Tim Eckerman & Associates
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Credit card fraud

Credit card fraud is one of many form of frauds that involve credit cards, charge cards, or debit cards.
• "mail non-receipt fraud" is when a new or replacement card is sent by the bank, never to be received by the intended recipient. Many banks send out inactive cards, which will not be authorised until the account holder confirms their identify and card number.
• "chargeback fraud" is when a legitimate cardholder uses the card to purchase goods, or a service, and then when the statement comes, claims that they never authorised the transaction, or they never received goods or service ordered.
• "skimming" is when an unscrupulous employee at a legitimate merchant takes a second copy of the card details magnetic strip before processing the payment through the official EPOS terminal. This copy of card details, is sold on the black market to fraudsters who clone the cards.
• skimming of magnetic stripe details has become slightly less prevalent after the introduction of CVV or CVS codes, which are not encoded on the magnetic strip, but are printed on the card - normally on the reverse of the card.
• skimming of magnetic stripe details together with recording of PIN numbers entered into ATMshas been seen, where a small skimmer device that reads the magnetic stripe is attached to the card slot of an ATM, together with various devices to monitor the keypad, either by attaching a fake fascia over the genuine keypad, or by a spy camera.

Bank fraud

Bank fraud is a federal crime in the United States, defined as planning to obtain property or money from any federally insured financial institution. It is sometimes considered a white-collar crime.

TITLE 18 > PART I > CHAPTER 63 > § 1344. Bank fraud 2004-08-06 Whoever knowingly executes, or attempts to execute, a scheme or artifice— (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Fraud by insiders


Rogue traders

A rogue trader is a highly-placed insider nominally authorised to invest sizeable funds on behalf of the bank; this trader secretly makes progressively more aggressive and risky investments using the bank's money as, when one investment goes bad, the rogue trader engages in further market speculation in the hope of a quick profit which would hide or cover the loss.

Unfortunately, when one investment loss is piled onto another, the costs to the bank can reach into the hundreds of millions of dollars; there have even been cases in which a bank goes out of business due to market investment losses.

Some of the largest bank frauds ever detected were perpetrated by currency traders John Rusnakand Nick Leeson.


Fraudulent loans

One way to remove money from a bank is to take out a loan, a practice bankers would be more than willing to encourage if they know that the money will be repaid in full with interest. A fraudulent loan, however, is one in which the borrower is an business entity controlled by a dishonest bank officer or an accomplice; the "borrower" then declares bankruptcy or vanishes and the money is gone. The borrower may even be a non-existent entity and the loan merely an artifice to conceal a theft of a large sum of money from the bank.

Wire fraud

Wire transfer networks such as the international S.W.I.F.T interbank fund transfer system are tempting as targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used by banks to settle accounts with each other, rapid or overnight wire transfer of large amounts of money are commonplace; while banks have put checks and balances in place, there is the risk that insiders may attempt to use fraudulent or forged documents which claim to request a bank depositor's money be wired to another bank, often an offshore account in some distant foreign country.

Forged or fraudulent documents

Forged documents are often used to conceal other thefts; banks tend to count their money meticulously so every penny must be accounted for. A document claiming that a sum of money has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can therefore be valuable to a thief who wishes to conceal the minor detail that the bank's money has in fact been stolen and is now gone.

Uninsured deposits

There are a number of cases each year where the bank itself turns out to be uninsured or not licensed to operate at all. The objective is usually to solicit for deposits to this uninsured "bank", although some may also sell stock representing ownership of the "bank". Sometimes the names appear very official or very similar to those of legitimate banks. For instance, the "Chase Trust Bank" of Washington DC appeared in 2002 with no licence and no affiliation to its seemingly apparent namesake; the real Chase Manhattan Bank is based in New York.

Needless to say, there is a very high risk of fraud when dealing with unknown or uninsured institutions.

The risk is greatest when dealing with offshore or Internet banks (as this allows selection of countries with lax banking regulations), but not by any means limited to these institutions. There is an annual list of unlicenced banks on the US Treasury Department site which currently (2004) is fifteen pages in length.

Theft of identity

Dishonest bank personnel have been known to disclose depositors' personal information for use in theft of identity scams. The perpetrators then use the information to obtain identity cards and credit cards using the victim's name and personal information.


Fraud by others

Forgery and altered cheques

Thieves have altered cheques to change the name (in order to deposit cheques intended for payment to someone else) or the amount on the face of a cheque (a few strokes of a pen can change $100.00 into $100,000.00, although such a large figure may raise some eyebrows).

