Europol’s Situation Report for Credit Card Fraud 2012 summaries fraudulent activity for credit cards across Europe is a very interesting read. It explains how the criminals act and with what types of techniques and why the Law Enforcement Agencies struggle to catch them.

A summary of the Europol report is below.

  • The criminal market of payment card fraud within the European Union (EU) is dominated by well-structured and globally active organised crime groups (OCGs). Criminal networks have managed to affect non-cash payments in the EU to the extent that protection measures are very expensive and need to be implemented on a global level. Consequently, the use of payment cards can be inconvenient and no longer fully secure for EU cardholders.
  • Payment card fraud is a low risk and highly profitable criminal activity which brings organised crime groups originating from the EU a yearly income of around €1.5 billion euros. These criminal assets can be invested in further developing criminal techniques or can be used to finance other criminal activities or start legal businesses.
  • The EU is increasingly exposed to the threat of illegal transactions undertaken overseas and should develop more efficient solutions to help law enforcement authorities (LEAs) combat the fraud. Europol, gathering intelligence on fraudulent overseas transactions affecting the EU, as requested by competent authorities of Member States (MS), is not entitled to cooperate with non-EU police forces or request specific measures to help combat and prevent fraud against the EU.
  • The majority of illegal face-to-face card transactions affecting the European Union take place overseas, mainly in the United States. The EU should take urgent measures to promote the EMV standard as a global solution against the counterfeiting of payment cards. As full EMV implementation will take time, a temporary solution could be applied, namely the implementation of GeoBlocking, blocking overseas transactions using EU-issued cards unless they have been activated in advance.
  • Common European legal solutions for the security of on-line retail payments (internet, mobile), as well as the mandatory reporting of financial data breaches, should be considered to prevent fraud affecting EU citizens. Prevention and combating card-not-present (CNP) fraud requires specific regulations on the customer’s identification (3D secure protocol) and security of the on-line payment environment. The role of the European Central Bank and Europol is crucial to present the problems and propose specific solutions.

Security of non-cash means of payment is a key factor in the economic stability of the European Union

According to statistics, the total number of payment cards issued in the EU in 2011 reached 726,906,710

The value of legitimate non-cash transactions with EU cards exceeded 3000 billion euros. From a security perspective, EU industry has taken an important step forward by fully implementing the EMV (chip-embedded cards) standard for card-present (CP) transactions, and is advanced with the protection of on-line transactions through the strong identification of customers (3D secure).

Banking institutions are profit-making businesses, so reducing the illegal income of criminals is not always a priority for them when introducing new banking products or services.

Acceptable levels of fraud and expected net profit for banks are more important than the real prevention of fraud that would lead to depriving criminals of the huge amounts of money they are stealing using EU payment cards. With the current global nature in which the banking sector and non-cash transactions operate, security measures in place on a regional (EU) level are not sufficient and have been exploited by criminal networks.

The illicit activities and fraudulent transactions of OCGs performed outside the EU have affected the security and convenience of non-cash payments in Europe and have consequently caused substantial losses to the EU economy.

This report is based mainly on data provided by law enforcement agencies from EU Member States and some cooperating non-EU States. The figures and latest trends were identified based on information from

  • The European Central Bank
  • European Payments Council
  • European ATM Security Team (EAST)
  • Card schemes
  • Fuel Industry Card Fraud Investigation Bureau (FICFIB)
  • “Some” card issuers (note: why not all?)

Since criminals affect both physical transactions with payment cards (shops, ATMs), and the internet environment, for the purpose of this report payment card fraud is divided into card-present (CP) fraud and card-not-present (CNP) fraud.

The implementation of EMV (Chip and PIN) technology in the European Union is seen as the key driver to reducing domestic payment card fraud. It should be stressed that cardholders’ confidential data is more secure on a chip-embedded payment card than on a magnetic strip card. Chip-embedded cards support dynamic authentication, requiring dynamic values for each transaction, and cannot be easily copied. The EMV card is considered to be well protected against skimming.

