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Types of Fraud Overview: Wire, Tax, Insurance, ID Theft

Fraud is a serious state and federal crime that costs the economy billions of dollars each year. Perpetrators are subject to serious fines as well as jail time. Fraud can take on many different forms, four of which we will explore in this article.

What Is Fraud?

Fraud is the use of intentional deception to gain something of value, typically money. Fraud is committed through misrepresentation, false statements, and/or dishonest conduct intended to mislead or deceive. 

Fraud is both a civil tort and a criminal wrong. Fraud criminals can be prosecuted in criminal court by the government, but victims of fraud can also file civil lawsuits against the offender to recover damages. Sometimes, a person accused of fraud may be faced with both criminal and civil actions. 

In order to convict a defendant of fraud, the prosecution must prove:

  • Purposeful deception
  • Intent to deprive the victim of something, usually money
  • That the victim suffered, or could have suffered, an actual loss as a result of the fraudulent activity 

The exact penalties for fraud depend on a number of factors including:

  • The type of fraud
  • The number of victims
  • The amount of financial loss

That being said, punishment usually includes a prison sentence, restitution, and fines.

Types of Fraud

There are many types of fraud, including:

  • Identity theft
  • Credit card fraud
  • Debit card account fraud
  • Mail fraud
  • Medicare fraud
  • Healthcare fraud
  • Wire fraud
  • Sweepstakes fraud
  • Insurance fraud
  • Telemarketing fraud
  • Tax evasion

Below, we’ll review some of the most common types of fraud: wire fraud, tax fraud, insurance fraud, and identity theft.

Wire Fraud

Wire fraud is fraud through any form of telecommunication, including:

  • Phone
  • Fax
  • Text message
  • Radio
  • Television
  • Internet
  • Social media
  • Email

Because telecommunications are an instrument of interstate commerce, wire fraud is one of the most common federal criminal charges. It is typically investigated by the Federal Bureau of Investigation (FBI) or the Federal Trade Commission.

According to the U.S. Department of Justice wire fraud statute (18 U.S.C. 1343), there are four elements of wire fraud:

  • The defendant created or participated in a scheme to defraud another out of money or property
  • The defendant did so with the intent to defraud
  • It was reasonably foreseeable that the defendant would use wire communications
  • The defendant did, in fact, use interstate wire communications

Wire fraud carries a penalty of up to a $250,000 fine for individuals and a $500,000 fine for organizations, as well as up to 20 years of imprisonment. Additional penalties apply if the wire fraud is related to a presidentially declared major disaster or involves a financial institution.

Tax Fraud

According to the IRS, tax fraud is “the willful and material submission of false statements or false documents in connection with an application and/or return."

Indicators of tax fraud include:

  • Underreporting income
  • Using a false Social Security number
  • Falsifying documents
  • Intentionally failing to pay taxes

In the absence of these indicators, the IRS will usually assume that the person made an unintentional mistake due to negligence, which does not typically lead to criminal charges.

Penalties for common tax fraud crimes include:

  • Fraudulent failure to file a tax return - 15% of the net tax due for each month up to five months with a maximum penalty of 75% of the unpaid tax
  • Filing a fraudulent tax return - 75% of the underpayment amount
  • Tax evasion - Maximum five years imprisonment and a fine of up to $100,000 for individuals or $500,000 for corporations
  • Willful failure to pay tax, failure to file, or failure to keep sufficient records - Maximum one-year imprisonment and h a potential fine of up to $25,000 for individuals or $100,000 for corporations

Insurance Fraud

Insurance fraud is any duplicitous act performed with the intent to obtain improper payment from an insurer. The estimated annual cost of insurance fraud is $80 billion.

There are three main types of insurance fraud:

  • False statements on a policy application or renewal application - Lying on a policy application to get insurance one does not qualify for or to set up a later false claim
  • False statements on a claim form - Lying on a claim form to qualify for a reimbursement one is not eligible for. This can include inaccurately describing a loss, inflating the value of damages, or inventing property that one never owned
  • Offering or accepting a bribe in connection with a bogus claim - Conspiring to enable or hide an incident of insurance fraud 

To convict somebody of insurance fraud, the prosecution must be able to prove that:

  • The accused knowingly made a false or misleading statement
  • The misleading statement was made with the intent to deceive
  • The false statement was made in connection with an application, claim, or payment
  • The false statement had an impact on the outcome of the application or claim

Sentences for insurance fraud vary from state to state, with sentences often being greater for a higher value of the fraud. In California, for example, insurance fraud is a felony that can be punished with up to five years in state prison and a $50,000 fine.

Identity Fraud

Identity theft and identity fraud are crimes in which a person wrongfully obtains and uses another’s personal data in a way that involves fraud or deception, usually for economic gain. 

Identity fraud includes actions such as:

  • Using another person's identifying information without their permission for the purpose of committing fraud or some other crime
  • Check fraud
  • Immigration fraud
  • Postal fraud
  • Medical fraud
  • Forgery

Identity theft is a federal crime prosecuted by a number of government agencies, including:

  • Internal Revenue Service (IRS)
  • Federal Trade Commission (FTC)
  • Federal Bureau of Investigation (FBI)
  • Secret Service
  • Postal Inspection Service

The maximum penalty for violating federal identity theft laws is up to 15 years in jail, with the possibility of heavy fines. Offenders may also be required to pay restitution to their victim(s).

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