Fraud (Xeelad)

Fraud is an act in which a person deceives another person or institution in order to obtain money, property, or rights, or to cause loss to another. It is distinguished from other forms of deception by the element of intent: the person committing the act knows the information is false, or has concealed information that they were obliged to disclose.

Fraud is treated under both criminal law and civil law. In criminal law, the state brings charges and imposes penalties. In civil law, the person harmed by the fraud seeks compensation. The same act may sometimes be prosecuted through both channels.

Essential elements

Most legal systems require proof of several things: first, that a false statement or concealment of known fact occurred; second, that the person making the statement knew of its falsity or had reason to doubt its truth; third, that another person relied on the statement; and fourth, that reliance resulted in loss or transfer of property. If any one of these is absent, the claim cannot stand as fraud.

Common types

There are many varieties: insurance fraud (false claims to obtain compensation), tax fraud (concealment of income), accounting fraud (falsification of financial reports in companies), forgery (creation of false documents or counterfeit money), and online fraud using email, telephone, or websites. A well-known type is the Ponzi scheme, in which money from new investors is paid out as 'returns' to earlier investors.

Online fraud and phishing

The growth of online banking services and mobile money transfers has created new methods. Phishing is the practice of sending messages that appear to come from a trusted institution, with the aim of getting the person to disclose their password or card security codes. There is also identity theft fraud, used to open accounts or incur debt in someone else's name.

Prevention and detection

Institutions use division of labor (no single person manages all steps in a payment process), external audit, and computer systems to detect unusual patterns. Banks use 'know your customer' rules and monitoring of large transfers. For individuals, verifying the source of messages and refusing to disclose sensitive information by phone or email are basic precautions.