Updated: Jul 14, 2021
Advisory * Trust & Estates Law * How-To Guide * Elder & Estate Fraud Prevention
Authored by Matt Tan and James Tunkey
Fraud against the elderly has gone from bad to worse. Fraudsters abuse the older generation's attitudes towards "respect" and "trust", and exploit their lack of computer skills.
In this 2021 Advisory Guide for Trust & Estate Lawyers on Elder Fraud Prevention, I-OnAsia introduces the issues and provides a key for preventing a loss of wealth.
This Guide is intended as a tool for Trust & Estates Lawyers, but offers good insights for any family that is considering how to protect its legacy from loss.
The Problem: Fraud Costs the Elderly & Their Estates Billions.
The populations in the world's largest economies are aging fast. The percentage of adults over aged 65 is expected to grow to nearly 30% of China's population by the year 20150, from 7% of the population in the year 2000. In the US, adults are projected to soon outnumber children for the first time in history, according to the US Census, with a dramatic rise in adults over age 65.
As adults near retirement they are uniquely wealthy, having worked and saved throughout life and now holding peak savings and assets. Indeed, some data suggests that the older generation has enjoyed superior improvements in inflation-adjusted income and net worth.
Unfortunately, modern fraudsters run their scams with a laser-focus on potential target markets. They see this same data, and have been increasingly preying on the elderly. In the 21st Century seniors are the most likely age demographic to get scammed by someone on the internet in 2021. Every year 5% of the US elderly population (around 2 to 3 million people) get scammed around US$3 billion via scams.
Part 1: Prepare For Cyber Crime Risk
The world is living through an "Internet Crime Spree" according to the FBI, with a 60% increase in cyber fraud complaints in 2020 v 2019. The top 3 risks overall:
Extortion. (Non-profits are increasingly being targeted.)
Elderly and small businesses are the top targets, which is important to keep in mind because of the overlap of both loss categories with trusts and estates. And, this is a global problem, not only affecting Americans. The UK, Canada, India, Australia and China are amongst the top 20 victim countries.
Here are a few notes for Trust & Estates lawyers seeking to stay up-to-date on these issues.
Preventing Phishing email scams should involve Process.
One major preventative solution to Phishing scams that I-OnAsia has seen utilized in the corporate world involves process. Phishing scams rely on tricks to get something valuable or sensitive. In todays world that includes login credentials for bank accounts. So, the solution creates a process designed to catch the trick - and to not release money or sensitive data until after a review has been undertaken by a trusted team-mate.
More than one third of all security incidents start with phishing emails or malicious attachments. So, in the event that a request for money or data might include an attachment, some extra precautions are baked into the process.
Phishing emails look like they are coming from an official source (like banks or retailers). So, the process ensures that checks proceed especially when something that looks like it is legitimately from a known partner, such as the right bank and the right branch.
Phishing scams continue to evolve and be a significant online threat. We’ve seen many spam email campaigns where malicious criminals try to bully or scare people. These days, the best corporate solutions use these threats as an indicator of a Phishing attack, and know how to shut down the conversation before something valuable is released.
I-OnAsia is a trusted private sector partner of the US Secret Service Cyber Fraud Task Force.
For more tips and advice on how to help clients avoid falling for Phishing scams, you may wish to present this fact sheet from the US Secret Service to your clients.
Preventing Extortion & Romance scams means having adult conversations
Any adult, particularly someone who has lived long enough to have established a substantial estate, understands that humans are complex. They may have things they want to keep very private, or that they may wish to take risks on and explore. For example, they may want to fall in love again using the internet despite having children (or grandchildren).
I-OnAsia has worked many cyber extortion and romance scam cases, in Asia and in the United States and in Europe.
In EVERY case, we have found that there had been a missed opportunity to have an up-front conversation about computers and privacy and safety.
To prevent extortion scams, there is a need for a very frank discussion of the risks of keeping the most precious and sensitive data on the cloud or on any device that connects to the Internet. Some clients may need to be asked directly if they would benefit from professional assistance to set up a system for private data storage or email communication that is secure.
To prevent romance scams, it is important to embrace the important role that apps like Facebook and Instagram play in our social lives every day. It’s inevitable to use apps to look for love, and older singles are increasingly willing to try online dating apps to meet potential new partners. But online dating services have terms of service that limit remedies if communications move off platform and include warnings in the fine print to not send money. A romance scam usually takes place on social dating networks, like Facebook, or by sending a simple email to the potential target and affects thousands of victims from all over the world. Cybercriminals have abused this scamming method for years by using online dating services. They improved their approach just by testing the potential victims’ reactions.
So, the astute Trust & Estates lawyer should consider having adult conversations with clients about the risks from romance scams, and suggest that "protection" no longer means what it used to. These days it is important to avoid risky behaviors such as communicating off platform or sending money to people you don't really know very well.
Part 2: Stay Vigilant for Internal Fraud
I-OnAsia is a global fraud investigations company headquartered in Hong Kong, with offices in New York and London. We are typically retained by law firms representing Trusts and Estates after a suspected fraud has occurred, at which time we provide a mix of documents analysis, computer forensics, and asset tracing. In our 21 years of business we have handled over 17,000 cases including a steady flow of frauds against Trusts and Estates. These include:
Ponzi schemes, with money sent to scammers like Bernie Madoff.
Overstated and fictitious expenses.
Conflicts of interest, where by trusted person (even a child) diverts proceeds.
Financial statement fraud, where there assets may have been improperly valued or false financials submitted.
One sad fact the media never talks about: When losses occur at trusts and estates, whole lifetimes of hard work and sacrifice is taken away. This has a tremendous emotional toll. Families will rarely have the chance to make a new fortune. Lifetimes are washed away in an instance.
To reduce the risk of fraud, we advise Trust & Estates lawyers stay up-to-date on the latest fraud trends, and consider how the latest fraud risks may apply to individual situations.
The latest Association of Certified Fraud Examiners report on fraud is the 2020 Report To The Nations. The report shows:
Fraud losses annually across all types are in the trillions of dollars.
Fraud is more likely to affect small businesses and non-profits, which are categories for many trusts and estates.
When executives steal, they cause the most damage. The risks are at the top. Check tampering is a major problem.
Fraudsters are likely to alter physical and electronic documents or files.
Fraud & awareness training reduces the risks, as do appropriate internal controls (such as external audits).
At I-OnAsia we help clients develop organizational-specific fraud risk frameworks, using an approach that is as much informed by this external data as by our experiences with other clients.
Trust & Estates lawyers may consider the benefits of sitting down with clients to create a fraud risk matrix.
A fraud risk matrix can be a simple and easy-to-understand chart that identifies potential risks by structure/type of the trust or estate.
It should consider asset size, the roles and involvement of third-party (property) managers and even the powers of beneficiaries over day-to-day financial decisions. Existing internal controls and fraud prevention efforts should be incorporated into the chart.
Gaps should be discussed. It has been our experience that an initial draft of a risk matrix may benefit from a review, and a period where there is level setting to test if the assessments are valid and leading to a reliable fraud risk forecast. In person interviews are essential, and a rigorous process should remember the objective: An ounce of prevention is going to be much less expensive to a trust or estate in the long run.