As the EU banking industry migrates to the EMV environment, losses caused by illegal domestic transactions in the EU have gradually decreased since 2008. However, at the same time, the level of illegal transactions overseas has seen a sharp increase. In 2011, almost all fraudulent face-to-face transactions with EU cards took place overseas. This phenomenon is determined by the level of technical protection of EU payment card terminals, ATM and Point-of-Sale (POS) terminals are fully EMV compliant. In response, criminal networks have targeted the weak points of the system and have undertaken criminal activities using non-EMV compliant terminals overseas. Due to this phenomenon, and the lack of specific agreements on reimbursement of losses caused by less protected terminals, the majority of the loss burden caused by this fraud is on the EU card issuers, which are specific banks in the EU.

Europol note “there has been no specific solution to this problem proposed by the card industry”

There are several countries operating as a substantial market for illegal transactions with counterfeit EU cards. The problem of illegal transactions in the US has been reported to Europol by all 27 EU Member States. There are also other locations where criminal groups with EU origins are cashing counterfeit cards.

The top six locations are:

  1. United States
  2. Dominican Republic
  3. Colombia
  4. Russian Federation
  5. Brazil
  6. Mexico

This trend has led to a situation in which, even after huge investments by the EU banking industry to install hardware and software to accept EMV cards, the problem has become even bigger, as it is extremely difficult to prevent and investigate crimes committed outside of EU borders.

The ultimate solution to this problem would be to implement the EMV standard on a global level, including making United States’ merchants compliant.

As a short term solution, in October 2010 Europol and the European Central Bank recommended that all SEPA (European-issued) cards should be EMV (chip-embedded) only. The first Member State to follow this recommendation is Belgium, where debit cards have chips embedded and the magnetic strip is no longer active. This solution, called GeoBlocking, in practical terms limits the possibility to misuse debit cards in regions without Chip and PIN verification. The implementation of GeoBlocking has been extremely positive from a security point of view with significant falls in skimming incidents and skimming-related losses (a decrease to almost zero in Belgium).

It should be stressed that there are some constraints to such solutions. The baseline for branded cards is that the cards are accepted globally. From this perspective the chip-only cards are not in line with this policy. The use of GeoBlocked cards is also less convenient for card holders as the card must be activated every time before travelling to non-EMV compliant countries. According to a research poll carried out by EAST, 60% of customers would be in favour of the GeoBlocking solution, including 28% of respondents who would be happy to contact their banks to activate the magnetic strip on their cards, and 12% who would like to hold a chip-only card.

This compromise is the price that card issuers and card holders pay as a result of the criminal activities of organised networks. It can be concluded that organised criminal groups have already managed to affect the EU payment card market to the extent that the use of cards is not cheap for card issuers and is less convenient for cardholders.

Investigations into card-present (CP) fraud
Industry reported an increasing number of incidents against ATMs in the EU were 20,244 in 2011 compared to 12,383 in 2010.

The statistics include all types of attacks against ATMs, including

  • skimming
  • using stolen cards
  • physical traps to obtain cash

According to reports provided by EU law enforcement authorities, organised crime groups adjust their profiles and criminal techniques relatively quickly and smoothly. Not only can they produce skimming devices to bypass the latest anti-skimming technology but they also explore new possibilities, including cash traps, prepaid cards or malware, as a source of cash and card data.

Most criminal structures operate internationally so cross-border cooperation is a key to final success. Taking into account that suspects use specific countermeasures, corrupt police officers and hire the best lawyers, investigative measures in such cases are very difficult. The criminals’ use of sophisticated technical equipment forces investigative teams to cooperate closely with forensic experts, who can decode information and analyse seized electronic storage devices. Unfortunately, in most of these cases, investigative measures focus on the criminal activities taking place in the European Union. Law enforcement agencies and judicial authorities, being limited by legal provisions, time frames and financial restrictions, can rarely investigate fraudulent transactions performed overseas.

