Americans lose millions in utility scams each year, especially as winter approaches. More scammers are asking for cryptocurrency.
BitAML is continuing its blog series on scams in the cryptocurrency industry.
These articles are designed primarily to assist cryptocurrency business owners in the enforcement of strong consumer protection, an essential facet not only of AML compliance, but to the shared goal of a safe and fair marketplace for consumers.
While not our primary focus, we will also include recommendations for individuals who believe they may have become a victim of a scam of this nature.
Today we’re taking a look at the utility scam, a prominent instance of fraud that usually occurs by phone that affects millions of Americans each year.
According to recent polling, as many as 17.6 million Americans are affected by telephone scams and that just shy of $240 million is successfully scammed out of them each year. A portion of these numbers is attributed to utility scams.
The problem is so egregious for utility companies (i.e., water, gas, electric), that groups like the Utilities United Against Scams (UUAS) have been formed to help protect consumers from fraudsters impersonating as utility companies.
Just as utility companies work together to help protect their consumers, so should cryptocurrency businesses. In this post, we will explain how.
How a utility scam works
There are numerous variations of the utility scam, but at the high level, a fraudster impersonates a representative from a local utility company, usually electric, via telephone or email claiming that the consumer is late on his/her bill.
The perpetrator will typically threaten to shut off the consumer’s electric or other utility service (i.e., water, gas, phone, internet) if payment is not immediately received.
Some scammers use sophisticated technology that allows them to impersonate a utility on caller ID or via email, so even if a number appears legitimate, consumers should be wary.
Variations on the scam might include an impersonator attempting to sell equipment or “upgrades” to the existing service, or offering some sort of refund or rebate in exchange for a payment or personal information. It’s also possible that a scammer may offer you a “refund” for an overpayment, but ask for certain personal information (like a debit card number) to complete the transaction.
In some scenarios, a scammer will actually show up in person at the home disguised as a utility company worker. In these scenarios they may, in addition to the typologies explained above, offer some sort of inspection into a supposed gas leak, or to identify energy inefficiencies.
It’s true that utility companies may contact their customers in various ways to communicate disclosures or settle billing matters. How are consumers supposed to tell the difference between a legitimate offer or other account discrepancy and a scam?
It usually comes down to the method and conditions of payment.
Typically, a fraudster will be more aggressive than a utility worker (or any customer service representative) would be.
Scammers seek to impress an urgency on their target, often giving them very little time to make a payment. This timeframe, along with the threat of loss of service, usually makes potential victims panic. This is entirely by design, since panic can inhibit one’s ability to think skeptically and ask questions.
The method of payment requested is also an important element of a utility scam.
The fraudster will request unusual forms of payment, like a pre-paid debit card or gift card. Cryptocurrencies, like bitcoin, are also becoming more popular among financial criminals, largely for the same reasons that mainstream consumers enjoy crypto (immediate transactions, non-refundable, etc.).
The usual amount targeted by a scammer amounts to a few hundred dollars, though this can vary.
It’s important to note that utility scams are not unique to the cryptocurrency market — the utility scam, as well as most other financial scams that continue to plague consumers, are tried and true methods that financial criminals have used for decades. The sophistication of the fraudsters and the method of payment requested may change, but the overall nature of the scams remains consistent.
What potential victims should do
If you’re worried that you have been targeted in a cryptocurrency utility scam, the most important thing to understand is that utility companies do not accept payment in the form of cryptocurrency.
Never send cryptocurrency to anyone pressuring you to do so. Cryptocurrency transactions are final, meaning that once it has been sent, there is no way to retrieve the funds, or to ask the institution you purchased cryptocurrency from to “call back” the funds.
What crypto businesses can do to help
Cryptocurrency businesses should, as a matter of AML compliance and good business, implement strong consumer protection policies, protocols, and procedures. Whether you are operating a large exchange or a single bitcoin kiosk, you have a part to play in combating financial crime and protecting consumers.
Remember that scammers will give their targets a short window to make a payment. This means that you may have a panicked first-time customer trying to create an account on an exchange or visiting your bitcoin kiosk to make a transaction.
While your KYC and transaction monitoring processes should help you identify potentially suspicious activity, including the kind which suggests a customer could be a victim of a scam, disclosures, including those which detail the risks of transacting cryptocurrency as well as materials explaining scams like a utility scam, are essential to your operations.
Key takeaways for bitcoin compliance
It’s up to business owners to make an effort to enforce a fair and safe marketplace, especially as new consumers discover cryptocurrencies and the industry becomes more mainstream over time.
Until then, the businesses that emphasize AML compliance are on the bleeding edge of the market, both in terms of consumer trust and responsiveness to ongoing regulatory developments in the U.S.
If you are currently operating a cryptocurrency business, are interested in starting a cryptocurrency company, or have questions about consumer protection policy or overall compliance health, reach out to BitAML today.