Bogus websites, stolen corporate identities: how Nigerian fraudsters steal millions from western banks Police and investigators say financial institutions prefer to cover up losses as 'bad loans' rather than risk damage to their reputations, write Thomas Catan and Michael Peel.

By Thomas Catan and Michael Peel

Originally published in the Financial Times March 3, 2003, p. 21

Across Lagos, Nigeria's largest city, they are a familiar sight: "This house is not for sale. Keep out!" The notices are a warning to the many people approached each day to buy properties that the "sellers" do not own. The scam is known as a 419 fraud, after the relevant section of the country's criminal code. Nigerians, weary of such tricks, are alert to them.

In London, however, some people are falling victim. In the past couple of years, police have investigated a handful of cases in which west African criminals sold properties that did not belong to them: two were in Crystal Palace, one in Islington. "Someone went away on holiday and came back to find their house had been sold," recalls Duncan McKelvie, head of the west African organised crime section at the National Criminal Intelligence Service, with a faint smile.

Organised crime cells based in Lagos and operating in Britain have become far more active over the past 18 months, police say, with operations that are both larger in scope and far more sophisticated than anything seen before. Furthermore, there are growing indications that the vast sums of money raised each year are funding other types of crime - trafficking in drugs, arms, even humans. Some investigators even worry that this multi-billion-dollar international collection system could be used to support Islamic terrorism, though the evidence on this remains mixed.

In a worrying development, west African criminals have begun targeting financial institutions in Britain and elsewhere with a new range of frauds. "This used to be a Nigerian problem. Now it is a UK problem," says Mr McKelvie. "But the banks will not accept it because their reputations are more important than admitting they've got a big problem."

West African fraud is nothing new. For nearly two decades, Nigerian fraudsters have been sending out unfailingly polite letters inviting the recipient to participate in a shady-sounding scheme that ultimately turns out not to exist. Usually, the letters purport to be from a corrupt government official who needs help in spiriting millions in ill-gotten gains out of the country in return for a cut of the money; but not before the target is hit for tens of thousands of dollars - sometimes millions - in "advance fees".

The fraudsters are estimated to make hundreds of millions of dollars a year from this apparently tired scheme. The US Secret Service, which investigates financial crime, "conservatively" estimates that American citizens lose in excess of Dollars 100m a year in 419-type scams. The internet and "spamming" tools now enable the fraudsters anonymously to target millions of potential victims worldwide, causing the scam to reach what the US Federal Trade Commission calls "epidemic proportions".

In addition to the greedy and the gullible, Nigerian fraudsters are targeting banks, companies and - increasingly - their unwitting customers. Some crime cells are infiltrating banks to gather information about clients or to compromise their systems. Others hijack the identities of banks to perpetrate frauds - a fast-growing problem highlighted by NCIS in its latest UK threat assessment of serious and organised crime.

"We are seeing a transformation of the basic crime," Mark Taylor, former Africa regional narcotics and law enforcement officer for the US State Department, observed late last year. "What we are seeing is this shift to more sophisticated means."

One of the fastest-growing trends is placing people in positions that provide access to sensitive customer information. Confidential details are passed to accomplices outside the bank, who then make unauthorised transfers to drain the accounts. "We are seeing an increasing (number) of people who are getting into banks and feeding details to outsiders," says Tony Thomas, detective chief inspector at the City of London police fraud squad. "It is probably the most significant trend at the moment."

In other cases, the fraudsters single out bank staff who look vulnerable to temptation and try to corrupt them.

The British Banking Association says its members are taking steps to improve the vetting of staff, particularly those contracted from temporary employment agencies. The Inter-national Chamber of Commerce, a private sector body, encourages banks to talk to employees about instances in which customer information has been misused and explicitly warn them of the consequences. Even so, ICC officials understand the banks' high sensitivity. "If you put money in the bank, you don't want to hear that there has been someone passing your details on to criminals," says Pottengal Mukundan, director of commercial crime services at the ICC.

A further threat comes from so-called corporate identify theft. For many years, the Central Bank of Nigeria was the mainstay of the advance-fee fraud letters, its identity used in countless cases. Now, police and bank officials say, criminal groups are setting up bogus websites that ape a bank's pages.

