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A true counterfeit is generally defined as being a counterfeit card using false or stolen
information to generate a device for illegal use.
Mail Order/Telephone Fraud/Telemarketing Fraud
Such fraud takes place when a customer is solicited or targeted by an unlawful
operation for the sole purpose of selling them a bill of goods. There is no intent to
© 2000 by CRC Press LLC
provide the product or services offered, and representations are made to gain profit
by means of defrauding the customer or victim. This practice can be accomplished by
telephone or via the mail.
Example of Telemarketing Fraud
“Hello, Mrs. Smith, my name is James Monroe from the XYZ Company. You have won
a trip to Florida and, for only $49.95 charged to your credit card today for processing
fees, we will send you your tickets for an all-expense-paid vacation.” (Note that this
same scam could be directed to the victim by mail.) The victims comply with such
requests and pay for the product, but they never receive the prize. Sometimes they
receive their prizes, but it ends up costing them more to upgrade the prize or service.
Such a tactic is nothing more than the old come-on! In many cases, after the money
is taken from several victims, the company goes out of business, leaving the victim
with little or no recourse. Such deception is a common business practice of
telemarketing frauds.
Cardholder Fraud
Cardholder fraud occurs when a credit card customer receives a credit card under his
own identity but with the intent to defraud the issuer. An example would be if “Lily
Chan” applies for and receives a JCB credit card under her own name. She then
decides to defraud the issuer by lending the credit card to an accomplice to use on
vacation. “Charge it up as you wish,” she tells her accomplice, “and when you return,
I will attest to being at home and at work and will file an affidavit of fraudulent use
with the credit card company.” Ms. Chan receives cash money for an agreed percent-
age spent unlawfully on the card by her counterpart. The credit card company is out
the money, and the scheme has netted illegal gain to the team of criminals. This is
cardholder fraud.
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Corrupt Government
Employees and
Internal Schemes
Case Study #1: Operation Pinch
5
In 1996, the largest issuer of credit cards in the United States noticed significant losses
in several areas of the country. In particular, the New York area was a focal point of
the attack. Several other venues were also identified as the scheme unfolded. In the
early stages of the investigation, bank investigators, along with their technical coun-
terparts, noticed a trend beginning to emerge almost overnight. The fraud-prevention
department of a major bank card issuer noticed questionable point-of-sale transac-
tions at several New York merchants. For the purpose of this case study, all the
transactions were fraudulent and being completed at the same area merchants. Pre-
liminary review by bank investigators resulted in a plan to interview all the affected
merchants to establish some leads for their law enforcement counterparts. No good
leads were established, and the case was at a stalemate. The bank investigators gave
their preliminary information to the U.S. Secret Service in New York to try to establish
if this case had any similarity to other cases being worked on at the time. Initially, it
appeared not to.
The intelligence was also shared with the investigative units of two other banks
that were apparently also targeted by the crooks. The investigators from all three
banks met in Maryland to review losses and findings and prepared a link analysis to
further the investigation. In the meantime, losses were exceeding the millions for the
affected banks, but no other financial institutions were complaining of such losses.
About 2 weeks into the investigation, high-level sources in the bank wanted answers
as to the losses that were mounting. The pressure was building for investigators to
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solve this case. Databases of cases were reviewed, and one case in particular raised the
interest of a bank investigator. In 1992, special agents of the U.S. Secret Service were
the lead agents on a case while assigned to the Metro Alien Fraud Task Force in
Washington, D.C. A search warrant was executed in a fraud scheme, and the search
netted a major plot by suspects to steal and sell information from the Social Security
Administration. A document was uncovered in the search which was later identified
as a Social Security numident. This is a 4× 5 dot matrix computer printout showing
a person’s Social Security identifiers; most importantly, it included the claimant’s
mother’s maiden name.
After reviewing this earlier investigation, the bank investigator contacted Special
Agents of the Social Security Administration’s Office of the Inspector General. The
bank investigator asked his counterparts at the Social Security Administration to run
about 30 of the account holders’ names and Social Security numbers through the
Social Security system to see if there were any hits on them by insiders. Agents of the
Social Security Administration thought initially that the idea was improbable; how-
ever, they eventually were convinced by the earlier case information from the Secret
Service that it was a possibility.
A link analysis of the cards in question indicated compromises of the mothers’
maiden names (I believe Sherlock Homes said something like “you need to discount
the improbable to understand what is probable”). The mother’s maiden name is often
used as a method of authentication, as a PIN identifier. It was the only good lead.
Social Security Administration agents were contacted at about 12 noon on a Friday
with this information. At 4:30 p.m., the bank investigator was informed that one
employee of the Social Security Administration (“Ms. A”) in New York had accessed
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