Ad fraud could become the second biggest organized crime enterprise behind the drug trade

by Patrick Kulp

It may not make for a great Martin Scorsese film, but online ad fraud is growing into one of the biggest organized crime businesses in the world.

That’s according to a new report from the World Federation of Advertisers, which estimates that within the next decade, fake Internet traffic schemes will become the second-largestmarket for criminal organizations behind cocaine and opiate trafficking.

The WFA, an international marketing trade group, arrived at that projection by estimating the current pace of growth in the online ad industry and extrapolating it out over the next 10 years, assuming an accelerating rate of spending on digital media.

The stat puts in stark relief a growing problem: A huge number of online ads — more than half of them, by some accounts — never reach actual humans. Many fall victim to technical display problems, while others are viewed by networks of automated bots designed to mimic human behavior.

Even at conservative projections, the report claims, the total cost of fraud, if unchecked, could exceed $50 billion by 2025 — or one-tenth of the $500 billion the report loftily predicts the global digital ad market will be worth by then.

Researchers then compared that number to United Nations and FBI estimates of the size of other global criminal markets like human trafficking, firearms sales and natural resource smuggling.

According to the report, organized crime members and other criminals are attracted to ad fraud because it offers the prospect of higher payouts than many other criminal pursuits, at a lower risk and with relatively little effort.

The report also claims that law enforcement is not technologically equipped enough to regulate online ad space.

The WFA researchers bank their study on the assumption that ad fraud will most likely grow — either in the number of scammers or the efficiency of their technology — along with spending in digital media.

If that sounds like a lot of guesswork, it’s because illegal businesses don’t exactly keep public financial records, and the scope of the vast ad fraud underbelly is particularly nebulous.

The most widely cited authority on the matter is an annual report published by the Association of National Advertisers, which forecasts a $7.2 billion loss to fraud in 2016 — or about 5% of total spending.

But the WFA claims that the ANA report, which only covers select blue-chip American brands, may have lowballed the threat. Its own research cites various anti-fraud studies that peg the impact at anywhere between 2% and an eyebrow-raising 98%.

More of the studies (from a group of well-established publishers) come in on the lower end of that range, but the true extent of the problem is neither clear-cut nor universally agreed upon.

Part of that murk has to do with the difficulty of tracking the sources of fraud — the assortment of mobsters, former bank robbers, hackers and Russian millionaires in charge of the multibillion-dollar racket.

But cyber criminals aren’t the only ones with an interest in covering their tracks. Actors at every level of the digital ad assembly line, from publishers to agencies to advertising networks — basically everyone except for the brands actually paying for the ads — have at least some incentive to keep the problem in the dark.

“Nobody works alone in this sphere. They’re all sort of riding on each other’s backs,” says Jeremy Goldman, an attorney who specializes in technology and digital media law. “Nobody wants to take the fall and say they were the ones who hired the bad apple. It’s better to hide or push it under the rug.”

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