The dark side of the web

The proliferation of web-enabled applications has created a new set of vulnerabilities, and criminals are adept at exploiting them.

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By  Zaid Kamhawi Published  July 30, 2008

The Territory of Poyais, a fertile strip of land in the Bay of Honduras, sounds like paradise on earth. At least it did to the thousands of 19th century European investors who purchased land rights to the island.

They bought titles to the land from Gregor MacGregor, a Scottish adventurer who returned from his travels in South America with news that he had been named cazique, or prince, of this beautiful, untouched and little-known nation-state.

The author of a 350-page guide titled Sketch of the Mosquito Shore, including the Territory of Poyais, MacGregor was feted by London high society, and soon turned that fame into great fortune.

After securing millions from investors, he sent 250 of them on a perilous transatlantic passage to the island. Only 70 came home alive. None of them saw Poyais itself - for the simple reason that the country did not exist.

You might think that, in our current information age, hucksters like Gregor MacGregor would be far fewer and further between. After all, with just a few clicks on Google, anyone can discover that there's no such place as Poyais. Unfortunately, however, fraud is now more prevalent than at any time in the past - and part of the reason for that is the rise of the World Wide Web.

The proliferation of web-enabled applications has created an entirely new set of vulnerabilities, and criminals have proved extremely adept at exploiting them. Common examples of this include pharming (redirecting a website's traffic to another, bogus website) and phishing (acquiring sensitive information by masquerading as a trustworthy entity).

Such unauthorised access to information is a leading cause of identity theft - one of the main types of application fraud. Balancing the dual imperatives of the free flow of information and the protection of data is therefore vital.

While technology fraud is not the only kind of deceptive practice, it is now among the most prevalent. Whatever its exact nature, fraud is serious and seriously damaging to individuals, institutions and, indeed, the global economy as a whole. Consider a 2006 US Federal Trade Commission report, which estimated that fraud costs financial institutions and retailers more than $31.3bn a year. That's more than the total annual GDP of Bahrain, and only slightly less than that of Luxembourg.

Just as worrying as the rising incidence of fraud is the correspondingly greater challenge of detection.

Here in the UAE, the incidence of such fraud has increased in the past decade, in line with the significant level of demographic growth and increased access to available credit. There are more people and more banks here than ever before; unsurprisingly in this relatively open economy, more of those people are attempting to defraud those same banks than ever before.

Fraud is, unfortunately, a frequent by-product of rapid economic growth. In such a scenario, verification of applications through access to comprehensive information is a strong preventative measure. Detection of fraud is the first line of defence. The recently outlined fraud prevention strategy enacted by the Dubai Financial Services Authority represents an important step in the country's fight. This strategy requires the senior management of firms that are regulated by the DFSA to set up systems to prevent fraud.

Every day, financial institutions compete directly with each other to win customers. However, many understand that competitive differences are immaterial when it comes to fraud. Sharing vital information by reporting suspected instances of fraud is especially significant as fraud can only be successful when one party knows more than the other.

By pooling our collective experience, decision-makers are immensely more capable of combating this scourge of the information age. Gaining such perspective provides us with a vital tool to stop fraud in its tracks. In the fight against fraud, today more than ever, knowledge truly is power.

Zaid Kamhawi is chief business officer at Emcredit.

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