Show Me the Money

Foreign Lottery Scams Hit the Jackpot in U.S.

Sidebar: Why Canada?...view

Sidebar: Skip The Jackpot ...view

Sean Pearcy was feeling lucky. Very lucky.

On Oct. 1, the Bismarck, N.D., resident received an e-mail from "Lucky 7 Lottery" announcing he’d won a $2.7 million jackpot. The message included a flurry of instructions. "In order to avoid unnecessary delays" in collecting his winnings, it said, Pearcy should promptly e-mail a lottery official named David Thomas with the 16-digit "reference number" he had received.

Pearcy was skeptical but thought he had nothing to lose – even as the steps required to claim his prospective winnings grew more complex. "To qualify for your prize money," came the response from Thomas, "you are expected to fill our prize winning claims form B0-7 via this link." That Web link led to an online questionnaire that asked Pearcy for his home address, phone number and employment information. It even included a box to check if he wished to give a press conference.

Although he did not yet realize it, Pearcy was being drawn into an increasingly common scheme in which international fraudsters use e-mail, in conjunction with letters and phone calls, to convince victims they’ve won an overseas lottery. The scammers’ goal, law enforcement officials say, is to trick consumers into sharing bank-account numbers or paying up-front fees to claim winnings that never materialize.

"A lot of the lottery scams emanate from Vancouver and Montreal," says Charles Harwood, director of the Federal Trade Commission's Seattle office, which has traced many scams to Canada – a relative haven for suspects because of extradition laws. [See Sidebar: Why Canada?]

Gaming the Victim

Harwood says the more skillful con artists rarely come right out and ask their victims for sensitive information. Instead, like "Nigerian" or "419" scammers, they often draw consumers into a web of fake red tape that looks official and leaves heads spinning.

Sean Pearcy’s case illustrates how many of these schemes unfold. A few days after filling out his online "claim form," Pearcy received several more e-mail communications from an ever-larger, and ever more foreign-sounding, cast of characters – "Mr. Ndoulou Granger" in South Africa, "Ms. Blanc Fernandez" in Monaco – each asking him to verify some bit of information.

Finally, on Oct. 14, Pearcy received a message letter from the "Unie De Banque Monaco," titled "PAYMENT ORDER ENDORSEMENT NO TZ72201049." All he had to do, he was now advised, was get the transaction notarized. Since this was a foreign lottery, he now learned, the officials had taken the liberty of hiring "Barrister Petts Richard and Associates" in South Africa on his behalf. They had even attached a copy of an official-looking, graphics-laden electronic letter asking the firm to disburse the funds.

Pearcy was given an overseas number to call Richard in Johannesburg, but when Pearcy dialed, he noted the phone number was short one digit. On Oct. 19, Pearcy received an e-mail from Richard asking for scanned copies of his driver's license or passport – and a check for $2,170 as a "legal and administrative cost."

Fortunately, Pearcy had already used www.whois.org, a public online database, to see who owned the Web name of the lottery company lucky-7lotto.net. That record gave him a Winnetaka, Calif., address, phone number, and the end of his high hopes.

“I called the number, and a woman just answered, 'Yeah?'" Pearcy says. "That 'yeah' kind of threw me right there. And then she wouldn’t tell me anything.”

Spam, Phone and Snail Mail

Harwood says fraudsters will usually ask recipients, like Pearcy, to wire money – from small fees of $25 to larger payments of several thousand dollars – via Western Union to cover taxes, a "release fee" or vague "legal costs." There’s the additional danger of identity theft: Many persuade consumers to share personal information, such as Social Security numbers, which can be used to open credit-card accounts in the victim’s name.

Unlike Pearcy, some victims have fallen hard – as was the case last May with an Indiana University student who sent $18,804 in multiple payments after he received a winning notification from a "Euro America" sweepstakes. Another victim, an elderly woman in Lodi, Calif., actually received what turned out to be a bogus winnings check. Believing the check was real, she mailed back more than $250,000 from her savings to pay the “taxes” before realizing her colossal mistake.

And the lottery scams are increasingly finding victims through combinations of phone calls, e-mail and regular mail. In 2002, the U.S. Postal Inspection Service received 13,034 complaints of Internet fraud with a mail tie-in. That figure rose to 18,534 complaints in 2003, and jumped 9% by May 2004.

The advent of online phone directories and sales of e-mail lists among spammers have made the problem common across the country, even in rural areas such as Bond County, Ill. On Oct. 12, two Bond County residents received winning award notices – each for $615,810 – from differently named Spanish "lotteries."

James Stever, an investigator in the Bond County state attorney’s office, says he has received between four and seven similar scam complaints a week over the last two years.

"Most of these in our area want your bank account number," Stever says. "We’re a small county with eight to 12 banks. We tell them there’s no bank that would call you by the phone or [contact you via the] Internet wanting your account number, as they’ve already got it. We say, ‘If you have any question, call your bank or get a hold of the police.'"
The FTC has also issued a warning about a related lottery scam in which the con artists use the phone, direct mail and e-mail to pitch U.S. consumers opportunities to buy tickets in foreign lotteries – an industry that now rakes in $120 million a year. Even if the tickets are real, the transaction violates federal law, which makes cross-border sales or purchase of lottery tickets subject to a $1,000 fine and up to two years in prison.

"It’s illegal," says FTC spokeswoman Brenda Mack. “Even if somebody [in the U.S.] won a foreign lottery, they wouldn’t be able to claim it.”

Sidebar: Why Canada?

While the fake-lottery schemes predate the Internet, the rise of e-mail has allowed scam artists to operate from half a world away – including Spain, France, Australia, Eastern Europe and East Africa. But authorities say most U.S. online lottery scam activity originates in Canada, where scammers benefit from the common English language and easier access to U.S. phone information. This month, the Federal Trade Commission (FTC) recovered $1.2 million from 45 Canadian operations in Vancouver alone.

"There are organized crime elements to them," says the FTC’s Charles Harwood. “There’s a tendency to exchange ‘sucker lists’ and information between these ‘boiler rooms.’ You’ll see the same techniques."

Sidebar: Skip the Jackpot

The Federal Trade Commission (FTC) and the U.S. Postal Inspection Service offer several tips to avoid getting suckered by fake-lottery scams:

• Don’t enter an online contest unless you’re sure the company that runs it is legitimate, and even then, read their privacy policy to see if your information will be sold to marketers. “Some scammers run contests to get additional names,” says the FTC’s Charles Harwood.
  
• Watch out for "phishing" sites that bear brand-name companies’ logos but request very sensitive personal information, such as bank account or Social Security numbers. “A bogus site that looks very official may have an option that says, ‘I would like to be paid by a bank transfer’ and ask for your account number,” says Harwood.
  
• Never make advance payments to receive a "prize" in a sweepstakes.
  
• Don't provide personal or financial information online, especially for a contest you never entered.
  
• Ignore contests that pressure you into responding right away.
  
• Remember: Federal law prohibits mailing payments to purchase any ticket, share, or chance in a foreign lottery.

Robertson Barrett, a media consultant and writer, was a founder and managing editor of TIME.com and ABCNEWS.com. He was also vice president and general manager of The FeedRoom, a nationwide broadband news network in partnership with NBC and Tribune, and of Channel One Interactive, the educational television network's new media division.

In October 2002, he wrote about spyware and Internet "washers"for Consumer Reports WebWatch.