Individual identity theft has received a lot of press in recent years, but what about the theft of a business’ identity? Business identity theft is proving to be easier and more lucrative than stealing a consumer’s identity.
In 2014, JP Morgan Chase acknowledged a massive data breach that affected 76 million households and 7 million small businesses.
Business theft occurs when criminals pose as owners or employees to obtain cash, credit and loans. And the theft may not be discovered until there are significant losses. Now, the owner is saddled with debt and could even lose assets that were fraudulently pledged to secure these loans.
One small business owner discovered his company information had been breached when he received a phone call that the electric bill for one of his office buildings hadn’t been paid. He hadn’t received the bill because the building had been sold without his knowledge. A criminal had falsified the company’s board minutes making himself the new CEO, sold the building to an accomplice and walked away with the proceeds from the sale.
Criminals gain access to business’ bank accounts or credit cards by stealing the company’s Tax Identification number (TIN), Employer Identification Number (EIN) or the owner’s Social Security number (SSN). In 2011 alone, 277,624 of reported EINs used on tax returns had been stolen from legitimate businesses.
Examples of business identity theft include:
Establishing temporary office space or merchant accounts in business’ name.
Establishing new lines of credit or exhausting existing lines of credit.
Purchasing business equipment, commercial electronics, gift cards, etc.
Scamming employees or using phishing attacks to obtain business banking or credit information.
Filing bogus documents with the Secretary of State’s office in order to change the business’ address or names of managers, allowing for establishing lines of credit.
Any type of business or organization could be targeted including: sole-proprietorships, LLCs, partnerships, trusts, nonprofits or corporations. Small to medium-sized businesses are the most vulnerable because they typically don’t have multiple levels of security in place allowing for easier and quicker financial gain for the criminals. Believe it or not, many of the culprits of business identity theft include street gangs, drug cartels or even organized crime groups.
Why are businesses being targeted?
Businesses typically have larger bank account balances than individuals.
It’s easier for a business to establish credit.
Businesses receive payments terms – as much as 30 days. This gives the criminal a 30-day head start.
Business credit cards normally have higher limits.
Large business purchases are under less scrutiny than individual consumer purchases.
Business identifying information is easily attained. Some information is a matter of public record.
Some businesses can’t withstand the financial impact of their identities being stolen. Losses can run from tens of thousands to hundreds of thousands of dollars. Depending upon the severity of the theft, some of these victims are left insolvent and must close their doors.
In our April article on identity theft, we will outline how a business’ stolen EIN can be used for tax fraud. And in our third and final segment, we will focus on what preventative measures you should take to minimize your vulnerability to becoming a victim.
Patrick Smith is a tax senior with Alerding CPA Group in Indianapolis.