Blue Byline

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When it comes to fraud, U.S. is dragging the world down

Post by Brian O'Neill on May 12, 2013 at 12:51 pm with 4 Comments »
May 12, 2013 12:51 pm

In the realm of criminal investigations, bunco is a boring afterthought.

While Hollywood delves into gritty themes like homicide and drug dealing, white collar crime continues to siphon a staggering amount of money from the U.S. economy. Every year billions of dollars are lost to crimes ranging from money laundering to ponzi schemes, from insider trading to health care fraud.

Most financial crimes go unheralded – identity theft is the exception. Instead of banks and corporations, identity theft hits victims on a visceral level.

Among the countless ways in which identity thieves target their victims, one of the most common is the illegally access of credit card information. Despite technological advances, the primary reason this crime continues to plague the financial system is Americans’ continued reliance on the outdated magnetic strip on the back of cards.

Chip-and-Pin card reader/ courtesy
Chip-and-Pin card reader/ courtesy

People who do not travel outside the U.S. may not be aware that the ubiquitous magnetic strip has been rendered obsolete. In its place are credit cards installed with the so-called “chip-and-PIN” technology. Computer chips embedded in these cards are then read by hand held devices before being passed to the consumer who then enters a PIN number. This is security a full generation beyond the magnetic strip.

The only roadblock to the full implementation of this more secure payment method is the looming economic powerhouse known as the United States. Almost no financial institutions in this country offer chip-and-PIN credit cards, though the system is practically universal throughout Europe, Asia, Latin America and across the border in Canada where it has a marketplace staple for years.

Because U.S. banks seem incapable of weaning their customers off credit cards with magnetic strips, any foreign hotel, restaurant or storefront catering to Americans must offer two types of credit card readers. As a result the entire world financial system has become a playground for savvy electronic thieves.

An article buried in Saturday’s TNT (5/11) highlighted the inherent vulnerability of credit cards with magnetic strips. The story detailed a recent theft of $45 million from ATM’s around the globe perpetrated by a network of hackers, many of whom were arrested by the combined efforts of law enforcement agencies from a dozen countries.

What is evident is that the current system is untenable. While the rest of the global financial community has moved on to the more secure “chip-and-PIN” model, the juggernaut known as the U.S. consumer has virtually neutered this upgrade by Americans failure to abandon the magnetic strip.

Unfortunately, this problem has failed to attract the notice of anyone in a position to fix the problem. Banks have proven unwilling or unable to address a variety of systemic issues, while politicians seem incapable of anything aside from partisan gamesmanship.

Since it is the consumer who ultimately pays for goods at the marketplace – this includes the costs associated with poor management, ineffectual laws and blatant fraud – it is perhaps fitting that the American consumer should be the one to address this financial defect.

How? By contacting the company on the top of the credit card, whether that be an airline, a hotel chain, a bank or even the credit card companies directly responsible for this problem.

Otherwise, it will be up to the least glamorous investigators, the bunco squad, to track down the steady stream of consumers’ cash after it’s already landed in the pockets of some decidedly unsexy criminals.

And by then it’ll already be too late.

Leave a comment Comments → 4
  1. Then there’s banks that give next to zero interest on old people’s
    accounts and then charge them this fee and that fee.
    Fraud legitimized.

  2. musingintacoma says:

    The issue as I have heard it is a fight between financial institutions and merchants to pay for the upgrades to POS equipment for chip and PIN. Our own homegrown Costco has refused to timely adopt chip and PIN in Canada because of the computer upgrades they would need and the associated costs. (If you ever look closely at Costco POS equipment, it is the same equipment that was being used in the 80’s.) Because banks continue to isolate the consumers from the problem with zero fraud liability policies, consumers could care less as they do not see an immediate impact from ‘swipe fraud’. In Canada, merchants who have not adopted chip and PIN now face 100% liability for fraudulent transactions done by swiping the magnetic strip. Good incentive to get the equipment (which is paid for by the merchant.) Good luck seeing that here, you would only see many lawsuits. Chip and PIN, while not infallible, is far better that the mag stripe. Time for the mag stripe to go the way of 8 tracks, cassette tapes and the VCR.

  3. Brian O'Neill says:

    Thanks for the analysis, musing. Inevitably, money is at the back of this problem – and at the front of it as well.

  4. scott0962 says:

    Its not the fault of the American consumer, they’re not being offered a choice to switch to the more secure method. The fault lies with the credit card issuers who have little incentive to spend the money to upgrade their technology when they can pass the costs of identity theft on to consumers, insurance companies and the taxman.

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