The Risks of Second-Party Fraud and How to Avoid It

Second-party fraud occurs when you willingly provide PII to a scammer to facilitate any illegal transaction or activity.¹ PII is any information that can directly or indirectly be used to identify an individual, like your name, address, social security number, bank account information, or other proprietary details.

You are committing second-party fraud if you allow or facilitate the illegal use of your identity, contact details, and/or bank account. By willingly committing a criminal offense, you can be held responsible for fraud that uses your PII.

The most common way your details can be used for illegal purposes is when you agree to sell your PII. Bad actors can then use your information for account access, money laundering, or to obtain fraudulent loans.

Criminals may, for example, offer to share the profits for using you as a “money mule” to move stolen funds between accounts or across borders. Regardless of how the fraud is committed, you are also accountable for the criminal activity if you participate.

Second-party fraud involves an insider providing a bad actor with some level of authorized access to commit a crime. You are not a victim if you willingly participate in second-party fraud.

By contrast, third-party fraud is committed by an outside party without any direct relationship to the victim. The perpetrator in this type of fraud may gain access to the victim’s accounts or information through devious means, such as data breaches, phishing scams, or identity theft. Bank fraud is a common type of third-party criminal activity.

Both types of fraud can have significant financial consequences, but if you participate in second-party fraud it can have serious criminal repercussions.

There are rarely, if ever, legitimate reasons that any third party would randomly ask you to share PII with them. Any unsolicited request should be viewed with caution and verified. Most importantly, an offer to pay you for the use of your PII is a red flag for fraud.

While there are different types of second-party fraud, the common denominator is that you have to knowingly participate by giving or selling your PII to a fraudster. Common forms of collusive fraud include social media, romance, and tax fraud scams.

Social media schemes

Second-party fraud often starts when a scammer contacts you through social media with the promise of easy money. They might, for instance, ask to use your bank account for deposits in exchange for a percentage of the proceeds that are laundered through your account.

It’s important to be cautious when interacting with strangers online. Social media often enables bad actors to build trust, obtain your PII, and privately message you. Three common social media tactics include:

• Building trust: Social media platforms enable fraudsters to connect with their targets online. Fake profiles or compromised accounts of friends and family are sometimes used to create a false sense of trust.
• Information sharing: Social media allows the sharing of personal details – like birthdays, addresses, and other PII – that can make it easier for scammers to establish a connection. Bad actors may use your public-facing information as a way to create a connection with you. But the real danger comes when a stranger begins asking you to share private information, like account numbers and passwords, that can potentially give them access to secure accounts.
• Private messaging: Direct messaging can make it easier for criminals to personalize interactions and manipulate you into participating in second-party fraud. Scammers involved in second-party fraud are looking for ways to convince you to become a willing participant in a criminal activity. That makes it especially important not to be influenced by private messages that seek to quickly establish a friendship.

Romance scams

Romance scams involve criminals creating fake online identities to deceive victims into forming emotional connections. These scammers often seem genuine and caring. You might meet them on dating apps or social media platforms, where their goal is to establish trust and manipulate you. Bad actors may involve you in criminal activities by professing love, proposing marriage, planning meetings, or other empty promises. But they will usually only communicate with you via text messaging, rarely by video, and never in person.

These romance scams often lead to your new “friend” fabricating reasons for needing financial assistance. Their ultimate goal is to convince you to share sensitive information, like bank account details. Providing any PII, especially bank account information, can enable scammers to involve you in second-party fraud activities.

Scammers nurture online relationships to gain access to your personal and account details. Keep in mind that any situation in which you are compensated for illegal activity makes you a participant in second-party fraud.

Remember, collusive fraud is different from third-party fraud in which you are the victim. Third-party fraud is the result of a bad actor using your PII or financial accounts without your permission. Second-party fraud is the result of your direct participation in a criminal activity.

Tax fraud

This type of fraud involves criminals paying you for PII that is then used to file fake tax returns using your name and Social Security number. Second-party tax fraud involves using your PII, fraudulent W-2 forms, and the online filing of a bogus tax return. The goal is to collect inflated tax refunds.

Once these bad actors obtain sensitive information from you, they can use your PII to file a tax return using a false address or post office box. The pay-off for them is a refund check from the government.

Enabling a third party to file a false tax return using your PII is a form of second-party fraud and could result in serious legal consequences.

Also, keep in mind that the IRS will never call to demand your Social Security number or bank account information over the phone. Most official IRS communication will arrive in the mail.²

The best way to avoid fraud is to know how to spot it. Below are some telltale signs of second-party fraud. Red flags that you may be involved in or seeing a collusive fraud scheme include:

• Requests for bank account information, money transfers, or account access from anyone you don’t know well.
• Offers that seem too good to be true, such as guaranteed returns or cash payments that involve sharing your PII.
• Pressure to act quickly or keep your actions secret.

While scammers can make second-party fraud seem low-risk and high-reward, the actual risks associated with any illicit financial shenanigans are significant and can lead to severe legal and financial repercussions.

Here are the risks of participating in collusive fraud:

• Depending on the severity of the fraud, you could face criminal charges. According to the FBI, “money mules” who participate in collusive fraud risk being charged with mail fraud, wire fraud, bank fraud, money laundering, and aggravated identity theft.³ Criminal prosecution is possible depending on your level of willful participation and the resulting losses of your victims.
• You could also face criminal charges if you knowingly engage in deception, make a false statement, or your actions result in an individual, business, or government agency suffering a loss due to fraudulent activity.
• Suppose the IRS fails to identify a fraudulent tax return using your Social Security number and sends a refund check to scammers. In that case, the IRS will probably reject your real tax return, and you could be liable for tax fraud.
• Participating in second-party fraud could lead to personal financial loss. In addition to swindling others, bad actors may steal money from your accounts, leave you liable for unauthorized transactions, or involve you in crimes that could put you in jail.
• At a minimum, participating in collusive fraud will compromise your personal information and financial accounts.

The penalties for fraud depend upon the type of fraud, the number of victims, and the amount of financial loss. Punishment could involve a prison sentence, a requirement to provide restitution to the victim, and fines.

If you suspect someone is attempting to recruit you for fraudulent activity, or you realize you have been manipulated, you should report it immediately, if possible.

You can file reports with the FBI’s Internet Crime Complaint Center, the Federal Trade Commission, and your local law enforcement authorities.⁴ The sooner you report the illegal activity, the better the chances of limiting losses and potential legal issues.

Avoiding participation in second-party fraud starts with awareness of common techniques fraudsters use to commit fraud. Be wary of any offers to pay you for money transfers or account access, and report any suspicious interactions to your bank and law enforcement.

Learn more about protecting yourself from frauds and scams, and find out more about Chime’s commitment to member trust and safety.