Innovations in Identity

Brief history of fraud

[Infographic] A history of fraud: from ancient Egypt to the modern pandemic (Part 1)                        

Brief history of fraud

When we think about fraud, we often picture financial fraud of one kind or another. You might assume that money would have to be invented before fraud became an issue. But the act of fraud is as old as intelligence itself. A nesting bird feigns a broken wing to lure predators away from the nest. A dishonest merchant places a thumb on the scales when weighing out goods. In the Middle Ages, traders combined valuable spices with fillers like ground nutshells and seeds to increase their supply. It seems no era is free from the practice of deception for personal benefit.

What is fraud?

Essentially, fraud is any act committed by an individual or group that uses deceit in some way to gain value for the miscreant. While currency is a common goal for fraudsters the world over, they could also be looking to make an advantageous marriage, earn citizenship in a desirable country or win an election.

Identity fraud involves using someone else’s identity to commit fraud, whether by communicating under their name, sharing their identity information or taking control of their account.

The evolution of fraud

Although fraudsters have targeted individuals and big institutions since the beginning of history, we don’t always hear about every modern heist in full detail. Banks and other big corporations don’t like to publicize when they are successfully defrauded. After all, they’re supposed to be keeping our money and valuables secure. But some of the more interesting historical rip-offs have helped their perpetrators make a mark on history.

Humans naturally find stories about crime and other unusual events exciting, so history has kept records of many of the more interesting examples of fraud. Some of the earliest examples don’t even involve money. While these records have the potential to inspire the crooks of today, most modern fraudsters are working to invent new ways of committing this age-old crime.

Today’s top-notch fraudsters risk their freedom for good reason. The potential rewards of a successful big heist are enormous, in part because digital commerce has made it possible to make off with millions at the click of a button. Javelin reported that fraud losses in 2019 reached USD $16.6 billion, while the number of victims of fraud dropped to 5.1 percent of consumers, indicating that today’s criminals are scoring more per incident than in previous years. Surveys show that 33 percent of working adults in the U.S. have experienced identity theft.

Technology has also served to speed up the rate at which we see new types of fraud occur. Frequently considered a white-collar crime, fraud is increasingly available to the masses — either through digital platforms or simply by making it easier to research past methods for committing this type of crime.

Data has also become a form of currency. Personally identifiable information (PII), account numbers, mobile phone numbers and passwords unlock the door for new account fraud, account takeovers and card-not-present (CNP) fraud. Large-scale data breaches continue to occur, and millions of records are stolen each year. That data can be used to open new credit cards, hijack bank accounts, take out loans and intercept digital payments. And it can take hundreds of hours of effort and months or years of time to fully recover from identity theft.

Still, let’s start at the beginning and see how fraud has grown to threaten everyone from the smallest street vendor to the largest financial institution.

Before money

The Greek philosopher Aristotle reported on the fraud surrounding the enactment of the Seisachtheia, or Solon’s shaking-off of burdens in the 6th century BCE, which released the Greeks from slavery for debts.

Ancient Egypt was cashless until c. 525 BCE, but taxes were still collected in kind — taking the form of either traded goods or forced labour (called corvee). Fraud was a common issue faced by the government of the day, with tax collectors sometimes being punished quite severely for using inaccurate measures to weigh out the quantities of grain to be taxed (thus fooling householders into overpaying their taxes, which could then be skimmed). Theft against the state was considered to be particularly heinous and garnered severe penalties.

Around the same time, a Greek merchant named Hegestratos who sailed the Mediterranean was caught by his ship’s crew trying to sink the vessel in an attempt to defraud a type of shipping insurance called bottomry, which let a ship’s master use the floating keel and hull of the ship itself to back a loan until the ship’s voyage was completed.

This practice forced all risk on to the lender. If the ship sank, the loan to the ship’s owner need not be paid back. While this doubtless helped numerous captains make urgent repairs in the course of long voyages, many ships are doubtless at the bottom of the sea thanks to Hegestratos’ example.

Romans and other Italians …

By 6 AD, money was in common use in many parts of the world, and fraud continued to be an issue for many different walks of life. Cicero’s Verrine Orations attest to the multiple thefts and fraudulent collection of tax proceeds by Verres, the governor of Sicily.

