Confidence and Con Men

The term “confidence man” first came into general use about 160 years ago during the trial in New York of a crook named William Thompson, who accosted strangers and talked them into loaning him their watches, then simply walked off with the timepieces.

Thompson has been followed by a long parade of con men, as they are now known. And what makes a great con artist? I have had extensive hands-on experience investigating hundreds of fraud cases and commercial crimes over the years in my profession and I was wondering which one tops my chart for the greatest one I have run into.

What makes the great con artists, the men who sell the Brooklyn Bridge, who practice the schemes perfected by the famous Carlo Ponzi anyway? They have to be sly but unsuspecting; extraordinary yet ordinary; and very clever at finding simplicity out of complexity and to employ all these traits with their calculated moves, just to get the most out of their innocent victims, or we wouldn’t label them con men.

I have another criterion: their tricks have to be very simple and elegant in design. And to top it off, they should never get caught. By this set of criteria, I have a winner - an insurance fraudster I once investigated in Hong Kong some years ago.

When China liberalized its markets and opened its doors to Hong Kong in 2003 through a free trade agreement called the Closer Economic Partnership Arrangement, or CEPA, Hong Kong-based life and health insurance agents were not allowed to sell policies across the borders in China but they were allowed to sell to mainland nationals visiting in Hong Kong. And that was where the scam came in.

It turned out that an ethnic Chinese who spoke both Cantonese and English and who claimed to be an insurance broker, brought mainland Chinese tourists by the busloads to insurance agents in Hong Kong to buy whole-life policies, a more-than-welcome event for insurance companies who gladly processed the eager new customers.

There was nothing suspicious and no red flags were found so the policies were signed and premiums received from the new customers -- until the same Chinese middleman called up some months later saying all of the customers had decided to discontinue their coverage.

One insurance agent and one insurance company alone can’t possibly recognize that there was any element of fraud or scam -- just bad luck and bad customers, or so they thought until they learned that they were not alone. Through my investigation, at least five insurance companies had the same experience from the same Chinese middleman.

They had been conned big time. Insurance companies pay high commissions to encourage new policies signed, to the tune of some 75 percent of the premium for the first-year commission on new life policies but the rate dives to a mere average of 7 percent and even lower on subsequent years for existing policies, according to a seasoned insurance broker friend of mine.

Thus the beauty of the scam as described above: the insurance companies ended up paying out far more commission than they would ever collect in premiums when those customers lapsed their policies in total just months later.

So simple and elegant indeed.

It turned out, as I also discovered, that the Chinese middleman claimed he was related to different insurance brokerage firms, to different insurance agents and insurance companies but none of those brokers had any knowledge or relationship with the man. His real name and identity were unknown, and there was no record of his photo or identifiers, and it was even uncertain if he was a Hong Kong or mainland Chinese as those insurance firms, too eager to sign up the new customers, didn’t bother to keep in touch with hm. There was nothing left behind but a falsified business card.

A great con artist? You bet. William Thompson, who walked away with all of those watches, would have been proud.

(Vanson Soo runs an independent business intelligence practice specialized in the Greater China region. Email: soovans@gmail.com. His column also appears in The Standard of Hong Kong.)