FRAUDSTERS have become adept at cheating banks and their customers without having to leave the comfort of their home. They don’t even need to be in this country.

Using a technique called phishing and the anonymity of the internet, they target their victims systematically with minimal threat of prosecution. The fraudsters trick customers into revealing details of their internet banking accounts, and use the information for identity theft or simply to transfer money out of the account.

Instances of phishing have risen by 4,000 per cent in the past year. In the nine months to June, the fraudsters duped about 2,000 people and stole £4.5 million. Last week NatWest suspended some of its online banking services after an attempt to con tens of thousands of its customers So it is some comfort for banks that the National Hi-Tech Crime Unit (part of the National Crime Squad) has this month brought charges against 12 Eastern Europeans, based in Britain, who were arrested on suspicion of laundering the proceeds of a phishing scam co-ordinated from Russia.

Police say this is the first time that charges have been brought against those who are directly responsible for moving funds illegally, so this case is a huge development for the financial services industry in its attempt to combat phishing.

The fraud works like this: the criminals set up websites, commonly based in the US, Europe or Asia. They copy the target bank’s internet banking website on to all of their own sites, then randomly send spam e-mail to thousands of customers with a request to resubmit their account information, including security data. The e-mail appears to have come from the bank, and offers a direct connection to its internet site via a hypertext link. But this actually diverts the customer to one of the bogus sites.

More recently the fraudsters have created a so-called Trojan virus programme that, if downloaded to a customer’s PC, looks for a stored link to a bank website and alters the address to that of the rogue site.

The banks have been very successful in persuading internet service providers (ISPs) to close the websites quickly and also to hand over copies of the data submitted to the sites so that victims can be contacted. The fundamental problem in fighting this fraud is that as soon as one website is closed down a new spam e-mail is sent out directing the customer to another of the fraudster’s websites. Banks have been quick to post warnings on their internet sites to increase the public’s awareness. This has clearly worked, as can be seen from some of the robust responses sent to the fraudsters’ website by alert customers.

The banks’ success is further hampered by the global nature of the fraud. For example, there is a trend in the US of setting up spoof websites that poke fun at corporations. ISPs in the US cite freedom of speech as a reason for refusing to close them, a stance they often adopt when asked to close the bogus banking websites. This demand for a higher level of proof of fraudulent intent has delayed the process of getting the sites closed.

To encourage the ISPs to co-operate with the banks, it has proved necessary for lawyers to point out that a refusal could be seen as facilitating the fraudster’s offence of passing off.

The problems have been no less easy for the authorities. The global aspect of the fraud means that finding the fraudsters is a challenge in itself and the financial paper trail often spans several jurisdictions. The unusual feature of cyber-crime is that frequently the person behind it is outside the country in which the offence is committed. If the police are to arrest the suspect based overseas, it would be necessary to seek his extradition. Even with the recent advent of the European Arrest Warrant, which is intended to simplify extradition procedures, there can be many obstacles. Because of this there have been calls for phishing and other cyber-crimes to be addressed in the Fraud Bill, due to be published next month.

Heightened public awareness of how phishing works, through the media or via messages on the banks’ websites, reduces the scam’s effectiveness, as does promptly shutting the bogus websites. Customers should be made aware that a bank will never ask them to submit confidential information in this way.

Phishing is undeniably on the increase. It is comparatively easy to set up and the fraudsters do not have to come within a thousand miles of their victims. By never entering the jurisdiction, they know that they are unlikely ever to face prosecution. The recent arrests are a positive and welcome development but the ringleaders are still abroad in both senses of the word. Until the authorities can work together cohesively across the jurisdictions, phishing scams will continue to proliferate.

The author is a partner in the banking litigation group at DLA

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