Online Escrow Scams – Buyer Beware!

During transactions online, an escrow service is often used to ensure security to both the buyer and seller. This is most common when the parties do not have any reason to trust each other, as they do not know each other personally. Because blindly sending money to somebody you do not know is never a good idea, the concept of escrow is ideal for long-distance transactions.

How escrow works

Both parties will send their items (or payment as the case may be) to the escrow service which will keep them until the both parties meet their part of the deal. Once both side’s obligations are met, the goods or money will be sent on to the relevant recipient. If either party fails on the deal, the escrow service will return the sent item or funds to the party which complied.

How escrow scammers operate

Unfortunately this system, while very efficient, is easy to scam. The con artist will request the parties use an escrow service which actually does not exist, or rather is self-operated.  The fake escrow service will notify the victim that the scammer has completed his part of the deal and the target should send the item or funds due.

Once the scammer has received the item he will close the escrow service down, delete the site, and then blame the escrow service, claiming he has also lost out as the site has closed. There is little the victim can do, and many times he may even believe the scam.

Let’s look at an example:

The conman will advertise a high price item such a piece of jewellery on eBay at a bargain price. The victim contacts the fraudster for more information, and learns there is a very good reason why the item is reduced; such as the seller has recently lost his job and needs funds urgently.

The scammer will suggest using an escrow service so both parties are confident of receiving their part of the deal. He will then direct the buyer to a fake escrow site, or perhaps use the name of a legitimate service, and send a spoofed email (which appears to come from the service) instructing the buyer to transfer the monies. Instead of going to a legitimate escrow service, the funds are actually sent directly to the scammer, who will subsequently either disappear or claim that he too was a victim of the escrow service.

This type of scam was a big problem for eBay in the earlier years, and although the site has done their utmost to improve security for buyers, unfortunately the strict rules they have in place now means sellers are open to abuse.

Due diligence

As you can see from this brief example, it is vital that before using any online escrow service you do your due diligence – licensed and legitimate companies offering excellent escrow services are out there.

Please note: This post is not meant to substitute qualified legal advice given by a specialist; it should be used for informational purposes only.