10 Kasım 2012 Cumartesi

Samples of Fradulent Transactions, Frauds in Credit Cards

It is for sure that frauds are always happening in today’s social or business environment. If we talk about the fraud concept in a general scope we can say that we face with many fraud cases as explained below.

When we talk about credit cards, we are facing with the following issues regarding credit card frauds:[1]
·         Credit card fraud losses totaled pounds 504.8m in 2004, up by 20% compared to 2003. The rise is attributed to fraudsters increasing their illegal activity before the security benefits of chip and PIN are fully realized. The table illustrates plastic card fraud losses in pounds m split by fraud type, and is based on UK- issued cards.
·         Card-not-present fraud (CNP) continues to be the biggest fraud type (up by 24% to pounds 150.8m compared to pounds 122.1m in 2003). However, these losses only grew in proportion to the number of businesses now offering transactions made by phone, fax or online. Online credit card payments have increased fivefold since 1999, to the point that 10% of all credit card spending now takes place online.
·         ID theft on cards has grown significantly over the past two years (up 22% from pounds 30.2m in 2003 to pounds 36.9m in 2004), but remains a small proportion of overall fraud losses.
·         Counterfeit card fraud increased slightly and there was a small rise in fraud on lost and stolen cards. Together this accounts for almost half (48%) of all losses. However, with chip and PIN now almost fully implemented, it is set to have a major impact in these two areas.
·         Fraud on cards stolen before the genuine cardholders receive them (mail non-receipt) grew sharply - up by 62% to pounds 72.9m - as criminals took advantage of the unusually high number of cards sent out due to the rollout of new chip and PIN cards

When a credit card is lost or stolen the criminal gains direct access to the individual’s credit card account. The criminal may also gain access to other personal information about the individual as the lost and stolen credit cards are often contained in wallets, purses and briefcases. This may compound problems if the information is used to broaden the fraud, for example by applying for other cards. Fortunately, most lost or stolen cards are quickly recognized and upon notification of the issuer, losses can generally be minimized. More importantly for consumers, card issuers generally indemnify their customers from fraudulent use if the theft or loss is promptly reported.[2]

Other than this, non-receipt or mail fraud occurs when an individual’s mail is intercepted by a criminal. Most issuers have card activation programs requiring customers to call and authenticate in order to begin purchasing with their card. These programs help mitigate non-receipt losses and enable issuers to quickly detect non-receipt fraud.

Another problem occurs with the counterfeit cards. A counterfeit card is created when a criminal gains possession of a valid card number. This information can then be encoded on a blank card’s magnetic stripe or manually changed on the face of a stolen plastic. A quick search on the Internet can provide the criminal with all the resources to manufacture fraudulent cards. Custom embossing machines, tipping machines, decoding machines, programs for encoding credit card magnetic stripes, and various other tools for the production of counterfeit credit cards are all available from a variety of internet sites.[3]

Including the credit cards, all credit applications need an application form in which the applicant shows his / her information. In these applications, application fraud may occur where fraudsters tell lies on application forms in order to obtain credit, insurance or other products. This fraud type has increased by 21%, with 19,239 such frauds detected and filed by CIFAS Members. There was also an increase in identity fraud during the quarter with 21,122 cases filed - an increase of 12% - when compared with the same period last year.[4]

Finally, although the scale of facility takeover cases filed is smaller, the increase between the first quarter of 2006 and the first quarter of 2007 has steep at over 34%. One of the most disturbing developments revealed by the latest figures is the swing away from previous address fraud towards current address fraud. Current and previous address frauds rose in number from 10,976 to 12,690. Current address frauds now represent 60% of these frauds, compared with just 44% a year ago.[5]

Current address fraud is a type of identity fraud where the victim lives at the "current address" given on the fraudulent application. The perpetrator of the fraud is often also resident at the same property as the victim. In such cases, the fraudster applies for, and uses, products in the name of the victim whose property they share. The fraudster will generally have access to, or can intercept, the victim's post, for example where individuals are resident at a property that has a communal mailbox with shared access. Other contributory factors to current address fraud can include the abuse of Companies House data, data breaches, fraudulent mail redirections and bin raiding.

Previous address fraud is where the fraudster misappropriates the identity of another person and falsely claims that the victim has recently changed address. Due to the short period of time at the 'new' address any Credit Reference Agency (CRA) checks are performed primarily against the 'previous' address where the victim is, in reality, still resident. In such circumstances, the fraudster will usually apply in the name of the victim for new products and will undertake facility takeover fraud from the 'new' address.

Other than this, employee fraud is estimated to cost US businesses and organizations USD 200 billion per year, far out shadowing the USD 11-billion cost of violent crime. Researches have shown that individuals commit fraud when combinations of 3 factors exist:[6]
·         Perceived pressure,
·         Perceived opportunity to commit and conceal, and
·         A way to rationalize the behavior as acceptable.

These 3 factors combine to create the fraud triangle. The common schemes used to commit Type 1 (receipts) fraud are lapping, credit memo fraud, stealing of receipts, stealing of duplicate payments, and bad debts fraud. Type 2 frauds involve stealing funds or other assets from warehouses, petty cash funds, inventory stocks, and other sources. The 3rd type involves stealing funds by paying someone who should not be paid, paying too much to someone, paying for something that should not be purchased, or receiving inferior goods. Those firms that have reduced fraud have worked on the 3 elements of the fraud triangle.


[1] Cabinet Maker, “Credit Card Fraud: The Facts and Figures”, Tonbridge, July 2005, p.29.
[2] Peter Burns, Anne Stanley, “Fraud Management in the Credit Card Industry”, Discussion Paper Payment Cards Center, April 2002,  p. 4.
[3] Burns, Stanley, Ibid, p. 4
[4]Current address fraud a cause for concern”, Credit Management. Stamford: Jul 2007,  p. 8.
[5] Ibid  p. 8.
[6] Albrecht, W. Steve. “Fraud in Governmental Entities: The Perpetrators and the Types of Fraud”, Government Finance Review. Chicago: December 1991. Vol.7, p. 27.

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