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BSA/AML Hot topics: Four warning signs of timeshare fraud

Naomi Glass, AVP, BSA/AML Compliance Officer

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Pandemic fatigue. Everyone’s got it to some degree. For those of us who are sick and tired of being cooped up in our homes for months on end, the idea of laying on a beach somewhere with a margarita in hand sounds more amazing than ever! Unfortunately, this is just a pipedream for now. The truth is the virus is continuing to wreak havoc on many segments of our economy, especially the travel and tourism industry, which means many of us have either cancelled or postponed our vacations and travel plans for the foreseeable future.

As far as avid travelers are concerned, individuals who own timeshares have been hit especially hard as a result of the pandemic. Not only have they not been able to make use of their timeshares due to travel restrictions, but they have also been forced to continue paying monthly maintenance fees and possibly mortgage loan payments on their timeshares. Because these economic times are so tough, more and more timeshare owners are finding themselves in a position in which they can no longer afford them. This makes timeshare owners vulnerable to being scammed by fraudsters looking to make a quick buck. In fact, timeshare fraud has become such a major problem that on September 17, the FBI Criminal Investigative Division and the SEC’s Office of Investor Education and Advocacy issued an alert to warn consumers of the recent increase in fraudulent schemes, specifically those that target owners of timeshare properties in Mexico.

Correspondingly, Corporate One has seen an uptick in fraud cases related to timeshare scams in Mexico. Within recent months, we have identified that over a dozen members of eight different credit unions have been scammed out of more than half a million dollars. We believe this is just the tip of the iceberg as timeshare fraud can be hard to detect if the following four red flags are not known:

  • Your member says he was contacted out of the blue by a person who promised to buy his timeshare in Mexico. Timeshare scams involve fraudsters alleging to be representatives of a brokerage firm, travel agency, title company, or escrow agent making unsolicited contact with owners of timeshare properties. The “representative” will promise to pay a significant sum of money to purchase the owner’s timeshare, usually in an amount that is “too good to be true.” The fraudsters have various methods of making their schemes appear legitimate, such as setting up convincing websites that may mimic the websites of real U.S. companies but that contain false information.
  • Your member says he needs to wire funds to Mexico to pay fees and taxes. Timeshare scams involve owners being told by fraudsters that they need to pay upfront fees and taxes related to the sale of their timeshare and that these funds will be reimbursed when the sale is final. This is where the owners’ loss of funds comes into effect. Fraudsters may instruct timeshare owners to send multiple international wire transfers to pay for bogus expenses, such as property taxes, capital gains taxes, sales tax, government selling fees, tax ID number fees, and insurance bonds to release a Mexican escrow account. The wires are usually sent sporadically in dollar amounts that range anywhere from a few hundred dollars to a few thousand dollars. The money is never reimbursed to the owner since the sale was fake all along.
  • Your member provides you with official-looking paperwork to corroborate the deal’s legitimacy. One of the reasons timeshare owners are so easily duped by this scam is because the fraudsters will send them a plethora of phony documents that look authentic, including purchase agreements, escrow statements, cross border statements, and customs invoices. Often these documents will contain the names and insignias of governmental agencies, which gives the appearance that they are real legal contracts and documents related to the sale of the timeshare. In light of this deceptive practice, should your member provide you with official-looking documentation as proof that the sale of their timeshare is a legitimate real estate deal, be very skeptical. Odds are the documents are not what they seem.
  • Your member’s transactional activity is not normal and expected. It is very important that credit unions identify and report fraudulent transactions associated with timeshare scams early on in order to prevent the member from further financial loss. Here is a list of questions to consider when evaluating whether a member’s transactions may be related to a timeshare scheme:
    • Has your member suddenly begun sending outgoing international wires to various individuals and entities in Mexico whose relationship to the member is unknown?
    • Is the intended purpose of the wires, as indicated within the wire reference details, to pay for timeshare-related taxes and fees?
    • Do the wire transfers vary in terms of dollar amount, volume, and frequency?
    • Do any of the wire beneficiaries share the same or similar names, addresses, and bank account numbers?
    • Are the wires being funded by social security deposits, retirement funds, the member’s savings, or other sources of legitimate funds?
    • Is there anything else going on in the account that either doesn’t make sense or is not normal and expected for the member?

If your member has been victimized by a timeshare scam, please encourage them to file a complaint with the FBI’s Internet Crime Complaint Center. While your member may not be able to get their money back, at least they can help law enforcement try to track down the bad guys so that other timeshare owners don’t get scammed, too.