Tens of millions of business owners, whose personal information is directly linked to their businesses, face additional compounded identity theft risks that can cause serious harm to both themselves and their business.
Your business is a separate entity, but its identity does not stand on its own. As a business owner, your own personal identity, and information, is closely tied to your business. Consider some of the many commonplace business activities in which your personal information is required:
But is does not end there. Many types of business accounts require a personal guaranty from one or more of the business owners, and may also be subject to credit approval based upon the owners' personal credit history. This gives creditors a fallback to collect from if the business fails or does not pay its bills. When applying for a business loan, it is a common requirement for a personal guaranty from each owner of 20% or more of the business; and additionally, a pledge of personal assets as collateral may also be required to secure the loan.
With every such business account or activity, your personal identity, credit history, and finances become more intertwined with that of your business. This creates some unique additional risks for you as a business owner. If criminals compromise your personal identity information, or that of your business itself (known as business identity theft), they can potentially wreak havoc in both your personal and business accounts.
The first obvious area of risk, of course, involves fraud in a victim's existing accounts. Armed with enough information, thieves may gain access to the existing cash and credit accounts of both the business owner and their business for fraudulent withdrawals, purchases, transfers, or cash advances.
The risks of cybercrime in a business bank account are discussed in a previous article.
In some cases, quickly accessing both sets of accounts may be child's play for even a semi-skilled criminal. For example, many small business owners maintain both their personal and business accounts at the same financial institution. This alone is not necessarily a bad practice, and may offer some additional benefits to a small business owner. However, add to this the fact that despite the enormous risks, many people still regularly use the same PIN or password for multiple accounts. From a criminal perspective, cleaning out each account just became a walk in the park.
The second area of risk involves the opening of fraudulent new accounts. Federal law provides many consumer protections for identity theft cases in which a fraudulent new account has been opened in their name.
However, as a business owner, if a criminal steals your personal identity information, it may not be a personal account they open. Fraudulent business accounts hold greater criminal appeal.
Many companies are eager to open a new business account, but as previously discussed, will generally require the owners' personal information to do so. Depending upon the account type and credit line requested, despite being a business account the actual business information often carries far less weight in the account application and approval processes than the personal information and/or credit history of the owner(s) listed as the account guarantor. In some cases, the business information provided may not even be verified at all. Armed with your information, along with a combination of real and fictitious business information, a fraudulent new business account is suddenly opened with a personal guaranty attached.
For example, in 2010 identity thieves targeted businesses in the State of Colorado by taking advantage of a vulnerability in the state's online business registry to obtain information on registered businesses and their owners. In 80% of the reported business identity theft cases, the victims were delinquent or dissolved businesses. Many owners of these previously dissolved businesses were shocked to be contacted by creditors seeking to collect from them personally for recent debts of a company they had closed years before. Criminals had used their information to identify them as owners and account guarantors for new business accounts successfully opened without verification of the business.
By their nature, business accounts are attractive to criminals for a variety of reasons that make their job easier and more lucrative. For example, when comparing a personal account to a business account:
Remember that personal guaranty on a business account? The first indication that something is amiss may be when defrauded creditors or their collectors contact and attempt to collect from the business owner personally. At that point, the victimized business owner can suffer negative personal credit reporting, an increase in interest rates, a decrease in credit lines, account closure, an inability to open new accounts or obtain financing, etc. For a small business that relies on its owner's credit to operate, the impact can be severe.
What about a fraudulent business loan or line of credit that also required a pledge of business or personal assets? When the account goes into default, these assets can be suddenly and quite unexpectedly at risk.
The fraudulent activities described above can be disputed and successfully resolved, but it does take time - a commodity that many small business owners already have too little of. However, even if only temporary, such issues can cause irreparable harm for an average cash-strapped small business or small business owner just trying to make a living.
In light of all this, before you breathe a huge sigh of relief that you enrolled in one of the many identity theft “protection” programs available, there's one more thing to consider --
You should be aware that, with very rare exceptions, most identity theft protection programs specifically exclude any coverage for issues related to your business or business activities, even for a sole proprietor. This includes misuse of your business name; business account fraud; business account takeover; business issues related to or caused by identity fraud; and may even exclude any personal issues caused by or related to fraudulent business accounts or debts.
Whether you have already enrolled in an identity theft protection program or are considering one, as a business owner, you have even more to lose than an average consumer. Carefully read the fine print in any program's terms and conditions and understand exactly what coverage you, and your business, may or may not have.
The Identity Theft Protection Association offers FREE employer training accounts that make providing your required employee information security and compliance training simple, painless, and affordable. Businesses of every size can easily manage and deliver world-class interactive training with no upfront costs, no I.T. requirements, and no minimum purchase requirements. Your online training center can be ready to use in just minutes. Learn more about protecting your business identity
