Intellectual Property

The successful fraudster knows that any ‘deliberate diversion of gain’ first requires an effective deception. With IP fraud the perpetrator presents himself as a respectable brand, corporation or person in order to win the trust of his victim, and remove any suspicion of deception. The more trusted the name the less questioning the victim of the ultimate transactional demand.

Reputation is the label given to the trust stored in the borrowed name, perverted to lend authority to the fraudster. Reputation is thus not only the impact of the fraud it is also the origin of it and the modus operandi of the fraudster. The reputation of a brand, corporation or person is a perception of their character and a fraudster will borrow an impeccable character to improve his chances of succeeding with a fraud.

Some of the most effective frauds have involved misrepresentation of trusted names. The fraudster is well aware of the value of a good reputation for he seeks out the best in order to make his task easier. Like a cuckoo in a nest he will divert the goodwill that rightfully belongs to an innocent party, and continue as long as he remains undiscovered.

With identity theft the fraudster doesn’t need to set up a vehicle to win trust, he subverts the trust in someone else, usually a victim with a good credit rating, and presents himself as that person, thus convincing his victims he is the innocent party. Electronic banking makes this a simple and lucrative fraud with a favourable risk to reward ratio.

Reputation is a perception held by others, the owner has no direct control over it unlike a brand, it is amorphous and volatile. Once a good name has been abused it is very difficult to restore trust to its former level, even if damage is caused by a fraudster. Trust is a fragile commodity, once lost like childhood innocence it can never fully be recovered. This is the intangible damage once the financial cost of fraud has been calculated.

Brand piracy, counterfeit goods and identity theft

Intellectual Property is not just a legal term, it encompasses values at risk from fraud and deception aimed at ‘deliberate diversion of gain’ through misrepresentation of a trusted name. It is not confined merely to breaches of patent or copyright. Fraudsters hijack the goodwill of a premium brand for illicit gain. IP fraud falls into three sub-categories of reputation risk:

Brand identity (Products)

Counterfeit merchandise – Fake luxury goods (eg watches, perfumes, fashion clothing) purporting to be genuine quality products. From Lacoste polo shirts to Cartier watches few premium brands have been immune, and increasingly manufacture of copies can be traced to India and China, two of the world’s fastest growing economies. (note this type of fraud exists in engineering spares also where engine components purporting to be genuine Rolls Royce or Mercedes parts have found their way into the supply chain).

Damage profile – Brand owners suffer in two ways: not only is potential revenue from sale of goods hijacked but the quality of the brand is compromised. Tax authorities also lose out on loss of tax income from legitimate luxury goods sales.

Brand identity (Corporate)

False corporate websites – There has been an increase in the number of fake corporate websites designed to deceive and extract money. The BBC website was used for a while to endorse the sale of a slimming brand in the US, and major High Street banks are finding that their on-line banking customers are being deceived by copy-cat sites. In December 2010 the Guardian newspaper was fooled into running a bogus advert for a car hire deal which falsely claimed association with the trusted brand Guy Salmon.

Damage profile – The reputation of a trusted corporate brand like the BBC or Guy Salmon is borrowed to lend authority to a commercial proposition that is far from authentic. Trust in the reputable brand is damaged and the fraudster exploits this trust by passing off his offer based on the authority of the hijacked name.

Brand identity (Personal)

Identity theft – The ultimate brand theft, namely your own personal brand name. A fraudster steals the identity of an innocent victim through theft of data used in the consumer credit world: passport or national insurance number, bank or mortgage account number etc. The scale and scope of this type of fraud is significant, largely because of the time-lag between perpetration and discovery. Studies exist to show the lack of adequate data protection in our financial transaction systems despite increased regulation.

Damage profile – For the victim this is ‘burglary’ as this fraudster has effectively broken and entered the firewall of security promised by his bank or credit card company. This in turn destroys trust and banks can be slow to admit to their role in this and their failure in duty of care. Each new line of defence offers a challenge for the creative fraudster, akin to the forger’s challenge with each new bank note design.