How Escrow Scams work Posted on January 28, 2008 at 09:33:15 PM by Experts
What is Escrow?
Escrow is a term applied to any 'honest broker' service that offers to hold money or goods until all parties in a transaction are satisfied that terms and conditions have been met, whereupon the goods/services/monies are released.
Escrow services have existed for many years but have recently come to prominence in the online world because of buyers and sellers both worried about getting scammed in an Internet auction or sale. A seller does not want the goods to vanish with no payment. A buyer does not want to send money with no goods (or faulty goods) in return.
A genuine Escrow Service allows sellers to send goods safe in the knowledge that funds exist and are being held safely until the goods have been delivered. In turn, the buyer can feel secure in that the goods can be received, checked for suitability/condition and the money will only be paid over when this is confirmed to the Escrow Service.
In many auctions "just use an escrow service, " is the customary advice for both buyers or sellers. Escrow companies act as a third-party referee, taking payment from buyers but not releasing the money to sellers until the goods are delivered. Escrow companies are supposed to be the safest way to avoid fraud on the Internet, particularly when dealing with Internet auction sales of expensive items such as jewellery or cars.
How do the frauds work?
To initiate the scam, the criminals firstly build elaborate fake escrow Web sites, with convincing names like Simple-Escrow.net and WhyEscrow.com. The Web sites are often set up to imitate legitimate escrow services. To an untrained eye or on casual inspection it can be very difficult or nearly impossible to tell the difference.
The criminals then set up a trap auction (or auctions) on a popular auction site like eBay. The price quoted is 'keen' if not downright cheap. Not unnaturally the item is snapped up. When a winner asks how to make payment, the 'seller' suggests the use of an escrow service because of the 'value' of the item. It is also suggested that this is safer for the buyer as well because they will be able to inspect the goods before the money is released.
The winner of the auction is then requested to use one particular (fake) service. Sometimes there is a choice of two equally false sites. Once the money is transferred to the fake escrow site it is immediately transferred out to another location and 'vanishes'.
The fraudsters will wish to make as much money as possible from the site so there is often a period when the 'seller' and the 'escrow site' stay in contact trying to explain the delays in delivery. This is so that they can complete any further scams they may be running using this fake site. When they have done as much as they can or have completed collecting money from their ongoing scams, all accounts will be closed and the website will no longer respond.
The fraud can work both ways. A fraudulent seller can suggest that a buyer use an escrow site he or she controls, then simply grab the buyer's cash without ever sending the merchandise (which usually never existed.) Alternatively a fraudulent buyer can trick a seller into shipping items that haven't been paid for by simply sending an official-looking e-mail from a fake escrow service stating that funds have been received and to go ahead and with shipment of the items.
Over time the fraud artists are getting better at what they do. In the early days of auction fraud many fake auction adverts were riddled with typographical errors and poor graphics. Today, they take very much greater care to make the offer seem valid and often include legitimate information intermingled with fake addresses and phone numbers.