Instead of tampering with a real cheque, some fraudsters will attempt to forge a depositor's signature on a blank cheque or even print their own cheques drawn on accounts owned by others, non-existent accounts or even alleged accounts owned by non-existent depositors. The cheque will then be deposited to another bank and the money withdrawn before the cheque can be returned as invalid or for non-sufficient funds.

Stolen cheques

Some fraudsters obtain access to facilities handling large amounts of cheques, such as a mailroom or post office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a social or veterans' benefit office (issuing many cheques). A few cheques go missing; accounts are then opened under assumed names and the cheques (often tampered or altered in some way) deposited so that the money can then be withdrawn by thieves. Stolen blank chequebooks are also of value to forgers who then sign as if they were the depositor.

Accounting fraud

In order to hide serious financial problems, some businesses have been known to use fraudulent bookkeeping to overstate sales and income, inflate the worth of the company's assets or state a profit when the company is operating at a loss. These tampered records are then used to seek investment in the company's bond or security issues or to make fraudulent loan applications in a last-ditch attempt to obtain more money to delay the inevitable collapse of an unprofitable or mismanaged firm.

Accounting fraud has also been used to conceal other theft taking place within a company.

Cheque kiting

Cheque kiting exploits a system in which, when a cheque is deposited to a bank account, the money is made available immediately even though it is not removed from the account on which the cheque is drawn until the cheque actually clears.

Deposit $100 in one bank, write a cheque on that amount and deposit it to your account in another bank; you now have $200 until the cheque clears.

In-transit or non-existent cash is briefly recorded in multiple accounts.

A cheque is cashed and, before the bank receives any money by clearing the cheque, the money is deposited into some other account or withdrawn by writing more cheques. In many cases, the original deposited cheque turns out to be NSF (non-sufficient funds) or even a forged cheque.

Some perpetrators have swapped checks between various banks on a daily basis, using each to cover the shortfall for a previous cheque.

What they were actually doing was check kiting; like a kite in the wind, it flies briefly but eventually has to come back down to the ground.


Payment card fraud

Credit card fraud is widespead as a means of stealing from banks, merchants and clients.


Booster cheques

A booster cheque is a fraudulent or bad cheque used to make a payment to a credit card account in order to "bust out" or raise the amount of available credit on otherwise-legitimate credit cards. The amount of the cheque is credited to the card account by the bank as soon as the payment is made, even though the cheque has not yet cleared. Before the bad cheque is discovered, the perpetrator goes on a spending spree or obtains cash advances until the newly-"raised" available limit on the card is reached. The original cheque then bounces, but by then it's already too late.


Stolen payment cards

Often, the first indication that a victim's wallet has been stolen is a 'phone call from a credit card issuer asking if the person has gone on a spending spree; the simplest form of this theft involves stealing the card itself and charging a number of high-ticket items to it in the first few minutes or hours before it is reported as stolen.

A variant of this is to copy just the credit card numbers (instead of drawing attention by stealing the card itself) in order to use the numbers in online frauds.


Duplication or skimming of card information

This takes a number of forms, ranging from a dishonest merchant copying clients' credit card numbers for later misuse (or a thief using carbon copies from old mechanical card imprint machines to steal the info) to the use of tampered credit or debit card readers to copy the magnetic stripe from a payment card while a hidden camera captures the numbers on the face of the card.

Some thieves have surrepetitiously added equipment to publicly-accessable automatic teller machines; a fraudulent card stripe reader would capture the contents of the magnetic stripe while a hidden camera would sneak a peek at the user's PIN. The fraudulent equipment would then be removed and the data used to produce duplicate cards which could then be used to make ATM withdrawals from the victims' accounts.


Impersonation and theft of identity

"I lived the life of Riley... well, until Riley reported his credit cards as missing."

Theft of identity has become an increasing problem; the scam operates by obtaining information about a victim, then using the information to apply for identity cards, accounts and credit in that person's name. Often little more than name, parents' name, date and place of birth are sufficient to obtain a birth certificate; each document obtained then is used as identification in order to obtain more identity documents. Government-issued standard identification numbers such as "social security numbers" are also valuable to the identity thief.

