The Web of Fraud: How the Internet Exposes Nation-States' Weaknesses
From Kolkata to Paris: the Silent War Between Scammers and States
Note : this article is the 11th in a series on the disruption of nation-states by the Internet.
Here are the fourteen articles in the series:
How the Internet makes Governments Impotent to Tackle Bottlenecks
How cryptocurrencies are disrupting Nation-States, part 1 of 2
How cryptocurrencies are disrupting Nation-States, part 2 of 2
Digital Shadows: How the Internet Empowers Anonymity and Challenges Governments
How the Internet prevents governments from enforcing their laws
Where it hurts most: how the Internet makes it harder for governments to collect taxes
The Web of Fraud: How the Internet Exposes Nation-States' Weaknesses
I shared with you in the last article that no entrepreneur I know who lives in an American country pays VAT in Europe, even though this has been required in theory since 2003, and that some of them have sold tens of millions of euros worth of products there.
However, the vast majority of them do not deliberately defraud: they simply don't know about it, and neither does their accountant.
But I've also told you that none of them have received any communication on this subject from European tax authorities... and, really, I know several dozen of them very well, and I've had the opportunity to discuss this subject with several hundred of them, and ask them if they know of any entrepreneurial friends who had received a letter or email on this subject.
Answer: nothing, nada.
So the question arises: if people who don't deliberately defraud can avoid paying millions of euros in a supposedly vital tax without being bothered, what about people who deliberately defraud and take precautions?
Clearly, the smartest fraudsters have realized that by adding borders to their system, they make it very difficult for nation-states to fight them, and even to identify them in the first place.
For it is already obviously not easy for nation-states to identify and fight against "just" national fraudsters: for example, it was estimated in 2018 that a company subject to corporate income tax in France was audited on site on average every 50 years in 2018, and every 31 years in 2008, and every 66 years for individuals in 2018, compared with 44 years in 20081 .
In the United States, between 2012 and 2020, 0.49% of individual taxpayers and 0.84% of corporate taxpayers2, i.e. an average audit every 204 years for an individual, and every 119 years for a company.
So imagine when fraudsters, who have studied these figures, use companies set up abroad, for a year or a few years, while possibly changing countries too?
How are nation-states supposed to investigate and prosecute them?
Note that I'm not saying it's impossible: but it requires far greater resources and coordination than for single-country fraudsters, and we've just seen that the authorities are already having trouble controlling all the entities on their territory.
Tax fraud
I talked in detail about VAT fraud on e-commerce and digital products in my previous article, so I won't go into that again here, and will focus instead on non-tax fraud.
Fraud in e-commerce
And even without using temporary establishments and changing countries regularly, the simple fact of being abroad creates huge friction for local authorities: it is estimated, for example, that 26 million French people were victims of fraud when buying abroad, out of the 40 million people who bought online in 20203 .
An investigation by the French fraud control authority into products from abroad (often from China) sold via marketplaces showed that, "of the 152 products analyzed, 65 were found to be dangerous (43%), and 51 (24%), although harmless, did not meet the compliance criteria imposed by regulations".
And to put it bluntly: "on the five marketplaces concerned by more than 20 samples, the proportion of anomalous products exceeds 50%, and can reach up to 80% in some cases. The proportion of dangerous products ranges from 22% to 58%4 ."
In fact, one marketplace stood out so much for its rate of non-compliant products, that it was outright banned from the French Internet: the American site Wish.com.
The authorities first asked the site to comply, then, in the face of its deafening silence, simply asked search engines to dereference the site, and application stores such as the App Store or Google Store to withdraw the application for any user located in France.
A victory for nation-states? Yes.
But : all you have to do is start up a VPN to access the site and order whatever you want.
Alternative app stores like F-droid on Android are not affected by the app's withdrawal. iOS is admittedly, at the time of writing, limited to Apple's app store alone, but this will soon change, at least in the EU, with new European regulations5.
(Here we have an interesting case of one part of an administration setting up regulations that enable to fight against the regulations of another part of the administration. There are many examples like this one)
And above all, it's the only site of its kind blocked in this way in France to date, even though there are tens of thousands of them. Block one, and dozens, hundreds take over.
It's like trying to save the Titanic by scooping it out with a bucket.
Internet native frauds that target the most vulnerable people
Unfortunately, one fraud that is becoming increasingly widespread is that of fake computer repairs.
Classic scenario: you open an e-mail or a website that displays a message that looks exactly like an "official" Windows message, saying that your computer has a problem and is blocked (in the most serious cases, this message may even come from a virus or malware installed by the infected e-mail or website).
