Affinity fraud

Affinity fraud is fraud targeted at a particular group, typically an ethnic or religious group. It may be a pyramid scheme, ponzi scheme or other common type of fraud, differing only in that it is marketed to a particular group, or it may be designed with a particular group in mind.

An affinity fraud exploits the tendency of people to trust others within their own group, in circumstances in which they would not trust someone not a member of that group. Many such groups also provide settings in which fraudsters are able to make social contact with possible victims — examples include churches, clubs for expat workers from a particular country, etc.

The typical pattern of an affinity fraud starts involves the scammer being (or posing as) a member of a particular group and directly selling the fraudulent scheme to other members. Alternatively, they may start by targeting respected member of that group to promote their scheme — this works particularly well for pyramid and ponzi schemes which do pay high returns to those who join early.

One particularly dangerous aspect of affinity frauds is that the scammers may spend many years building trust before carrying out the fraud, and may be personally trusted by the victims.

Other types of affinity fraud include raising money for non-existent charities, or selling stakes in a company that then simply pays its capital put to the scammer.

It can be difficult to decide exactly what is an affinity scam. For example, pyramid schemes that target the general public may spread in one particular community by chance, simply because they depend on personal contacts to recruit new victims. Similarly, a fraudulent money transfer service (typically targeting low income expat workers sending money home) may target a particular nationality, but take anyone's money if they walk into the shop.

One interesting real life example was a major global pyramid scheme which presented itself to one community as an islamic investment, because it did not pay interest. In this particular case the people responsible for this clever bit of marketing were probably victims of the scheme themselves — one to the strengths of pyramid schemes is that the victims themselves are the most enthusiastic advocates.

Another notable type of fraud are pyramid schemes aimed at women, which claim that to be a way of helping women that men do not understand.

Other scams may use the same techniques, but may not be financial frauds. For example, there are many opportunities to scam people buying or building properties abroad, who are apt to trust someone of their own nationality more than a local. There are also many opportunities to exploit people this way without actually breaking the law!

Protecting oneself from affinity fraud largely depends on not trusting people simply because they have something in common with oneself:

  1. Always check whether investments are regulated as they should be. In the UK, most investments are regulated and can only be sold by firms on the FCA register. The SEC is the US equivalent, and most countries have broadly similar regulators.
  2. Be suspicious of anyone who specialises in selling to a particular group: why should they restrict their market?
  3. Do not be embarrassed to ask questions about investments, or demand documentation. If they want your money, they are accountable to you for it.
  4. Report suspicions to the regulators or the police: attempting to tackle cynical conmen through mediation within an ethnic or religious group is likely to be futile.