Latest tricks used by money launderers

Point of sale and ATM tampering, skimming, microstructuring and even smurfing are all tricks money launderers and other criminals can use to defraud a company of money. Carmela Demkiw, Toronto Dominion Bank’s National Manager for Debit Investigations gave attendees at this year’s Global Compliance Solutions conference a fascinating glimpse into this whole new world. Business Editor, Lindsey Turnbull reports.

According to Carmela Demkiw, debit card fraud is a growing problem in Canada, and no doubt the world over. In Canada, skimming of debit cards caused Canadians $44 million losses in 2003, while that figure was up to $107 million in losses in 2007.

She explains the basic concept to the fraud: “POS fraud involves a point of sale terminal that has been compromised internally with a device that allows specific data (the information that is stored on its magnetic strip) to be electronically captured.”

ATM fraud runs on similar lines: “This involves the installation of a covert device placed on the ATM (either a camera or pin pad overlay) which is designed to capture customers’ personal identification numbers (PINs) as they are entered. A magnetic stripe reader is also needed which is attached to the ATM which captures the customer’s specific information which is encoded on the back of debit cards.”

Carmela detailed that debit card fraud is a relatively new crime that has grown incredibly quickly in terms of sophistication. In 1998 the Toronto police investigated the first reported case of debit card skimming, in 1999 Interact reported the first debit fraud alert whereby 14 debit cards were compromised and in 2004 the first internally compromised pin pad was reported.
Nowadays criminals are using equipment such as pinhole cameras to detect customer information as well as gel pad inserts and tampered Blue Tooth technology which allows them to transmit data wirelessly.

However the news is not all doom and gloom as Carmela points out, “The dollar losses are actually reducing on a month by month basis (August 2006 to July 2007 the loss in Canada was $108 million while the same period 2007 to 2007 was $90 million.) She attributes this success to banks getting more diligent in their blocking of such criminal behaviour, better live monitoring of transactions and the fact that there is better detection of fraudulent activity.

Even so, Carmela warned that criminals were getting much better at tampering with such equipment and outlined the fact that criminal used to have to take the point of sale equipment away with them to tamper with them overnight; whereas now it takes them a mere 15 minutes or so to corrupt the equipment.

In Cayman Carmela said the authorities set an excellent example of how this kind of criminal activity will not be tolerated, when she said, “A few years ago a Venezuelan man was charged with credit and debit card fraud involving ATMs and money laundering. He received a five year jail sentence which showed the Cayman Islands means business.”

ATM money laundering, otherwise known as microstructuring or smurfing, is the act of depositing and withdrawing small amounts of money at numerous ATMs. The transactions defeat the transaction monitoring systems by making the deposits so small they fly under the radar of the detection rules embedded in the software systems. The money is then withdrawn by another party, usually in another country in the local currency, effectively laundering the money and making it almost impossible to trace.

According to Carmela, microstructuring is noted for its simplicity and has become the money laundering practice by drug traffickers, terrorists and organised crime rings. Its convenience means money launderers can use the scheme 24 hours a day, seven days a week and there are hundreds of thousands of ATMs across the globe (an estimated 1.5 million) and deposits and withdrawals can be made domestically and internationally.

Gift cards are also a new trick for money launderers, according to Carmela because tighter scrutiny by the traditional banking industry has forced criminals to look for alternative methods of laundering money.

Gift cards have cross border features that allow a person to use a foreign-issued card in the US and a US-issued card outside the US. An added benefit for criminals using this method is that 90 per cent of gift cards have no expiry date.

Carmela outlined the organised crime group Project Caravan which laundered the money made through debit card skimming by purchasing gift cards by the hundreds. The gift cards were then sold on the street, sent overseas or used by the crime group to live a lavish lifestyle. When the criminals were caught the authorities seized over 500 gift cards in various amounts.
Huge US retail chains TJ Maxx and Marshalls was also a victim of similar crime, with the theft of credit card data on over 45 million customers leading to a spending spree by the perpetrator, 19 year old Irving Escobar. Authorities estimated the group he worked for acquired $1 million in goods and bought gift cards in $400 increments, just under the $500 limit that requires a manager’s approval.

All in all, Carmela said criminals were getting increasingly sophisticated and it was up to the banks to beat that sophistication if they wanted to get on top of such fraud.