The message tells you that, to unlock your computer, you need to call a company, often "certified by Microsoft" (and often also confusing whether they are Microsoft or not).
And when you call, of course you're asked to pay (often a considerable sum), to solve a problem you've never had in 1st place.
This shameful scam affects many people, especially the elderly.
A scam that's easy to dismantle if it's run by mono-country operators…
When those who practice it are in the same country as their victims, it's relatively easy to track them down and arrest them.
For example, at the end of 2022, the Paris public prosecutor's office dismantled such a scam, which had affected 4,000 French residents for an estimated loss of 1.2 million euros: the main players in the scam lived in France6 .
Kudos to justice for this action.
But that becomes almost impossible in the case of multi-country operations
But... what about operators who do the same thing remotely, hidden away in one of Africa's many French-speaking countries, for example?
Then it gets tougher: it becomes very difficult for investigators to nail the crooks.
So we need investigators who aren't blocked by borders, like... journalists, or Youtubers.
Youtuber Micode, for example, infiltrated a company running exactly the same scam... but from Mauritius, in a series of 3 very interesting videos published on his channel7 .
He then goes on to demonstrate that the company's entire organization is international, with the boss a Canadian who lives in Colombia and delegates much of his work to Mauritius, while buying software and services on various dark web marketplaces.
In other words, all this makes it extremely difficult for the French authorities, or indeed any other country, to investigate.
Micode also looked at the industry as a whole, and showed that many players are in India (obviously targeting English-speaking victims), with companies located all over the place, including Dubai and Tokyo.
English-speaking youtubers have done exactly the same kind of investigation, and several channels exist whose concept is simply to expose these scammers, often having fun at their expense, such as ScamBaiter, Kitboga, Jim Browning or Scammer Payback, which have several million subscribers.
They pretend to be elderly people who don't understand anything, and take great pleasure in turning scammers on their head.
It's a fun way to get revenge, and some even go (much) further, infiltrating scammers' computers, as well as sometimes... their security cameras, allowing them to film the scammers even while they're on the phone with them.
And some even try to stop these practices, by infecting scammers' computers with viruses, deleting their files and so on.
Admittedly, some practices of these Youtubers can be illegal ( like gaining access to office surveillance cameras), but here we see an example of civil society players taking matters into their own hands, because nation-state police forces are powerless: the police forces in the states where the victims are located can do nothing, because the hustlers aren't there, and the hustlers are generally careful to put themselves physically in places where they know the police aren't effective, or are even corrupt.
Thus, many of the Indian scammers targeting English-speaking victims are in one city in particular, Kolkata, both because it makes it difficult for the police to investigate (this city has become the unofficial world capital of scams of this kind), but also because probably the company directors have links with the police, and bribe them.
And when they do, it's like trying to cut off the head of a hydra: two immediately grow back8 .
And beyond that, even if one day the police in this city get their act together, the scammers will simply have to go elsewhere, or better still, encourage remote working, employing dozens of people spread across the 4 corners of the world: good luck to any local, or even international, police force in tracking them down.
This shows once again how a fundamental power of nation-states, that of the police and its ability to protect citizens, is being eroded, which also erodes the prestige and legitimacy of states: in this case, it's civil society that has taken over, because it was better able to play across borders as a native Internet user.
In the next article, we'll look at how the Internet (and travel technologies) are disrupting one of the fundamentals of nation-states: nation-building and the sense of belonging.
The series on the disruption of nation-states by the Internet
This article is the 11th in a series on the disruption of nation-states by the Internet.
Here are the first ten articles in the series:
"Dix ans de baisse des contrôles fiscaux en chiffres", Mathilde Damgé, Le Monde, 2018
IRS Data Book, 2022, section « Compliance Presence”
"Lutte contre la fraude commerciale sur internet", Dany Wattebled, JO Sénat du 16/12/2021
"Places de marché, trop de produits non-conformes et dangereux", DGCCRF, 2019
You can see the 1st video of this series on https://olivier-roland.com/micode/ (the other two episodes are easily accessible from this video).
"Kolkata is India's newest, biggest scam zone. Police, YouTubers, mice can't shut it down", Vandana Menon, The Print, 2022
Nobody (aside from you and a few others) seems to talk about how new technologies affect the fundamentals of an industry - so how the internet affects the nation state. This needs to be the starting point for thinking about a technology: what are the new fundamentals that this technology creates? This is the realm of science fiction more than business, so no wonder people miss out but the fact that they do leave to situations like you're describing.