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Fraudsters get high limits through identity theft

12 December 2007 The Coface Group

Credit insurer Coface has noted a marked increase in syndicates fraudulently obtain credit limits on large and reputable companies.

Credit cover is fraudulently obtained in the name of a reputable company by a person posing to represent that company. Goods are then sold and often collected by the same person.

The syndicates achieve this through contacts in various institutions and obtain copies of confidential documents such as letterheads, VAT registration numbers, banking details and cancelled cheques. This information is then provided to the credit department of the company they target.

“Historically, the incidence of fraudulent activities has always increased around the festive season, as well as around the Easter holidays. These are the times when credit departments are under pressure from sales and have less staff,” says Coface senior operations manager Jacqui Jooste.

“In our experience, the syndicates identify large and established companies that will not have difficulty in obtaining large credit limits,” says Jooste.

“Jooste says in terms of the law, even though a company may have credit insurance, it is only insured for valid credit transactions on goods and services sold and delivered.”

“Should the company be defrauded, the criminal transaction will not be covered under the credit insurance policy.”

Jooste advises that in addition to the above scenario, companies must look out for a combination of the following "fraud" indicators:

  • Certain high risk industries can attract fraud such as those industries with low start up or capital costs.
  • If trade references state an “unknown company”, or if only cellphone numbers are provided for trade references, or there is an association between the trade reference company or their members/directors and the company applying for credit.
  • Other factors include unknown auditors, a newly registered company or if the start date substantially differs to registration number.
  • A vague or strange business address, such as opposite the Spar, or if there is immense pressure from the debtor to open account.
  • An urgent request on a Friday afternoon or during the Christmas or Easter holidays.
  • Good trade history for 2-3 years and then a sudden request for a large increase to the credit limit are strong indicators of potential fraud.
  • Excessive (above average) information available on a small business, such as financial statements ready shortly after year end, or a large assortment of business plans could also be an indicator.
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