and relationship scams.

Deepfakes – AI-generated audio and video – will also become a wire fraud risk. Realistic fake videos could help scammers impersonate executives and trick staff into unauthorized transfers. And deepfake audio can spoof voices to bypass voice ID systems and phone banking security.

As algorithms get better at mimicking human behavior and speech patterns, they will enable more convincing and personalized targeting. AI will power a new generation of fraud techniques while also helping security teams combat these evolving threats.

The Fundamentals of Wire Fraud Persist, Even as Technology Evolves

While the evolution of technology has opened up new avenues for wire fraud, the fundamental goals and techniques underpinning these scams remain consistent. Whether over telegraph, telephone, email, social media, or blockchain, fraudsters rely on social engineering, impersonation, and deception.

The patterns of wire fraud have also persisted over time. Criminals follow the money, adapting their schemes and technical tactics to target new technologies and platforms. And they rely on human vulnerabilities like greed, fear, desperation, and the desire for connection, which no technology can eliminate.

Understanding the history of wire fraud demonstrates that new technologies will always enable new types of scams. But the timeless techniques fraudsters rely on also point to timeless security precautions – be skeptical of any outreach asking for money, guard your personal information, and be alert to any contacts who try to build intimacy too quickly.

As much as technology has changed, human nature remains much the same. And that provides hope that better awareness and education can help prevent individuals from becoming the next victims of whatever new wire fraud schemes emerge.

Key Takeaways

• The telegraph enabled one of the first major wire fraud schemes in the 19th century by allowing misinformation to be spread nationwide.
• Phone phreaking demonstrated how hacking communications infrastructure opened up new avenues for fraud.
• Email allowed scammers to target huge numbers of potential victims while also facilitating more elaborate social engineering.
• Online banking and ecommerce introduced new risks like phishing and business email compromise schemes.
• Social media provides a wealth of personal data that criminals can leverage for highly targeted wire fraud.
• Mobile banking presents new vulnerabilities due to the ubiquity of smartphones and lower security awareness on mobile.
• Cryptocurrencies and blockchain enable new types of fraud thanks to the anonymity and irreversibility of transactions.
• AI and machine learning will transform wire fraud yet again by automating and enhancing social engineering at scale.
• While technologies change, the fundamental goals and techniques underpinning wire fraud persist.