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Business Identity Theft – What Is It and How To Protect Your Business

Business Identity Theft – What Is It and How To Protect Your Business

When most people think of identity theft, they imagine an individual victim’s Social Security or credit card number being stolen. However, identity theft does not just affect individuals. Business identity theft, also known as corporate or commercial identity theft, occurs when criminals pose as owners, officers, or employees of a business to illegally transact business and establish lines of credit with banks and vendors. It is the unauthorized use of a business name or identity for financial gain. It has much greater complexities than personal identity theft and there are numerous ways to commit this fraud.

Identity thieves commit fraud by gaining access to business’ bank accounts and credit cards or by stealing sensitive company information, such as the tax identification number (TIN) and the owners’ personal information. The thieves open up lines of credit or get business loans based on the business’ identity and creditworthiness. Typically, thieves cash out quickly and go unnoticed until the bills and collection notices arrive at the door of the victimized business, leaving behind debt, damaged credit, and a destroyed reputation.

In addition to the costs associated with any direct incidences of business identity theft, many businesses may also have to deal with legal ramifications, such as defending their trademarks, copyrights, patents, or other property in court.

Once the scheme is uncovered, businesses spend valuable time and resources to repair the harm to their finances, their credit profiles, and their reputation. Smaller businesses are most at risk as they don’t always have the necessary security controls in place to detect and deter fraudulent activity. They may not even know that it is happening until it is too late.

What to look for?

Business identity theft can happen to any business regardless of size. Businesses generally operate on a much larger scale than individuals, maintaining larger bank account balances and higher credit limits, making it a more lucrative pursuit for criminals. Today’s hyper-digital world means personal and business information is easily available for anyone with a computer, so identity thieves don’t have to work as hard as they once did to obtain valuable and sensitive information.

There are different forms of business identity theft to look out for:

  1. Financial Fraud - hijacking a business through fraudulent filings. Here thieves open new lines of credit, loans, or credit cards in the business’s name and file fraudulent uniform commercial code (UCC) financial statements.

  2. Web Defacement - impersonating a business with a fake website. In this instance, thieves manipulate a business’s website to redirect traffic to another website and steal customer data.

  3. Trademark Ransom - imitating an existing business by obtaining a similar mailing address. Here thieves register a business’s name or logo as an official trademark and demand a ransom to release them from the trademark.

  4. Tax Fraud - masquerading as a business by using a federal employer identification number, this includes filing fraudulent returns using tax subsidies and obtaining refunds through the federal or state governments.

  5. In some cases, thieves will create an LLC with a similar name or the same name as a business and register it in another state. They then reroute company payments and mailings to the fraudulent LLC address. This results in large financial losses and security issues.

The schemes may vary, but in every case, the resulting effects can be devastating to the business and its personnel.

Take Steps To Protect Your Business.

Business identity theft costs American companies billions of dollars each year. Aside from income loss, other consequences associated with identity theft include late payments and fines, loss of cash flow, inability to pay employees and vendors, uphold tax obligations, or purchase supplies. The business’ credit score and reputation will be negatively impacted.

Be proactive and take steps to educate yourself and your staff to avoid falling victim to business identity theft.

  1. Check and monitor the commercial credit report for your business.

  2. Sign up for electronic notifications with your bank and other creditors or service providers.

  3. Review bills and account statements upon receipt and immediately report any suspicious activity to the originating company.

  4. Monitor your business’s public record on file with the Michigan Department of Licensing and Regulatory Affairs - Corporations Division.

  5. Keep business records and documents secure, and protect your EIN (employer identification number), account numbers, and other personal information.

  6. Educate staff on best cybersecurity practices.

  7. Don’t share sensitive information over email or any web-based service.

  8. Invest in cybersecurity insurance.

What Should You Do If You Become A Victim of Business Identity Theft?

If you believe your company has become a victim of business identity theft, move quickly to reduce the amount of damage your company suffers.

  1. Tell your bank, credit card providers, and other creditors that you may be a business identity theft victim and ask if they have received any recent or unusual charges or orders from someone claiming to be doing business in your name. Request copies of documents or emails that were used by the thieves to fraudulently open or access your accounts.

  2. Confirm your business filings with the Michigan Secretary of State's Office are current and correct.

  3. Notify local and/or state law enforcement officials.

  4. Talk to your business insurer and an attorney about your legal remedies.

  5. Report the issue to the small business credit reporting agencies of Dun & Bradstreet, Equifax, Experian; and ask about placing fraud alerts on your business’ bank and merchant accounts – Dunn & Bradstreet offers free support to a business whose identity has been stolen.

  6. Notify the Internal Revenue Service (IRS) if you believe that your Employer Identification Number has been used fraudulently and respond to any notices from the IRS.

  7. Contact Attorney General’s Michigan Identity Theft Support Team (MITS).

For more information on Business Identity Theft and awareness, contact The National Cybersecurity Society, a non-profit organization focused on providing cybersecurity education, awareness, and advocacy to small businesses.