Russians lost almost 16 bln rubles to financial fraud last year

The Higher School of Economics (HSE) has released a report, Banking scams as seen by Russian economic journalists. A survey of media workers has found out that most of them mentioned a weak regulatory framework and law enforcement practice for fighting financial fraud. Invest Foresight asked Boris Kheifets, Chief Research Fellow at the Institute of Economics of the Russian Academy of Sciences, if it was possible to quash fraud in the banking sector at all.

Boris Kheifets, Chief Research Fellow at the Institute of Economics of the Russian Academy of Sciences

— According to the official Central Bank data, in 2023, a total of 15.79 bln rubles ($170.4 mln) were stolen through unauthorized fraud, up 11.5% over 2022. The number of unauthorized transactions increased by exactly a third. Will this continue to grow at this rate?

— There is every reason to believe that these numbers may continue to grow. Not only is it imperative to toughen punishment for these acts, but also to expedite the adoption of new regulatory documents. Practice shows that the process is too slow. This is actually happening elsewhere in the world as well, not only in Russia.

Moreover, the number of such scams may also increase due to the diversification of monetary and currency operations – I am referring to digital systems.

Why is that?

— On the one hand, digital solutions can enhance control, at least there are different digital options: for example, there are Central Bank Digital Currencies (CBDC), which enable tighter regulation and control over potentially fraudulent transactions. But also, there are or will be developed digital currencies, created by corporations and even individuals, like Pavel Durov’s Gram.

Therefore, even despite the strict control, banking scams may still become more common. Experience shows that wider use of cryptocurrencies may actually worsen the situation.

Certainly, security measures have been in place. Both international organizations like the IMF and national organizations pay great attention to potential issues. Russia has also imposed a range of tough restrictions but, as far as I know, they have created substantial extra workload and financial costs. Whether the security effect was worth the trouble is not particularly clear.

One serious problem is that, even if a scam has been proved, it is extremely difficult to get the money back from scammers.

— Tell us more about these measures. 

— For example, it is impossible to transfer large sums of money without the account owner visiting the bank in person. It is really necessary for the owner to be present if a considerable amount of money is about to be transferred. When it comes to smaller sums, there may not be sufficient positive experience of preventing scam-related theft.

— What methods are most successful in countering banking scams?

— All factors must work together. Banks are supposed to work on improving their anti-scam technologies. Meanwhile, the state must contribute to improving the public’s financial literacy. People should be vigilant about suspicious calls, emails or messages.

Possibly, it is also important to instill certain morals into people’s mentality because financial scammers often target senior people who have spent their entire lives saving up an emergency fund.

Of course, it is important to talk about improving financial literacy, which is low not only among the older generation but among young people as well. Cybersecurity today is an industry developing rapidly around the world. But frankly, no country has been particularly successful yet.

— The Government has introduced extracurricular classes on financial literacy in schools. Even teachers in some preschools start talking about this topic. Will it be possible to raise a financially literate generation?

— Unfortunately, it seems to me that I must state a well-known truth: before a person or their family, loved ones and friends make a mistake of trusting scammers, there will be no serious breakthrough in this matter.

I am actually outraged by the fact that a great number of scammers calling people’s numbers do not even meet resistance and do not get investigated. After all, it is possible to identify their location or block their numbers and make their lives more complicated. Scammers also make adjustments such as using free messengers instead of paying for certain types of calls.

Another aspect of this problem is fraudulent activity inside banks. Customers’ data get stolen sometimes, to be sold on the black market.

— Which forms of modern scams do you consider most dangerous? And are there ways to fix this problem for good? 

— There will always be scammers and they will still be taking risks because this activity brings them money. In any case, they will be looking for new ways to bypass any new restrictions. But it is also important to improve the penalty system, especially considering that all such incidents have a serious impact not only on companies or people directly affected by the malefactors but ultimately on the security of the state itself.

Surely, it is necessary to boost cybersecurity tools and substantially increase investment in this industry. This measure can help.

Similar to offshores, the funds often end up abroad, broken down between multiple accounts that may be very difficult to piece together. But eventually, it is still possible to track the chain.

— Have you personally encountered instances of financial fraud, and how often? What advice would you offer our readers? — Absolutely, I have. In terms of advice, I would emphasize the importance of enhancing your financial literacy and leveraging insights from others’ experiences. It’s crucial to treat financial fraud with seriousness, given the evolving technologies employed by cybercriminals and the increasing sums involved. We must equip ourselves to combat this, individually as well. However, I believe the state should prioritize the fight against financial fraudsters more extensively than it currently does.

Previous ArticleNext Article