124/08    27 October 2008

The OFT is today warning consumers about a sinister new twist to prize draw scams in which the victims are unwittingly being used to help defraud others.

An investigation by City of Westminster Trading Standards Service and the police has uncovered a network of elderly prize draw fraud victims, some of whom have been groomed by the scammers into unknowingly acting as 'money mules' to launder other victims' money.

The fraud involved consumers receiving telephone calls claiming that they had won an international sweepstake or prize draw worth up to £500,000. The victims were told that in order to claim their winnings they needed to pay 'refundable' taxes and insurance fees and were asked to send payments by money transfer to the scammer in Canada.

The twist came when victims were later informed by the scammer that their prize had arrived at a UK airport but that further sums of money were required for its release. Victims were told to send personal cheques, often for thousands of pounds, to UK 'agents'. These 'agents' turned out to be other victims of the same scam who had been duped into acting as 'money mules', banking the cheques and innocently transferring the money to the scammer overseas. Victims receiving the cheques, who often had exhausted their own life savings, were told by the scammer that the money was from 'sponsors' to help pay the required release fee for their prize. None of the victims received any financial advantage for being 'money mules.

At least 22 elderly victims of the fraud have been identified to date, a number of whom were sending cheques to each other as well as to the scammer and who have collectively lost at least £350,000. Victims were encouraged by the scammer to borrow large sums of money once their life savings had been depleted and some have lost upwards of £50,000. In one instance, the scammers targeted the widower of a victim who had died.

Mike Haley, OFT Director of Consumer Protection, said:

'Prize draw scammers are becoming ever more sophisticated and devious in their attempts to con victims out of their life savings. It is despicable that the scammers are exploiting innocent victims to launder money and help defraud other vulnerable people.'

Sue Jones, Head of Trading Standards at Westminster Council, said:

'This is the first time we’ve seen people used as money mules through scams in the UK but they are much more common in America and Canada. Unfortunately, it looks like we may see more of these as fraudsters invent ever more sophisticated scams.'

Our advice to anyone who receives a telephone call, letter or e-mail telling them that they have won a large cash prize is to stop, think and be sceptical. Remember a genuine prize draw, sweepstake or lottery would never ask you to pay taxes, custom duties, insurance, or any other fee before they release your winnings.

Anyone who is contacted about an alleged prize draw or lottery win and suspects it may be a scam should immediately contact Consumer Direct for clear, practical advice on 08454 04 05 06 or see the Consumer Direct website.

NOTES

1. Overseas prize draw scammers are using ‘money mules’ in the UK for a number of reasons: (i) some victims are unable to effect a money transfer because they live in rural areas with no convenient money transfer facilities or they don't have a valid passport; (ii) many victims are less suspicious if money is sent to a genuine UK address rather than abroad; and (iii) victims believe that the alleged prize win must be genuine because they are receiving cheques from so-called 'sponsors'.

2. In recent years lottery and prize draw scammers have become more sophisticated in their attempts to defraud consumers. Counterfeit cheques are increasingly being sent to victims to help cover their 'expenses' and convince them the win is genuine. By the time the victim is notified by their bank that the cheque is fake they may have already sent thousands of pounds to the scammer. The OFT issued a warning against lottery 'fake cheque' scams in June 2006 - see press release 99/06.

3. The OFT continues to work closely with the police, local authority Trading Standards Services and its overseas counterparts to tackle lottery and prize draw scams through enforcement, education and disruption.

4. Consumer Direct is a telephone and online consumer advice service funded by government and managed by the Office of Fair Trading. It offers consumers clear, practical and impartial advice and information.