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The Money Programme Saturday, 20 November, 1999, 12:15 GMT
More 21/11/99
The Money Programme

E-commerce is the way of the future. It is growing at phenomenal speed, doubling last year in the United States; more than doubling in the European Union and Japan. Tony Blair says that e-commerce lies at the heart of his vision for building a modern, knowledge-driven economy. But there's a major snag. Consumers, who are supposed to benefit so much from doing business on the Internet, just don't trust it.

One survey shows that no fewer than 93% of British consumers don't feel secure submitting credit-card details on the net. Visa found that across the EU only 5% of consumers trust e-commerce. Another EU study found that 8% of goods ordered on the web never arrived. One survey says consumers sense "a kind of chaos" in the Internet: information is vulnerable to hackers, technology is unreliable and good intentions can have unpredictable results. They're not far wrong. Just as businesses are moving to e-commerce, so are the fraudsters - both with variants of old scams and whole new ones, playing on people's na´ve belief in what they read online.

Law enforcement is gloomy about it. Says Los Angeles US Attorney Christopher Painter: "If you have an explosive growth on the Internet, you're going to have this great huge growth in fraudulent conduct and crime committed over the Internet." Adds Detective Sergeant Nigel Jones, Secretary of Britain's Association of Chief Police Officers Computer Crime Group: "We've not reached the levels that the Americans have yet, but if they are anything to go by we're in for a serious problem."

Credit-card fraud is one example. In America, 7% of online consumers have been victims. Visa International says that half of all credit-card disputes are about Internet transactions, despite the fact that such transactions are only 2% of Visa's overall business. The Money Programme proves how money is wrongly charged to people's credit-card accounts thanks to the Internet. Credit-card numbers obtained by theft or from anarchist websites on the Internet are used to access pornographic net pages, and innocent people are charged. This huge fraud probably results from negligence by banks, and raises the possibility that credit-cards as currently operated are unsuitable for electronic commerce.

The Internet is also home to several major financial scams, many promising online investors huge returns. California's Internet Enforcement unit told us about two exemplary cases. In one, a fraudster called Matthew Bowin advertised on a reputable financial web page to sell shares in his hi-tech company that he called "the next Microsoft". There was no product and no company, but dozens of people invested and lost their money. In another, financial advisers across America were targetted using the Internet to sell their clients life insurance policies belonging to people with fatal illnesses. Fifteen hundred investors bought them and nearly $100 million was paid to the fraudster, David Laing, who spent much of it gambling in Las Vegas. The supposedly dying patients were names taken from the phone book.

And there are more exotic scams. One fraudster forged a page from Bloomberg's financial news website to talk up the price of shares in company called Pairgain. The share price jumped by 30%, before collapsing when the forgery was exposed. Supposedly smart online investors were deceived however, bought the shares and lost their money. The have been hundreds of such share-ramping scams, which are known as "pump and dump".

What can be done to protect the public from Internet conmen, when the Internet knows no national boundaries and is accessible everywhere? America, Britain and other countries are looking at national cyber-crime police units, though none are yet up and running. Financial regulators like America's SEC and Britain's FSA are trying to control websites in their own jurisdictions. Under pressure from consumer organisations, international bodies like the OECD and EU are struggling to get agreement on standards for electronic commerce to be enforced by national governments, but progress is lamentably slow. Business opposes the idea, wanting instead to rely on self-regulation without government intervention. Such is the free and open nature of the Internet that regulation is near-impossible anyway, and the best advice the regulators have for those who invest or shop using the web is just to rely on their common sense.

John Penycate

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