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Fake Online Escrow Services Target Big-Ticket Buyers

By Robertson Barrett
Special to Consumer Reports WebWatch

Last month, Adrian Johnson, a Barbados resident and Consumer Reports WebWatch reader, was shopping for a motorcycle on cycletrader.com, a popular online marketplace for the two-wheeled set. Johnson had his eye on one of the bikes, but when he asked the seller how the transaction would be handled, he grew dubious.

The seller told Johnson he should send his money – several thousand dollars – to an escrow service, which for a fee acts as an intermediary between a buyer and seller. (Typically, the services hold onto the money until the buyer confirms the merchandise has arrived as advertised, thus greatly reducing the buyer’s risk.) The escrow site in question, www.internationalbusinessbureauservice.com, seemed like a real business, but it claimed to be located in England – too far for Johnson’s comfort.

The other recommendation was www.traderonlineescrow.com, which offered such evasive language about its management and practices that Johnson gave up. “I find it hard to believe that these people recommend these places,” says Johnson. “You have to figure these sites are scams.”

Consumer Reports WebWatch found that neither of these sites has been around long enough to amass much of a track record: www.internationalbusinessbureauservice.com didn’t exist until November 27, 2003, and it doesn’t exist now. The Australians who registered the site didn’t answer the phone or e-mail addresses they provided.

Meanwhile, www.traderonlineescrow.com, created last November 16, is still on the Web, claiming to be “The Safest Way to Buy and Sell Goods and Services Online.” However, the site includes no information of any kind to let users know who runs the company. A Grantville, Penn., woman who is listed in public records as the site’s creator did not return several calls from Consumer Reports WebWatch, and she was not listed as a town resident.

Friend or Fraudster?

The trouble with escrow sites, which have sprung up by the thousands to cater to nervous online buyers of big-ticket items such as automobiles, is that the vast majority are fraudulent, according to the U.S. Federal Trade Commission (FTC). In early 2003, it says, about 10 fake escrow sites surfaced each month, while the rate climbed to 25 a month by year’s end. One legitimate service, Escrow.com, says it gets reports of six times that number, many of them with graphics and logos stolen from its own site.

Keith Lourdeau, deputy assistant FBI director for cybercrime, told Consumer Reports WebWatch some suspected escrow fraud sites appear to originate overseas in countries, such as Romania, that have also been sources of 419 fraud.

It’s not hard to understand why people fall for fake escrow services. Johnson’s case is typical: A would-be buyer gets into an online conversation with a would-be seller, who then recommends an escrow service he or she claims to use regularly. The “seller,” of course, is actually a front for the fake escrow service, and the car, motorcycle or boat in the ad doesn’t exist.

The smoothest deceptions frequently dupe users of major online auction services like eBay and Yahoo, where fraudsters have learned to use the lingo or advertising styles of habitual sellers with high credibility “ratings” to create an atmosphere of trust. A common variation of the scheme, known as the “Western Union scam,” recently befell a man who identified himself as RAM and posted his experience to a Yahoo scam support group.

In early January, RAM saw a “gorgeous” motorcycle on eBay, for sale at well under the $5,000 that other eBay sellers were asking for the model. The seller said he was seeking “only qualified bidders,” and RAM proudly sent proof of his 100 percent reliability rating as an eBay buyer.

“I e-mailed the guy and he said, ‘You are my buyer and to make this transaction safe for you, we’ll do it through an escrow company, TradingNet,’” RAM wrote. After RAM wired $3,500 to a “TradingNet” representative via Western Union, “they took their Web site off the Net. I got so mad when I knew that I got scammed and they got away with it. I had to borrow that money with promises to pay it back.”

Though it does not keep statistics on the problem, Western Union estimates it has fielded hundreds of complaints a year from escrow scam victims, who were frustrated at the company’s policy of not releasing personal information about recipients unless queried by police. But last September, the incidents prompted the company to post warnings on its Web site (http://www.westernunion.com/info/faqSecurity.asp) clarifying that “it is your responsibility to verify the reputation and legitimacy of the seller.”

Out of Many, Only One?

The major online marketplaces, such as eBay and Yahoo, offer buyer protection programs that can be safe alternatives to Western Union – as long as purchases don’t exceed $1,000.

But neither eBay nor Yahoo insures larger purchases, leaving their millions of buyers and sellers to sort things out on their own. What many don’t know is that both companies recommend a single service, Escrow.com, for U.S. transactions over $500, and a handful of other companies for users who live abroad.

EBay strongly endorses Escrow.com on its site (http://pages.ebay.com/help/community/escrow.html), but the auction service has not taken more substantive steps to make sure that the average eBay user knows of this option – for example, providing direct links to the endorsement on eBay pages where big-ticket auctions actually take place.

That may change: “We’ve heard from our community, and we have also witnessed some of the things happening with online escrow sites,” eBay spokesman Hani Durzy. “We are evaluating exactly how we position Escrow.com within the eBay experience.”

Until then, the FTC and the National Consumers League recommend several tips for distinguishing a legitimate online escrow service:

  • Be suspicious of an escrow service site that claims to be affiliated with the government or that follows “U.S. Financial and Business Code.” No such code exists.
  • Look for other troubling visual clues, such as misspelled words or awkwardly phrased sentences.
  • Find the customer service phone number listed on the site and call it. Don’t use that escrow service if no one answers, or if no phone number is provided.
  • Learn whether the service processes its own transactions. If it doesn’t and instead requires an outside online payment service, avoid that escrow company.
  • Find out if the service is licensed and bonded. Get the business’ physical address from the Web site and check its licensing with state officials. If the escrow service provides no address, avoid it.
  • Read the escrow service’s privacy policy and security measures before sharing any personal or financial information.

For more advice, go tohttp://www.ftc.gov/bcp/conline/features/onlauctions.htm orhttp://www.nclnet.org/shoppingonline/escrowtips.htm.

If you believe you’ve been defrauded by an online escrow service, file a complaint with your state attorney general’s office (for a full contact list, go to http://www.naag.org/ag/full_ag_table.php), or the Better Business Bureau (http://www.bbbonline.org/consumer/complaint.asp).

Fraudulent escrow sites also have created headaches for legitimate escrow services, such as market leader Escrow.com.

Criminals often duplicate graphics and legal language from Escrow.com to create an illusion of credibility on their own sites, says Alvin Black, Escrow.com’s general manager. Or some online escrow services cite phony relationships with Escrow.com’s subsidiary, Internet Escrow Services, which is a licensed escrow company based in California.

” The problem is huge right now,” Black says. “We’re aware of about 140 active fraudulent sites, and we see about 150 new [complaints] a month. We actively battle them and get them closed down, but they pop up on a regular basis.”

According to eBay, which recommends the service, Escrow.com is the only Internet escrow company to have pursued proper licensing across the country, allowing it to handle business in every state accept Arizona, which has restrictive laws.

Escrow.com is based in Irvine, Calif., and is owned by Ilumin Software Services of Reston, Va.