Last year, NCIS alerted South Africa's central bank that someone had put up a fake website using its name as part of a scam used to swindle a Britain\ businessman out of Pounds 130,000. The South African government declared the incident a "national priority crime" and worked closely with NCIS to catch the perpetrators. This year, a site called www.barclays private.com was shut down after it was discovered to have been used as part of a wide-ranging fraud. Citigroup also discovered a site called www.eurociti bank.com that had nothing to do with the company and was also used as stage-dressing for a fraud.

Police and banking sources say new sites mirroring those of high street banks in the UK and elsewhere are being discovered with increasing regularity. Often, such sites are used to "show" the intended victims that the promised millions have been deposited in an account that appears to be held at a legitimate bank. In many cases, the victims will be asked to fill in an online application form with all their personal details, including the numbers of their real bank accounts and credit cards. Sometimes, entire bank sites are copied by the conmen, who simply re-direct search engines to find them.

In other cases, fraudsters call clients using information gleaned from banks or intercepted in the post, posing as bank employees, to ask security questions, including the customer's personal identification number (Pin).

Criminals have mounted frauds on a bank's premises. The open lobby of Lloyds TSB branch in London's Oxford Street was used to meet a German industrialist who was then defrauded of Pounds 1m. A branch of Citibank at Aldwych, now closed, was also used by criminals posing as bank officials to defraud victims. Fake fronts have even been installed over cash dispensers to collect card details as well as the associated Pin. Other scams include buying old cash dispensers and posting signs redirecting bank customers to the bogus machine.

Companies are also targeted. Cool-mation, a small UK group selling industrial cooling systems, discovered its corporate identity and that of its sales director had been used in several 419 scams. The company took advice on how to prevent anyone doing business in its name - something police want banks to do more often.

"As a business we have to show that we are doing everything within our power to prevent it," says Andrew Legg, Coolmation's sales director, whose identity was unwittingly used in the fraud. "Their (the banks') reluctance doesn't help us, because at the end of the day they've got the resources to help sort it out. We are only a small company." o what responsibility do financial institutions have to protect their customers from fraud? At present, banks do not consider someone posing as one of their employees, setting up a copycat website or even using their premises to defraud people, to be their responsibility.

Police, however, warn that banks could in future be held liable if it is found that they did not make an effort to prevent their identities being appropriated by organised criminals. A growing number of complaints have been brought against the Central Bank of Nigeria. While none has fully succeeded, police say the complainants are getting closer to making the central bank liable for their losses. If that legal principle is established, Mr McKelvie says, "it can only be a matter of time before it starts being applied to UK banks".

One example of a bank that has taken action against the fraudsters is Banco Noroeste, a Brazilian lender. Accountants discovered nearly Dollars 250m in losses in 1998, while the bank was being taken over by Spain's BSCH. According to a claim filed in Britain's High Court on behalf of the Noroeste investors, Nelson Sakaguchi, a former official at the Brazilian bank, signed away his employer's money after being promised Dollars 39m by the fraudsters. Mr Sakaguchi is now in prison in Switzerland.

The targets of the litigation include high-profile members of Nigerian society including the late Christian Anajemba, a businessman, his wife Amaka, and Emmanuel Odinigwe, a former member of the board of Union Bank of Nigeria, one of the country's largest banks. In August, the High Court ordered the Anajemba defendants to make an interim payment of Dollars 150m over the alleged fraud. Assets being targeted by the plaintiffs, who have already recovered about Dollars 45m worldwide, include a range of London properties allegedly owned by the Anajembas. The fraud has also spawned legal actions by investors in the US, Brazil, Nigeria, Hong Kong and Switzerland.

"The case demonstrates the effective use of worldwide co-ordinated litigation to recover stolen assets using the different legal systems of different countries," says Keith Oliver, a lawyer at Peters & Peters, one of the law firms acting for former Noroeste share-holders.

Isolated cases aside, investigators say fraud is still not regarded as a priority. Particularly since the September 11 2001 attacks on the US, banks have worked closely with police to trace money-laundering. Last year, for example, banks in the UK filed some 60,000 suspect activity reports to NCIS, nearly double the level of the previous year. But according to police and banking sources, fraud is routinely folded into bad debt figures, since banks prefer to write off multi-million-dollar losses rather than report them to police.

