Canny Collection Agency Spots Fraudsters

A collection agency in Canada thwarted an attempted scam recently and wants other accounts receivable management firms in North America to be on the lookout for a fraud play that appears to be targeting commercial collectors.

Financial Debt Recovery Ltd. (FDR), based in Richmond Hill, Ontario in suburban Toronto, recently received an inquiry through its Web site submission form for commercial collections services from a company in the United Kingdom. The company claimed that a firm located in Montreal had defaulted on a payment and owed them $307,000.

Andy Wood, director of sales and marketing at FDR, told insideARM that when contact was made with the potential client, red flags were immediately raised.

“He didn’t really want to talk on the phone,” Wood said. “He wanted us to rely exclusively on email for contact.” Wood said that the man claimed the company in Montreal was willing to pay, but that he wanted the debt paid through a professional collection agency.

Just a couple of days later, FDR received another request from a company in Boston looking to collect $540,000 from the same Montreal company.

FDR President Nick Papeo told insideARM that the company decided to cautiously pursue the Montreal company for payment while keeping a close watch out for any more suspicious activity. As the client indicated, the company agreed to pay almost immediately.

As soon as FDR received a bank draft from the debtor company, the client insisted that the agency wire $307,000 – minus FDR’s collection fee – to his account. That’s when FDR called the Baking Fraud unit within its bank, CIBC.

Wood’s initial suspicions were confirmed when the bank draft from the debtor was revealed to be fradulent, with insufficient funds to cover the payment. Both the debtor and the client were unreachable after that.

“They didn’t get us,” said Wood, “but law enforcement officials told us they did scam another collection agency recently.” Wood said that it was apparent the two companies in the U.K and Montreal, or more probably individuals, were working together.

The scam appears to be a variant of the “Nigerian”, “419” or “advance fee” scam that has been in practice for years. It hinges on being able to produce a check for a large amount that appears to be valid at first pass, but later turns up with insufficient funds, typically weeks after deposit and too late to recover the money from the scamsters. The scammers have traditionally targeted individuals through email, fax or letters.

A spokesperson from the Royal Canadian Mounted Police — Canada’s federal police unit that handles commercial fraud — told insideARM that they could not confirm or deny the existence of ongoing investigations similar to the FDR case, but did note that this type of fraud is getting more sophisticated.

A spokesperson for the U.S. Secret Service, the law enforcement branch that investigates 419 scams, told insideARM that "nothing surprises me anymore when it comes to the level of sophistication of 419 scammers." The Secret Service could not comment on whether American debt collection agencies have been targeted by a similar scam.