Fraud & Misrepresentation

Protecting a Business from Identity Fraud

medium_4964468959On February 28, 2012, Brandon Lee Price was charged with wire fraud in connection with his unauthorized use of Microsoft founder Paul Allen’s debit card. Price is a U.S. Army deserter who used Allen’s debit card to attempt over $15,000.00 in transactions.  He obtained the card by calling Allen’s bank and changing the address and telephone number on the account, and then ordering a replacement debit card. In late 2013, Mr. Price pled guilty and received eight month’s incarceration.

Threat of Identify Fraud: Identity theft like this occurs when an impersonator uses a victim’s personal information to gain access to their property or credit. The prevalence of identity theft is well-documented: the Federal Trade Commission received almost 280,000 reports of identity theft in 2011. The damage from identify fraud extends far beyond the credit scores or bank accounts of the consumer. When these schemes involve a credit transaction financed through the retailer, the business from whom the goods are purchased often recovers neither the goods nor the purchase price. Consumers protect themselves from identity theft by monitoring their credit reports, safeguarding their personal information (such as dates of birth and social security numbers) and so on.  Identity fraud poses a special risk to a small or medium-sized business for which every transaction has significance for the financial health of the company. The state and federal regulations pertaining to identity theft change frequently. Many anti-identity theft laws protecting consumers do not extend their protections to businesses. Fortunately, protecting your business from identity theft does not necessarily require inordinate amounts of effort. In many cases, implementing a few simple strategies can avoid future losses of inventory, time and money.

Personal ID Theft: On a superficial level, an individual person is a human organism distinguished from others by such characteristics as name, date of birth, social security number or taxpayer identification number, address and citizenship. Unfortunately, in contemporary life necessity requires important things like credit evaluation and access to bank accounts are handled on this level. This bundle of descriptive information about a person cannot be truly “stolen” because it isn’t transferable in the sense of tangible property. When an individual person has their identity “stolen,” really what is happening is a form of fraud whereby the victim is impersonated for financial gain.

Business Entity ID Theft: The identity of a business is more complex. A for-profit corporation or LLC is a set of business relationships surrounding the property of the business.  A corporation, Limited Liability Company or other business entity is treated as a “person” under property laws.  If a for-profit corporation is a “person,” then it is a slave of the shareholders. Since a business association is a form of property where ownership, management and representation are usually divided amongst different individuals, it is uniquely vulnerable to identity fraud.  The identifiers of a business include its name, state of incorporation, principal business address, taxpayer identification number or employer identification number, trade names and marks.  The authority to use these identifiers is particularly susceptible to deception (or user error) because there usually are multiple individuals possessing the authority to use them.

To protect a business from identity fraud, management must safeguard the use of its EIN/TIN and branding. Organizational documents, plans and manuals must establish who possesses the authority to contractually bind the company in its relationships with customers and vendors.

This post begins a series about Business Identity Fraud. The next post in the series will explore the value of verifying and safeguarding the identity of the customer.

photo credit: kenteegardin via photopin cc

John Colby Cowherd
John Colby Cowherd
Attorney protecting the rights of Virginia & D.C. property owners. Cowherd PLC (703) 884-2894