The heirs of MMM: who will protect the Russians from digital scammers

At the meeting, the heads of the Ministry of Finance, the Ministry of Internal Affairs and other departments reported on the work done, which obviously did not promise the return of lost funds to citizens. But the meaning of what was happening was revealed to me only in the concluding words of the then Deputy Prime Minister for Economics Vladimir Vasilyevich Kadannikov: “Let’s be honest, these pyramids saved us. What would have happened to prices and to the country if they hadn’t nullified the huge mass of people’s money that was not backed by goods?” So I learned that the mass robbery of their fellow citizens by fraudsters can be in the interests of the state. However, one should not be surprised, since by that time the authorities already had experience in depreciating Soviet deposits of citizens.

I remembered this when I read in the message of the Central Bank that in the first half of this year they revealed about a thousand financial pyramids, 6.5 times more than in the same period last year. I involuntarily wondered how likely it is that the epidemic of financial gullibility of Russians thirty years ago will repeat? After all, new generations do not have immunity to the pyramids, acquired then by their parents and the parents of their parents at the cost of losing their savings. Yes, and modern pyramids outwardly do not look like those from the 1990s. The vast majority of them operate online, they collect not so much cash deposits as investments, bets in games and other assets, mostly in the form of cryptocurrencies. However, the “business formula” remains the same: attracting funds from an increasing number of citizens by demonstrating the high profitability of investments of previous participants, which the organizers provide not with successful investments, but with proceeds from new participants. At the same time, the organizers uncontrollably appropriate the lion’s share of the funds raised and doom the bulk of the people involved to the loss of their investments when growth stops and the pyramid collapses. So the pyramid is always a scam, that is, according to the Criminal Code of the Russian Federation, “theft of someone else’s property or the acquisition of the right to someone else’s property by deceit or breach of trust.”

Criminal statistics show that fraud flourishes when there are significant changes in people’s living conditions and many lose their usual bearings. This was the case at the beginning of the covid pandemic, when in the first half of 2020 the number of criminal cases under “fraudulent” articles increased by 38% over the year, and all this growth was provided by high-tech fraud: telephone and on the Internet, the number of which increased by three quarters.

And now the Central Bank explains the rapid growth of risks for consumers of financial services in recent months by “peculiarities of the economic situation.” This applies not only to the pyramid schemes, the same report notes a threefold increase in the number of illegal professional participants in the securities market over the year, and the number of illegal creditors has doubled. Moreover, both illegal brokers and illegal creditors often represent a group of people with a common task – to extract the maximum of his funds from the consumer who has contacted them, and if they are not there or when they run out, involve him in debt slavery.

But the 2020s are not the 1990s, and I find it hard to believe that the state will allow fraudsters to rob citizens on such a scale as they did then. What does it do? The Central Bank, as a regulator and the main supervisory authority in the financial market, has created a monitoring system that allows you to quickly identify risks for consumers of financial services and systematically replenish the list of companies published on its website with identified signs of illegal activity in the financial market. For consumers who intend to give money to someone, the Central Bank recommends that they first check this list to see if the counterparty is on it. However, it is worth noting that all this was presented to the public back in June last year, and at the end of the year the law on pre-trial blocking of websites of financial pyramids came into force. Nevertheless, according to the Central Bank, the risks for consumers in the financial market have tripled over the year.

Why this is so becomes clearer when you read in the same official statement that in the first half of 2022, as a result of consideration of materials sent by the regulator, more than 45 criminal and about 200 administrative cases were initiated, more than 365 submissions were sent to eliminate violations of the law and statements of claim , domain delegation was canceled or access to more than 3.5 thousand sites of illegal participants in the financial market and financial pyramids was restricted. Of these numbers, perhaps only the last is comparable to the number of 2.3 thousand sources of risk for consumers identified over six months. But is it difficult for the owners of sites closed by the supervisory authority to open new ones if nothing threatens them themselves? And 45 criminal cases speak of an extremely negligible level of risk for fraudsters. Why should they refuse such a profitable “work with citizens” in the country’s financial market?

Anyone can become a victim of scammers, but older people are more likely than others, often very gullible and suggestible, who do not have the skills to protect themselves from risks when using digital services. For them, such losses may be irreplaceable. And this is not only money, it is also an outrageous humiliation that undermines the will to live. Not all victims manage to survive this without significant damage to health. It would be fair to single out fraudulent acts committed against the elderly in the Criminal Code in a separate composition, providing for higher liability. But it is clear that this will not help if the vast majority of such crimes go unpunished.

There are scammers everywhere. How are they dealt with in other countries? At one time, I happened to get acquainted with the experience of the United States in consumer protection. It turned out that the same authority that is responsible for protecting competition, the Federal Trade Commission, is responsible for this. Its member Bureau of Consumer Protection not only investigates consumer complaints, but also continuously monitors advertising, including financial products and practices, for suspicious offerings. Having found such, Bureau employees check them for possible fraud against consumers, including using the “mystery shopper” method. And if the suspicion is confirmed, they ban such advertising by their decision or through lawsuits, impose huge fines and close firms, with the participation of the Ministry of Justice, bring the perpetrators to criminal liability, up to serious prison terms.

In our country, control over advertising is entrusted to the Federal Antimonopoly Service, but it is ineffective against fraudsters, whose advertising, as a rule, does not have formal signs of bad faith, and the FAS has neither the authority nor the resources to investigate the intentions of advertisers. Neither the Central Bank, which knows how to detect suspicious offers and has the right to initiate the closure of websites, nor Rospotrebnadzor, where affected consumers also apply, do not have such powers. This plays into the hands of fraudsters, and as a result, we increasingly hear about victims of such crimes that were not prevented, the damage from which was not compensated, and those who committed them were not punished.

The authorities seem to be hoping to achieve universal financial literacy, in which many billions have been invested over the past twenty years, but the results are not visible. I think, because it is necessary to start mastering it from the elementary grades of the school, using the programs of various subjects of the school course for this. But who will teach this to school teachers? And who will create effective programs to educate the elderly, who are meaningless to teach like schoolchildren who have mastered the Internet before arithmetic?

But the main thing is to ensure, if not inevitability, then at least a high probability of punishment for fraudulent actions against citizens. In order to prevent the theft of tens or hundreds of billions of rubles from them, it is necessary to invest significantly more budget funds in the identification and prosecution of criminals than now. The Ministry of Internal Affairs is clearly unable to cope with the load, only in the financial sector has grown, judging by the data of the Central Bank, threefold. Moreover, even before the resolution of such cases was extremely low. But the simple addition of money and staff positions is unlikely to help if there are no effective investigation algorithms and motivation to deal with such cases. Therefore, it might be worthwhile to give the Bank of Russia the right to pay specialized companies and private detectives remuneration for actions that made it possible to identify fraudsters, bring them to justice and compensate their victims for at least part of the harm suffered. And the amount of remuneration could be calculated as a certain percentage of the reimbursed funds.