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INDUSTRIAL SCAMMING

The more law enforcement cracks down on telecom and internet fraud, the more sophisticated criminal gangs become as they evolve into well-oiled business machines, complete with a corporate ethos

By Huang Xiaoguang Updated Nov.1

Displayed are mobile phones, bank cards and other equipment used to conduct telecom fraud that have been confiscated by police in Guangzhou, Guangdong Province

Despite having made great strides in clamping down on widespread telecom and internet fraud in China, criminal gangs are constantly evolving. According to law enforcement in China, they are conducting their criminal activities in much the same way as a company, with a corporate structure and specific pay grades. Data released by the Ministry of Public Security (MPS) in early April shows that in 2020, China’s law enforcement agencies cracked some 322,000 cases related to telecom fraud with more than 361,000 suspects arrested, saving the public over 187 billion yuan (US$28.9b) in economic losses. Although the nationwide crackdown continues, police are often playing catch-up as gangs take advantage of new technology, posing continued challenges to society.

Swindle Targets

According to Hao Hongkui, deputy Party secretary and president of the Criminal Investigation Police University of China, telecom fraud crimes emerged in East Asia, particularly Taiwan, in the 1990s. At first the scams were relatively simple, informing the target they had won a cash prize and needed to send a “tax” before they could receive the large sum they were promised. This scam developed and spread to Fujian and other provinces nationwide. “The means of telecom network fraud crime are basically facilitated by three mediums – telephone, text message and online,” Hao said. The early stage was mainly telecom fraud, usually through phone calls or sending texts. The scammer would claim to be a friend, boss or relative of the recipient, or attempt to use the criminal justice system to frighten people with potential arrest. Telecom fraud cases in China increased rapidly nationwide, around 20 percent to 30 percent every year between 2006 and 2016. In April 2009, as the Chinese mainland and Taiwan signed a “Joint Fight on Crime and Judicial Mutual Assistance Agreement,” telecom fraud gangs gradually moved outside the mainland to Southeast Asian countries and further to Africa, Europe and the Americas. 　

According to the 2015 China Mobile Internet Users’ Network Security Status Report, released by the China Internet Network Information Center (CNNIC), some 306 million fraudulent calls were reported by domestic users in 2015, 4.25 times that of 2014. Data from the MPS indicated there were more than 590,000 telecom fraud cases in 2015, costing victims 22.2 billion yuan (US$3.43b). 　

In recent years, among the different types of fraud, bogus investment schemes accounted for the highest proportion of value. A district-level public security official in a mid-size urban district of Shanghai told NewsChina under condition of anonymity that residents in that single district had been scammed out of 100 million yuan (US$15.44 million) a month since the beginning of this year. 　

Now, telecom fraud has evolved. As scammers moved their operations abroad, new techniques emerged with the availability of new technologies, applications and forms of business. Since 2015, especially with the support of big data, targeted fraud became prevalent. 　

A police officer interviewed by NewsChina recounted a typical scam involving a businesswoman trapped in a type of romance scam commonly referred to as a “pig killing trap.” In the parlance of those running this scam, victims are called “pigs.” Building trust and a romantic connection is called “raising pigs” and enticing targets to invest or gamble by giving them small bonuses in advance is called “feeding pigs.” Making off with the money is the fatal blow. 　

Initially, the businesswoman was friended by someone on WeChat, who claimed to be a boss of a big firm. A few days later, the woman was enticed into an online relationship. Then the man told the woman he had invested in a virtual currency platform and asked her to make an additional investment of 1.8 million yuan (US$280,000). Before she conducted the money transaction, an alert from an anti-fraud hotline operated by the MPS notified her of a potential threat, but she did not believe she would be cheated by her boyfriend. According to the police officer who explained the case to the reporter, fraudsters can obtain phone numbers of all enterprises in China through industrial and commercial information query databases. Many phone numbers registered are the mobile phone of the owners. The officer did not say what happened to the fraudster or the victim. 　

