Regulators turn up the heat on online scammers

The Office of Fair Trading is ramping up its efforts to protect consumers online, following the establishment of its online enforcement team.

The Office of Fair Trading (OFT) is ramping up its efforts to protect consumers online, following the establishment of its online enforcement team, writes  Paul Graham, IT partner at UK law firm Dundas & Wilson

In February 2010, the government announced funding of £4.3m over three years to allow the OFT and regional Trading Standards authorities to take measures to shut down the activities of rogue traders who use the internet to defraud consumers. Announcing the funding, consumer affairs minister Kevin Brennan said, "Our investment will help the OFT and Trading Standards to establish the new specialist teams, training and technology required to take the fight to these criminals."

The OFT is not alone in its efforts to protect consumers who purchase goods and services online. This was recently demonstrated by the announcement by the Metropolitan Police E-Crime Unit that it had, in cooperation with domain name registry Nominet, shut down more than 1,200 websites, the operators of which sold counterfeit and faulty goods to unsuspecting customers. The OFT, regional Trading Standards authorities and the government's consumer complaints agency, Consumer Direct, also played a role in identifying the scam websites.

These developments indicate an acknowledgement by regulators and law enforcement agencies of the considerable damage that online scams cause individual consumers and the British economy. In 2009 the Office of Fair Trading estimated that scams cost the British economy £3.5bn every year.

While these developments may be encouraging, the agencies attempting to stop online scams face an increasingly difficult task. Rogue traders are deploying more sophisticated measures to operate fraudulent websites, such as the use of:

• Domain name proxy companies (usually domiciled in the United States) to shield themselves from detection

• Foreign domain name registries and ISPs

• Third-party intermediaries without criminal records to open bank accounts and register domain names.

The increasing sophistication of rogue traders operating online has necessitated greater cooperation between regulatory and law enforcement agencies both within the UK and abroad. Indeed, the take down of the 1,200 websites operating counterfeit goods scams relied in part on the sharing of information between the police, the OFT, and various other agencies.

The use by fraudulent traders of foreign ISPs, bank accounts and domain name registries has also required UK regulators and law enforcers to engage with their foreign counterparts. Indeed in taking action against traders employing these tactics, the OFT has in some instances liaised with the US Fair Trade Commission as well as regulators in other EU member states to obtain important information.

The growing tendency of rogue traders to target UK consumers from overseas jurisdictions has also necessitated a change of approach by regulators and law enforcers, which increasingly favour aggressive actions designed to immediately cease consumer detriment caused by individuals placed beyond their reach. For example, in targeting the counterfeit scam websites, Nominet simply shut down fraudulent websites as the first course of action, following a request from the police to do so. No recourse was made to judicial guidance.

Consumer and business groups will no doubt watch with interest to see whether this new approach yields further results.

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