"All frauds of Dollars 20m, Dollars 50m, Dollars 100m - every one of those is booked as bad debt," says one bank investigator. Even internally, banks do not categorise fraud according to which crime group is responsible, so they are unable to say how serious the problem of west African organised crime really is. "Banks don't really want to count it," the investigator says. "By starting to measure it, it looks (as if) you have a problem."

All that may have to change under the UK's Proceeds of Crime Act. The legislation places the onus on the banks themselves to identify any dirty funds moving through their accounts. "It's a frightening scenario," says Mr Mukundan. "If a bank does not have proper measures to protect against fraud and as a result a fraud has been perpetrated on a client or someone else, they could build a case against the bank." Even without the legislation, some argue, bank managements need to pay closer attention to the problem of west African organised crime. "Who would want to be on the end of a trail of terrorist financing that has been used to kill thousands of people?" asks one bank investigator. "Who would want the finger pointed at them by those saying 'you found it an acceptable loss?' "

Nigeria has more Muslims than any other country in sub-Saharan Africa but US and UK officials have tended to play down the idea that the country is a conduit for Islamic terrorist funds. Muslims dominate in the north of the country, where a dozen states have introduced a severe form of sharia law. But the harsh rules and religious tensions are usually seen as part of a power struggle with the civilian administration of President Olusegun Obasanjo, elected in 1999, and not part of any wider agenda. Even so, says Glen Colvin, US Secret Service attache in London: "The potential for association with terrorist groups is still being explored."

There are some tentative indications that west African organised criminals do cross paths with terrorists. Nigerian gangs have become active in the heroin trade, bringing them into contact with extremist groups in Afghanistan and Pakistan, some UK and US officials say. As one investigator who has worked on several west African fraud cases in which terrorist financing was suspected says: "If I wanted to get funding for terrorism, I'd use the Nigerians to do it."

Why is Nigeria an internationally notorious source of scams? There is no single explanation; economic, historical and social factors all play a part.

One of the reasons is sheer weight of numbers. The country has a population of 120m - a sixth of Africa's total population - with large diaspora communities in many nations, including the US and Britain.

Investigators say that a far-reaching "human internet" facilitates elaborate scams that occur over several jurisdictions, making detection difficult and prosecution often impossible.

Another contributing factor is the culture of venality established by four decades of corrupt rule, both civilian and military, following independence in 1960. Indeed, the civil service is viewed as one of the most direct routes to wealth in a country where the government controls access to the main money-making industry, oil.

The private sector, meanwhile, is stunted after years of autocracy and economic isolation. Even young, educated people have difficulty finding jobs, tempting them to turn to crime.

Nigerians and western observers say the problem has been compounded by the apparent willingness of "victims" from wealthy countries to be complicit in the looting of government funds.

Okey Ndibe, a Nigerian novelist and university professor working in the US, says many westerners who participate in 419 schemes are probably attracted by a racist belief that the fraudsters are fools throwing away money - even when it turns out that they themselves are the ones to be defrauded.

"It goes without saying that greed is a part of it - and also a sense that Africans are idiots with Dollars 40m or Dollars 50m to ferry around the country," says Prof Ndibe. "(The fraudsters) have made a lot of play out of the stereotype of the African as childlike, innocent, naive and intellectually uninvolved."

In years past, Nigerian authorities blamed "victims" of advanced-fee fraud in wealthy countries for their greed and gullibility. Indeed, the US is taking a second look at these so-called victims and considering prosecuting some as co-conspirators in schemes to loot foreign governments and launder money. "The attitude in the US is changing," says Glen Colvin, a US Secret Service attache in London. "We're taking a hard look at the victims."

At the same time, the Nigerian authorities have started to take the problem more seriously since the return of civilian rule in 1999. Many Nigerians are deeply unhappy that 419 frauds are the only experience many foreigners have of the country.

As a result, the Nigerian government has made tackling the problem a priority and has developed a close working relationship with UK and US law-enforcement authorities.

"It's killing the economy of this country," says Hafiz Ringim, a Nigerian police commissioner.

"People don't want any business to do with Nigeria. Every Nigerian is a potential suspect, a potential criminal: that's what most of the world believes."