After obtaining personal mobile phone numbers, a fraudster contacts potential victims and targets them with a scam specific to them. “If the target needs a loan, then they attempt a lending scam. If the phone number belongs to a company’s accountant, the suspect pretends to be the boss of the target and requests a money transfer. A suspect might pretend to be a local government official and ask a small businessman for bribes, or if the target is female, the suspect tries to trick her into a romance,” the officer said. “No matter who the target is, there’s always an option.” 　

Wu Boxin, an expert in criminal psychology, told NewsChina that whether through traditional fraud or telecom and network fraud, experienced con artists are eloquent and quick to adapt. He said fraud gangs have training materials to instruct members on role play and other skills. “All are carefully designed for when to change roles and what to say, crafted conversations with timely responses are naturally plotted, and victims find it hard to detect they are being scammed,” Wu said. “Although these victims might be skeptical about what the fraudster is saying, they often end up believing them anyway against their better judgement.” 　

Expanding Chain

With enough data, fraud gangs can tailor personalized fraud. Shanghai Municipal Public Security Bureau Pudong Sub-bureau anti-fraud special team leader Hu Qiaoyue said that victims of the “pig killing trap” scam are often young single woman who are financially stable, while “brushing fraud” for online sales platforms often targets college students or housewives who may have spare time. Brushing fraud involves luring victims through offering part-time job opportunities by sending online fake orders and writing comments. But victims will be asked to invest money to buy the products first and fraudsters are supposed to refund the money, although in reality, they will not. This occurs more often on social media apps like WeChat than on dedicated online shopping platforms. 　

A sophisticated industrial chain has been formed around telecom and internet fraud. NewsChina learned from inside sources that the four main sectors of the online fraud industry chain include development and production, wholesale and retail, fraud implementation, selling illegal gains and profit distribution, with as many as 15 specialized jobs. For example, technical support work includes phishing – persuading people to reveal personal information – Trojan development and hacking activities to specifically provide fraud tools and all information needed. Behind the scenes, wholesale and retail includes people involved in wheeling and dealing – selling criminal information, goods or tools – phishing retailing, domain name dealer, personal information wholesaler, as well as bank card dealers, phone card dealers and ID card dealers. Others, with job titles like telecom fraud manager or online promotion technicians are in direct contact with victims. Agencies are contracted to send mass spam text messages. 　

Hu Qiaoyue drew attention to online data diversion teams who register and sell active accounts on social platforms to fraud gangs. When a victim’s money is successfully transferred to a target bank account, people in the gang ranging from an accountant, ATM money collector or a stolen goods middleman work together to transfer, withdraw and launder the cash. 　

A specialized money laundering team will split the stolen money into smaller amounts that will not attract the attention of bank risk control software, and transfer it to a secure account. Many fraud gangs now use crypto currency for money laundering, posing even bigger challenges to the police in recovering stolen assets. 　

“Telecom fraud crime used to be a gang or family-run crime, but now it’s developed into a for-hire mode, with almost every stage fulfilled by an independent team,” Hu Qiaoyue said. Starting in 2008, the rollout of 4G technology aided telecom and online fraud crime to develop into this industrial chain model with corporate-style operations. 　

Some independent fraudsters began to form groups and developed into specialized, professional businesses. In a recent case of a busted “pig killing trap” in Jinhua, Zhejiang Province this year, the gang implemented a corporate operation with clear divisions of labor. They regularly replace their fraud platforms, and rotate personnel to avoid police detection and crackdowns. 　

“A salesperson gets a basic salary of 4,000- 5,000 yuan (US$618-772), plus a 7 percent commission from the money they make [from victims]. The group leader can take a 3 percent commission of the income of the whole group,” a police officer who investigated this case told the reporter. 　

Hu Qiaoyue told NewsChina that in a fraud case cracked this May by Shanghai police, they found the gang worked out of Luoyang, Henan Province, while the platform builder was in Wuhan, Hubei Province, and there were 29 “branches” in 10 provinces. Some fraud operations are even trying to create their own “corporate culture.” 　

According to Hu, most telecom and network fraudsters are young people in their 20s and 30s. According to data provided by the 2018 Network Black and Gray Industry Management Research Report, some 400,000 people are involved in the black and gray industries in China, and their average age is under 23. 　

