07.05.2024 - Crowdfunding platforms have revolutionised the way in which creative projects and innovations can generate financial support. However, even these crowdfunding platforms are not immune to fraudulent practices. Fraud attempts can hinder crowdfunding campaigns or diminish the trust of potential donors. It is therefore important that campaign organisers and donors are aware of the risks, remain vigilant and protect themselves against fraud attempts.
Cyber criminals active on crowdfunding platforms primarily target potential donors. In amongst the many reputable campaigns, there are also dubious schemes promoting fake projects. The money donated through to fake projects is not used in the stated manner, but is embezzled by the criminals. So it’s important that donors read the information about the crowdfunding project carefully and assess whether the details provided are plausible. Most crowdfunding platforms have a comment function. Such comments can give a valuable indication of how serious the fundraising campaign is.
Threats made against organisers
But even the initiators of crowdfunding campaigns are not immune to fraud attempts, as a case reported to the NCSC last week shows.
Attempts to defraud the organisers are often based on the ‘all or nothing’ principle of crowdfunding platforms. The campaign initiators set themselves a financial target of how much money they want to raise. If that target is reached, all of the donors pay. However, if the target is not reached, nobody pays. Another important feature of crowdfunding platforms is that the commitment to participate financially in a project is not definitive. As long as the project is still live and the donation period is running, anyone can withdraw their contribution at any time. These two features can be exploited by fraudsters to manipulate fundraising campaigns and threaten the organiser.
In the current case, the fraudsters donated large amounts to the crowdfunding campaign without really intending to honour the promised donations.
After they had pledged their "donation", the scammers contacted the campaign organiser and demanded payment of a sum in cryptocurrency in return for not withdrawing their "donation", which would cause the campaign to fail. In so doing, the fraudsters have full control over the organiser as they could simply pull out shortly before the end of the campaign, thereby sabotaging the financing of the entire project and so bringing it to an end. This puts the organiser under great pressure, as such a withdrawal can also have further-reaching consequences. The withdrawal of a major donor could lead to a general loss of confidence among donors placing the crowdfunding campaign in question. In the worst-case scenario, this can lead to the failure of the project.
On some crowdfunding platforms, credit cards are only checked for validity by debiting a small amount and refunding it. The full amount is only debited once the fundraising project has been successfully completed. Only then is it clear whether the full amount can be debited. Fraudsters therefore use cards that have been stolen or that have insufficient funds.
Be vigilant
Crowdfunding platforms can be hugely beneficial in helping to launch innovative projects, but also harbour considerable risks of fraud. Anyone involved in projects funded through such platforms should be aware of the potential risks. Awareness and good preparation can be vital in ensuring the security of these creative and collaborative platforms.
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Last modification 07.05.2024
