Citation-> Card News, Oct 22, 1990 v5 n20 p7(2)
COPYRIGHT Phillips Publishing Inc. 1990

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Title-> Canadian authorities apprehend suspects accused of
high-tech credit card fraud.

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Subjects-> Credit card fraud_Investigations
Toronto, Ontario_Crime
Credit card industry_Security measures

SIC Codes-> 6153; 9221

Locations-> Toronto, Ontario

Article #-> 09010342

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CANADIAN AUTHORITIES APPREHEND SUSPECTS ACCUSED OF HIGH-TECH CREDIT
CARD FRAUD

Police in Toronto have cracked an international high-technology fraud
ring that has been using electronically doctored credit cards. The
Hong Kong-based scheme involves copying electronic information from a
valid card and then coding the data on a stolen one.

Authorities earlier this month arrested 4 Chinese men who had
immigrated to Canada, reported Roy Teeft, detective inspector of the
Toronto Police Department's intelligence services. Seized along with
the suspects were 7 Visa gold cards--thought to have been stolen and
altered in Hong Kong, and brought to Toronto--as well as 10 allegedly
stolen Canadian credit cards.

The men were caught using the cards. The Canadian cards most likely
were bound for Asia to be modified and used illegally there, Teeft
said.

Those engaging in such criminal activities can often duplicate
legitimate card numbers onto numerous other cards and then steal
merchandise with account numbers from good cards, said Larry Nickel,
president of Q-Card, a Maryland company specializing in analysis of
the readability and encoding on magnetic stripe cards.

The culprits may abrade a card's signature panel slightly so that it
is difficult to read what is there. They can also use some solvent
and remove the panel altogether.

Some of the digits of the number on the cards seized by the Toronto
police had been re-embossed. A special $1,200 magnetic stripe coding
machine attached to a home computer was used to alter the stripe. 
Both the stripe and the number then corresponded to the data attached
to the valid cards.

"I've been informed by the Secret Service that it's very easy to
re-emboss a card and that they have seen cards that have been
re-embossed," Nickel told CARD NEWS. The magnetic stripe on the backs
of the cards confiscated in Canada had been electronically coded with
information about the valid cardholders. It was almost impossible to
see that the cards had been tampered with, police said. Many clerks
do not pay attention to the visual appearance of cards in most cases
while they are getting authorization for charges. Nickel noted.

The information about valid cards needed for the magnetic stripe
coding line would require collusion with someone at a bank or a
merchant. That person would have to have access to account records in
order to obtain account numbers for individuals on the outside.

Sometimes people engaged in fraud will set up a temporary merchant
location to sell items. They will take credit cards and have a reader
that could be attached to a laptop computer. The cards can be run
through the reader, regardless of whether or not an imprinter is being
used. In any event, these individuals are able to capture card
account numbers, as well as take names from track 1 on a card.

In a similar vein, a parent's credit card is also compromized if
borrowed by a child who gets the account information before returning
the card. For someone with several cards from more than a single
banking institution, the misuse of one of those cards might not be
reported until the cardholders begins receiving bills for unknown
transactions.

A number of industry publications will advertise mag stripe readers
that will attach to a computer, Nickel said, but not for units that
will encode. But some professional journals will have advertisements
for companies that do sell encoders.

Use of a skimmer to remove data

Taking a card, it is possible to make a device called a skimmer, which
would remove the data from the valid card and put it onto the
fraudulent one. "then you don't even need a fancy reader-writer,"
Nickel said.

A skimmer would have a read head and a read amplifier on one side and
an encoding driver and an encode head on the other side. "You put the
cards side by side so they don't move with relation to each other, and
then you slide them across these 2 heads and you're simply reading the
data off of one and writing it onto the other at the same time," he
explained.

In the interest of making mag stripes more tamper proof, the card
industry has looked at watermark magnetics anti-counterfeiting
technology. Nickel, while an engineering director at Malco Systems,
marketed the watermark. It makes it difficult for anyone to
manufacture a counterfeit card because the digits on the card can be
linked to a unique watermark number.

The special watermark tape cannot be produced, even with a printing
press, since a supply of the special watermark tape would not be
available. If someone were to transfer the data to another card, the
other card would have a different watermark number, which would not
match the valid card's numbers.

"The problem we had was that the level of fraud was just not high
enough to be of concern [regarding watermark technology] at that
point," Nickel said. But the increasingly sophisticated level of
electronic fraud may lead to the consideration of other remedies for
illegal card use.

Sincerely, The Editors John P. Seidenberg, Senior Editor Ayo I. Mseka,
Assistant Managing Editor

P.S. The electronic banking industry is in for some profound changes
in the 1990s. To keep up-to-date and informed on the hottest issues
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