Not long after that, one of the biggest frauds of ancient times was committed by the Praetorian Guard in 193 AD, when they sold the rights to the Roman throne to the highest bidder for 25,000 sesterces per soldier. Unfortunately for the buyer, they didn’t in fact own the empire at the time, so his claim to the throne wasn’t considered valid.

Famous names aren’t exempt from the temptation to commit fraud, and young artists are notorious for struggling to make ends meet. The 20-year-old Michelangelo tried to sell a forged ancient sculpture of a cupid to a cardinal in the Catholic church in 1699.

The Age of Enlightenment and the new world

The period called the Age of Enlightenment (17th and 18th centuries) was a major philosophical and scientific movement. Publications such as Isaac Newton’s epochal accomplishment Principia Mathematica (1687) are said to have ushered in the development of modern science, mathematics and, of course, economics. The colonization of the Americas during the same period vastly expanded both the global economy and the range of opportunities for fraudsters.

Sir Isaac Newton was made Master of the Royal Mint in 1699, a position he held until his death in 1727. One famous incident that kept Sir Isaac busy during his tenure at the mint was the fight against forgers, especially William Challoner, a man who estimated his own forgery output to be around GBP £30,000 when he was hanged in 1699. It took Newton almost two years to catch up with Challoner.

At the other end of Sir Isaac’s career, he became the victim of another common type of fraud in those days when he invested in South Sea Bubble of 1720. The South Sea Bubble is one of the earliest, largest, and most studied instances of investment manias and crashes, according to the Royal Society. Sir Isaac is just one of the many well-known figures who lost their fortunes.

At the bubble’s height, copycat startups pitched all manner of unlikely ventures. Anything with stocks in it flew and flew, no matter how silly the basic scheme. One company planned to shoot square cannon balls, and another wanted money “for carrying on an undertaking of great advantage,” giving no hint as to what this undertaking might be (but it still raised GBP £2,000). All of these ventures, of course, collapsed in spectacular fashion.

Forever blowing bubbles?

Meanwhile, a Scottish financier named John Law narrowly escaped Paris with his life in 1720 when the Mississippi Bubble he created collapsed, almost taking the French government’s treasury with it. The scheme was too complex to explain in full here, but ultimately Law managed to get the French government to convert all of its bad debt to shares in the area that now includes Louisiana, and then sold these shares for paper money at inflated prices, all by claiming that the land was a utopia rather than a dank swamp. The end results left France too afraid to try paper money again for another 80 years and increased the instability that led to the French Revolution.

George Washington wasn’t safe from fraudsters either — in 1792 William Duer was a young member of his inner circle who took advantage of his position and used insider trading information to buy and sell an early form of junk bond, creating a bubble of his own. Ultimately the whole thing collapsed around him, and while Alexander Hamilton was forced to bail out several investors, Duer ended up penniless in a debtors’ jail.

The Cazique of Poyais arrived back in his country of birth, Scotland, in 1821. Born Gregor MacGregor, he proceeded to sell investments and even promises of emigration to Poyais, an invented utopia that represented merely one of his many con artist schemes. Yet another bubble burst.

The heyday of patent medicines

The late 1800s were the heyday of patent medicines. These were outrageous concoctions that at their best did nothing, and at their worst poisoned the hopeful patient with radiation, lead, mercury and more in the name of a miracle cure. Luckily for most patients, a large number of patent medicines only contained alcohol and water. However, there are many recorded instances of “medicines” containing far more deadly substances.

In Part 2, we’ll carry on with a history of fraud in the modern era, starting in the 1900s.

Infographic - History of Fraud

Trulioo GlobalGateway provides identity, document and business verification to help protect companies and their customers from fraud. Learn more about how GlobalGateway is part of fraud prevention programs for retail, online gambling operators and numerous other industries. Get in touch with Trulioo today to find out more about identity verification and how it can help you protect against fraud.

Disclaimer: Trulioo provides no warranty that the information contained in this document is accurate, up to date or complete and in no circumstance does such information constitute legal advice. Any person who intends to rely upon or use the information contained herein in any way is solely responsible for independently verifying the information and obtaining independent expert advice if required.

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