In practical terms, investigative measures rarely lead to dismantling the whole criminal structure. Judicial authorities press charges mainly for the part of the criminal activities that are performed in the EU, which is usually considered as the preparatory stage and not always associated with any financial losses. Consequently, in the majority of such cases the sentences are relatively lenient and suspects can leave jail on bail. Even if some criminals from an OCG are arrested for a period of time they can be easily replaced by others so that the criminal group is still active.

In June 2011 a global operation, ’Night Clone’ was brought to a successful conclusion with almost 70 suspects arrested in the EU and overseas. The operation had a very big impact and for several months, illegal activities of many other OCGs ceased.

Card-not-present (CNP) fraud
Payment card data is the ideal illicit internet commodity as it is internationally transferable. Europol, in its report on Internet Facilitated Organised Crime concluded that organised crime groups clearly benefit from globalisation, using foreign payment card data to purchase goods and services on-line. Credit card information and bank account credentials are the most advertised goods on the underground economy’s servers.

According to Europol’s intelligence, in 2011 around 60% of payment card fraud losses, totalling 900 million euros, were caused by card-not-present (CNP) fraud.

Within the major card-not-present fraud investigations supported by Europol, the main sources of illegal data were data breaches, often facilitated by insiders and malicious software. In most of these cases the quantity of compromised card details is substantial, reaching hundreds of thousands or millions, enabling criminals to sell the bulk data on the internet.

So far most of the credit card numbers misused in the EU have come from data breaches in the US. However, since 2010, Europol have observed a growing number of financial data breaches against EU-based merchants and card processing centres. Most of the investigations into these breaches are based on information on illegal transactions carried out using compromised cards, as the reporting of such attacks by the affected companies is still a weak point.

A major problem in the EU is the lack of proper regulations for reporting data breaches to police authorities. Law enforcement agencies, even if aware of a breach, have difficulties finding information on, and links to, the point of compromise, stolen data and illegal transactions. The lack of legal provisions on reporting data breaches is not the only problem. One of the key factors making industry reluctant to report incidents to law enforcement authorities is the lack of trust in investigative possibilities as well as the need to maintain the reputations of the respective private entities. On the other hand, the lack of reporting leads to a small number of international investigations and a low level of prioritisation of such cases within LEAs. The problem ends up with the situation where, despite a dynamic increase in CNP fraud, it is not reflected in the statistics of cases reported and investigated by EU police forces. Consequently, since the problem is not reflected in police statistics, this phenomenon is not prioritised and it is difficult to initiate international cooperation in such cases.

From the security perspective, as with the security of face-to-face transactions, there is a lack of common global standards on the protection of card-not-present transactions. Major investments by EU industry have been made in the 3D secure protocol (MasterCard secure code; verified by VISA). However, despite this strong 3D secure verification, it is not a worldwide solution and, even on the EU level, not all on-line transactions are protected with it.

Investigations into CNP fraud and its initial stage data breach is typically very demanding. As identified by Verizon, such cases are usually quite large and complex, often involving numerous parties, inter-related incidents, multiple countries, and many affected assets. In addition to that, as stated earlier, the majority of such cases are not reported to LEAs, as industry mainly focuses on preventive measures rather than relying on the outcome of investigations. The results of internal inquiries are used to improve security measures and rarely focus on the identification of individuals responsible for the breaches.

As far as investigations into illegal on-line card transactions affecting the EU are concerned, they are mainly concerned with:

  • illegal ordering of high value goods on the internet
  • combating networks of mules set up to receive and transfer goods ordered on the internet
  • illegal transactions – purchases of services from travel companies/airlines
  • physical transactions with counterfeit credit cards – with data sourced from the internet
  • investigations into OCGs from the Baltic states and South East of Europe
  • the proper coordination of information – where possible, data breaches should be linked to illegal transactions
  • assets seizure – the network of mules shall be determined in order to localise the entry/exit points of goods