Information may be obtained from insiders (such as dishonest bank or government employees), by fraudulent offers for employment or investments (in which the victim is asked for a long list of personal information) or by sending forged bank or taxation correspondence. Some fictitious tax forms which purported to have been sent by banks to clients in 2002 were:
• W-9095 Application Form for Certificate Status/Ownership for Withholding Tax
• W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
• W-8888

The actual origin of these forms is not the bank nor the taxman - they're sent by would-be identity thieves and W-8888 doesn't exist, W-9095 is also fictitious (the real W-9 asks much less info) and W-8BEN is real but may have been tampered to add intrusive additional questions. The original forms on which these fakes were based are intended to collect information for income tax on income from deposits and investment.

In some cases, a name/SIN pair is needed to impersonate a citizen while working as an illegal immigrant but often the identity thieves are using the bogus identity documents in the commission of other crimes or even to hide from prosecution for past crimes. The use of a stolen identity for other frauds such as gaining access to bank accounts, credit cards, loans and fraudulent social benefit or tax refund claims is not uncommon.

Unfortunately for the banks, identity thieves have been known to take out loans and disappear with the cash, quite content to see the wrong persons blamed when the debts go bad or the police come calling.


Fraudulent loan applications

These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order to make a risky loan appear to be a sound investment for the bank.

Some corporations have engaged in over-expansion, using borrowed money to finance costly mergers and acquisitions and overstating assets, sales or income to appear solvent even after becoming seriously financially overextended. The resulting debt load has ruined entire large companies, such as Italian dairy conglomerate Parmalat, leaving banks exposed to massive losses from bad loans.

Prime bank fraud

The "prime bank" operation which claims to offer an urgent, exclusive opportunity to cash in on the best-kept secret in the banking industry, guaranteed deposits in "prime banks", "constitutional banks", "bank notes and bank-issued debentures from top 500 world banks", "bank guarantees and standby letters of credit" which generate spectacular returns at no risk and are "endorsed by the World Bank" or various national governments and central bankers sounds too good to be true?

It is too good to be true.

These official-sounding phrases and more are the hallmark of the so-called "prime bank" fraud; they may sound great on paper, but the guaranteed offshore investment with the vague claims of a easy 100% monthly return simply does not exist... these are all fictitious financial instruments and your money is gone forever.


The fictitious 'bank inspector'

This is an old scam with a number of variants; the original scheme involved claiming to be a bank inspector, claiming that the bank suspects that one of its employees is stealing money and that to help catch the culprit the "bank inspector" needs the depositor to withdraw all of his or her money. At this point, the victim would be carrying a large amount of cash and be targeted for theft of these funds.

Other variants included claiming to be a prospective business partner with "the opportunity of a lifetime" then asking for access to cash "to prove that you trust me" or even claiming to be a new immigrant who carries all their money in cash for fear that the banks will steal it from them - if told by others that they keep their money in banks, they then ask the depositor to withdraw it to prove the bank hasn't stolen it.

Impersonation of officials has more recently become a way of stealing personal information for use in theft of identity scams.


Phishing and Internet fraud

Phishing operates by sending forged e-mail, impersonating an online bank, auction or payment site; the e-mail directs the user to a forged web site which is designed to look like the login to the legitimate site but which claims that the user must update personal info. The information thus stolen is then used in other frauds, such as theft of identity or online auction fraud.

A number of malicious "trojan horse" programmes have also been used to snoop on Internet users while online, capturing keystrokes or confidential data in order to send it to outside sites.


Money laundering

The term "money laundering" dates back to the days of Al Capone; I'm sure that Mr. Capone would like you to know that he is an honest, hard-working businessman trying to make ends meet and of course an honest businessman is able to explain where his money came from... and that Al can explain quite easily. He took in laundry. Yup, he owned a perfectly legitimate business which made its money washing people's clothes. It comes in handy if someone gets nosy and starts asking too many questions... but of course you'd know better, right?

Money laundering has since been used to describe any scheme by which the true origin of funds is hidden or concealed.

The operations work in various forms. One variant involved buying securities (stocks and bonds) for cash; the securities were then placed for safe deposit in one bank and a claim on those assets used as collateral for a loan at another bank. The borrower would then default on the loan.

But what of the securities themselves? Perfectly good and worth the full amount.

The transaction accomplished nothing except to disguise the original source of the funds.

Visit Wikipedia to further review or edit the terminology for this word.

Tim Eckerman is an experienced, aggressive, and successful trial lawyer, who concentrates in cases involving Personal Injury and Criminal Defense.

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