“Research shows perpetrators are getting younger and more women are joining the business. Fraud gangs recruit people in China but train them in neighboring countries such as Myanmar. There are actually a lot of people who choose this path due to lack of proper job opportunities for youth and low wages for conventional jobs,” Wu Boxin said. 　

Community volunteers meet with residents to raise awareness of telecom fraud, Linan District, Hangzhou, Zhejiang Province

Police check equipment used for cross-border telecom fraud, Zigui County, Hubei Province, October 27, 2020

United Efforts

Faced with the industrial-scale level of fraud, combatting it is becoming ever more challenging. On June 17, the MPS held a press conference to report the effectiveness of police on telecom fraud, reporting that from January to May 2021, 114,000 telecom and internet fraud cases were uncovered involving over 14,000 criminal gangs and 154,000 arrests, the figures of which increased respectively by 60.4 percent, 80.6 percent and 146.5 percent from the same period in 2020. 　

In June 2015, the State Council established a joint meeting system to crack down on new crimes relating to telecom fraud networks involving 23 different departments including the MPS, the People’s Bank of China, the China Banking Regulatory Commission and the Ministry of Industry and Information Technology. The system is being implemented at the provincial level.

In Shanghai, a conference office was set up in the Criminal Investigation Corps of the Shanghai Public Security Bureau in December 2015, and the Shanghai Anti-Fraud Center was established in March 2016. Similar action was taken in Jinhua, Zhejiang Province. There are now 43 departments and parties contributing to the efforts. China’s big three telecom operators and five major State-owned banks have staff in the Jinhua Anti-fraud Center, while other banking and financial institutions have established contact channels with the center to provide effective support for sending out fraud warnings and making immediate stops of payment transactions.

Despite the concerted efforts, police officers interviewed by NewsChina admitted to the difficulties of fighting telecom and internet fraud. 　

Criminals and victims of telecom and online fraud are located across the country and some operations are abroad, so investigations require a lot of money and human effort. According to Ma Tao of the Shanghai Public Security Bureau Criminal Investigation Brigade, due to limited staff and time, working telecom fraud cases across borders is difficult. The MPS has said the focus should be on domestic-based telecom fraud gangs. 　

Another obstacle is identifying the criminals. Hu Qiaoyue said: “It’s difficult to connect the virtual identity of the fraudster to their real identity, and even if they confess to their fraudulent activities, we need data to confirm it rather than purely relying on the suspect’s confession. It’s even worse as most suspects, despite being arrested, will never reveal their virtual identity or targets they’ve cheated.” 　

Although the Ministry of Industry and Information Technology has required realname registration for telephone users since 2015, it did not deter telecom crime. The big three telecom operators have contracted some of the rights to use communication networks to virtual operators, which means scammers can get mobile phone SIM cards even when they move their operations abroad. 　

Illegal trading of SIM and credit cards is an important enabler of telecom and online fraud. To address this, since October 2020, the MPS has targeted illegal transactions of SIM cards and payment accounts. According to official statistics, 15,000 criminal gangs dealing in the illegal use of SIM and credit cards were busted, with 3.733 million SIM cards and 566,000 bank cards confiscated.　

Chinese President Xi Jinping urged the financial, communications and internet sectors to assume primary responsibility for supervising telecom and online fraud earlier this year. 　

However, stopping telecom and online fraud at the source remains urgent. An official from the National Anti-Fraud Center told the reporter that some internet enterprises have not undertaken adequate risk control and attach more importance to economic interests rather than social responsibility. Messaging platforms such as WeChat and QQ and third-party payment apps such as Alipay have become important tools for criminals to carry out fraud. 　

Head of Jinhua City Public Security Bureau Criminal Investigation Group Li Quan believes that telecom fraud is a complicated by-product of social development. “Some departments and industries are irresponsible, which leads to fostering the survival of telecom and online fraud,” Li Quan said. “A lot of fraud websites and many apps remain available which may violate user privacy, but has there ever been proper supervision put in place?”　

A telecom fraud gang is in police custody, Shanghai

: A policewoman simulates a telecom fraud interaction with a woman in a booth as part of a public awareness campaign, Shijiazhuang Railway Station, Hebei Province, April 30

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