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Business Identity Theft: What Business Owners Must Know

June 05, 2018 by Gary Stockton

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You likely go to great lengths to protect your own identity from fraud and theft. But are you actively protecting your business’s identity as well? Even more importantly, do you make sure you are not doing business with fraudulent companies that have been victims of identity theft themselves?

In many ways it’s harder to protect your business identity than your consumer identity. Information about most businesses is publicly available – and as easy to find as a simple Google search. Because businesses self-report much of their own information, it’s easy for a thief to add their name or address to a company. To make it even easier, many businesses do not protect their EIN the same way as they secure their SSN – which they should.

At first glance, you may think having your personal identity stolen to be more damaging than a business identity. But in fact, the opposite is often true. Business owners often personally guarantee loans, even if the loan turns out to be fraudulent. And then if a business must close its doors due to the losses from the theft, the business owner now has no income and must repay the loan.

How Business Identity Theft Happens

Some thieves steal business identities by purchasing a shell corporation. Others take over a company’s data. But regardless of how the left happens, the criminals often go to great lengths to mirror the company. Some even rent space in the same building as the original company and using the same suppliers. At this point, the fraudulent company can start physically intercepting deliveries as well as applying for loans and credit, posing as the original company.

Criminals start with one piece of information that is real, such as an address or EIN number. And then start operating as if they are the company and changing the data. Criminals often wait patiently while building up their reputation and credit history, then “bust out” with a large amount of fraudulent activity in a short period of time, and then walk away before they are discovered.

Protect Your Own Business Identity

Business owners must constantly monitor their business information to spot red flags that criminals have taken over. The earlier the theft is discovered, the less damage that occurs. Here are three things to look for to spot business identity theft of your own business:

Primary-Experian-Light-Blue-map-icon Look for new addresses added. Check your credit reports and government filings to verify the address. One of the first signs of theft is often a new address added to your business information.
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Verify that new registered owners have not been added. Thieves will often add a new principal — CEO, owner or partner — to the list of owners. The criminals can then conduct business as if they are an owner.

Primary-Experian-Light-Blue-website-icon Check business accounts daily. Use online banking — which also reduces the risk of stolen paper statements — to look for any transactions that you or your employees did not make. Consider setting mobile alerts for suspicious transactions to spot issues even faster.

Verify Your Customers are Not Fraudulent Companies

Before doing business with a company, do a business verification by making sure the company is who they say they are and not a and not a fraudulent company. Since verifications cost time and money, take each customer on a case-by-case basis regarding how deep to dig. If a customer orders $100,000 worth of computer equipment, you should do a more thorough investigation than for a business ordering a single $500 laptop. However, anytime you are extending a line of credit to a company, you should deep dive into a companies' history and data because you are taking on a high risk.

Stacking loans is a common tactic – meaning companies take loans from multiple companies at the same time. Because many companies often verify customers by looking at their relationship with the business, they are verifying in a vacuum instead of seeing the entire picture. By using databases and tools that provide a holistic view of all activity, it becomes much easier to find the fraud.

Here are five things to look for when verifying a company:

  • Verify the EIN number. One scheme is to use a different EIN number and have all other pieces of information the same. Make sure the company you are doing business with is using the same EIN number as the legitimate company.
  • Consider the number of open lines of credit. Because fraudulent companies often open multiple lines of credit at the same time, determine the current amount of open credit. Multiple large lines opened around the same time can be a red flag.
  • Look at the number of sub companies and activity between the companies. Criminals often set up a fraud ring by operating as sub companies underneath a single company. The “companies” then loan money to each other to boost credit scores and credibility.
  • Note for periods of dormancy. When a business identity is first stolen, the criminals set up the company and then go dormant to build credibility through age. The company will then “bust out” by making a lot of transactions very quickly with multiple companies.
  • Look for additional addresses. Check to see if the address you have been given is the same as the company’s headquarters. Multiple similar addresses can be a red flag.

As business identity theft continues to rise, you must keep your eyes open for signs of theft — both with customers and your own business. A single credit check or google search simply isn’t enough. You owe it to your business and your future.

 

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