EU Member States reported many constraints and challenges faced during such investigations. The lack of legal provisions for reporting on-line incidents and data breaches, which are usually of an international nature, creates problems in individual cases under the responsibility of the respective MS, including the possibility to connect illegal transactions reported by other countries and decisions on the place of final prosecution. The global dimension and protection of financial and personal data is a major problem as far as the efficiency and time-frames of investigations are concerned. From a practical perspective, the involvement of Russian-speaking, well organised and hermetic structures cause huge problems with regards to infiltrating individuals and collecting evidence on their criminal activities. Since the majority of criminal activities are on-line, the best solution is to task specialised cybercrime teams with such cases.

As there is still little experience on such card-not-present fraud cases where data breaches and illegal transactions make EU companies and consumers the key targets the role of Europol is crucial, to analyse information and spread strategic and operational information, ultimately ensuring the efficiency of investigative measures.

Europol Summary of Credit Card Fraud in 2012
The financial crisis has had a big impact on the approach of private financial services companies and LEAs. Currently, all decisions are thoroughly scrutinised and assessed from an economic and ‘priority’ perspective.

Private industry focus on products and services which bring profit in the first instance. Such companies can accept a certain level of fraud without making any effort to identify the individuals responsible for that fraud. From the law enforcement perspective it is increasingly suggested that, since losses caused by payment card fraud can be easily covered by private industry, there is no point in investing resources on investigations. The problem is even bigger as investigations must be performed on an international level, so the investment must be higher and comes with no guarantee of final success or seizure of assets.

All that leads to the dangerous situation in which the illegal income for members of organised crime groups, reaching 1.5 billion euros a year, is not identified and recovered. It seems that the EU response to the payment card fraud problem is not harmonised or fully supported by all actors card schemes, card issuers, processing centres, law enforcement agencies and judicial authorities.

The EU still has to rely on outdated technology which does not adequately protect payment card transactions. One policy option available to strengthen security levels is to abandon the magnetic strip on payment cards for internal EU transactions.

As far as new technologies are concerned, including mobile or contactless payments, it is still not well analysed but there are certain doubts about their properly coordinated and standardised implementation to guarantee resistance to fraud.

The coordinated approach of industry and LEAs should lead, not only to the security of non-cash payments, but should also make sure that all incidents, including data breaches, are reported for further investigation. The position or reputation of the reporting entity should be protected and should not be undermined based on such a report.

Taking into account the global dimension of the problem, law enforcement and judicial authorities should take necessary steps to increase knowledge and awareness on the investigative skills and possibilities available. The role of Eurojust, as the agency for judicial cooperation, is extremely important to coordinate investigations and ensure the efficiency of prosecution and assets seizure in such cases.

The EU still has to rely on outdated technology which does not adequately protect payment card transactions. One policy option available to strengthen security levels is to abandon the magnetic strip on payment cards for internal EU transactions.

As far as new technologies are concerned, including mobile or contactless payments, it is still not well analysed but there are certain doubts about their properly coordinated and standardised implementation to guarantee resistance to fraud.

The coordinated approach of industry and LEAs should lead, not only to the security of non-cash payments, but should also make sure that all incidents, including data breaches, are reported for further investigation. The position or reputation of the reporting entity should be protected and should not be undermined based on such a report.

Taking into account the global dimension of the problem, law enforcement and judicial authorities should take necessary steps to increase knowledge and awareness on the investigative skills and possibilities available. The role of Eurojust, as the agency for judicial cooperation, is extremely important to coordinate investigations and ensure the efficiency of prosecution and assets seizure in such cases.

Proper coordination of information processing and reporting to the involved countries is critical for efficient investigations. A centralised database is very important to link members of criminal networks, fraudulent incidents and investigations. Europol, having a specialised team with an existing operational database and a newly-created technical platform, can play an important role in such cases.

The missing links that remain are the legal solutions on cooperation with non-EU States and the communication of data with non-EU States and the communication of data with Private Industry.

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