Financial identity is *dangerous*? (was re: Fake companies, real money)

[Tyler Durden]

OK, I'll bite. Or rather...

Well, your initial postulate was stated in such a way as to be fairly 
unrefutable, the key word being "float". Only companies, etc...provide that 
by requiring that the transacted funds flow through their coffers for a 
moment, where they extract their discount revenue. At this stage of the 
game, nobody when their head screwed on tight would argue that 
Internet-based businesses don't represent an increase in Risk (whether that 
increase will eventually make float-based business models impossible is an 
entirely different matter).

Interestingly, the Visa organization recently launched a Purchasing Card 
platform which merely facilitates EFTs (a step towards your oft-mentioned 
"Geodesic Society"?)...there's a fixed and small discount revenue touch 
that's independent of the size of the transaction (and they can afford to do 
this because there's no float, ergo no risk). In this case, Visa is 
providing "value added" information systems for the transactions, but in a 
sense they're allowing their member banks to more or less completely step 
out of the transaction if they wish.

Now of course, Paragraph 2 is only related to Paragraph 1 by the fact that I 
wrote both of them in one post. To my knowledge, Visa's new PCard platform 
has nothing to do with Internet-based risk PER SE, but in the long run I'll 
doubt we'll lable this a coincidence.

-TD

>From: "R. A. Hettinga" <rah at shipwright.com>
>To: cryptography at metzdowd.com, cypherpunks at al-qaeda.net
>Subject: Financial identity is *dangerous*? (was re: Fake companies,  real  
>money)
>Date: Fri, 8 Oct 2004 19:14:08 -0400
>
>Okay. So I'm coming to the conclusion that book-entry settlement, with its
>absolute requirement for both "identity" and float between transactions, is
>becoming more and more *un*-safe to use as internet ubiquity increases.
>
>Anyone want to pick up the other side of this and tell me why not?
>
>No bugbears or horsemen need apply...
>
>Cheers,
>RAH
>-------
>
>
><http://www.msnbc.msn.com/id/6175738/print/1/displaymode/1098/>
>   MSNBC.com
>
>Fake companies, real money
>Elaborate con wrings cash out of stolen credit cards
>By Bob Sullivan
>Technology correspondent
>MSNBC
>Updated: 7:15 p.m. ET Oct. 7, 2004
>
>
>T-Data, a small New-York based software company, doesn't take credit cards
>-- never has in its 20-year history. But a few weeks ago, owner Jeff Duhl
>found himself looking over $15,000 worth of credit card charges seemingly
>accepted by his store.
>
>A quick investigation revealed most of the charges had been made using
>stolen credit cards. Slowly, he caught on: Someone had stolen a batch of
>credit card accounts, then stolen his company's name, set up an imposter
>version of T-Data, and rung up thousands of dollars worth of fake
>purchases. The "profits" were then desposited into checking accounts
>controlled by the imposters.
>
>"It is ingenious," said Dan Clements, who operates merchant advocacy site
>CardCops.com.
>
>Duhl wasn't the only victim of this new brand of corporate identity theft:
>At least 50 other firms apparently also had their identities stolen in the
>scheme. For credit card thieves doing their best to wring money out of a
>stash of stolen accounts, it seems like the perfect scam.
>
>How to profit from stolen credit cards
>While millions of credit card account numbers are stolen every year -- 60
>million last year, and perhaps 120 million this year, according to one
>estimate -- turning them into cash can be tricky. Merchandise ordered with
>the card must be delivered somewhere, which is risky. Massive cash
>withdrawals are quickly spotted by credit card associations.
>
>  The scheme Duhl's firm was caught up in is a heady, complex alternative:
>
>First, credit card thieves find a legitimate company unlikely to already be
>accepting credit card transactions. They then impersonate that company and
>set up accounts with merchant processing providers, whose role it is to
>transfer funds between credit card companies and merchants.
>
>  Using stolen credit cards, the thieves then start sending small payments,
>usually $498 or $598 at a time, to the fraudulent merchant accounts. The
>credit card companies send funds to the processors and they in turn send
>the funds off to bank accounts controlled by the criminals.
>
>"They are flying under the radar on each transaction unless someone does a
>whole lot of work," Duhl said.
>
>  A key part of the scheme: The thieves went to the trouble of registering
>the domain www.T-datasoftware.com, then set up a fake Web site. The site
>looked like a believable business to the merchant processing providers, who
>gave the thieves their accounts.
>
>Duhl's imposters were able to set up accounts at seven different payment
>processing firms. When Duhl investigated, he discovered some 50 other Web
>sites -- most mere imitations of one another -- all sitting on the same
>computer server.
>
>"They got away with $15,000 (in charges) at my company," Duhl said.
>"Multiply that by the number of sites, the number of companies, these folks
>could be getting away with millions of dollars," he said.
>
>It's not clear how much money the criminals really did get away with in the
>end. Many of the processing firms interviewed for this article claimed they
>caught on to the fraud after the transactions had cleared, but before the
>suspects had withdrawn the money from various checking accounts around the
>country.  One did concede, however, that the scheme has real potential.
>
>'Hundreds of thousands' over a weekend
>"If you don't catch it you could lose hundreds of thousands of dollars over
>a weekend," said David Steinberg, chief credit officer at Merchant E
>Solutions, one of the processing firms used by the thieves.
>
>  Steinberg said his company had never suffered such a loss, but that the
>industry is bustling with fraud attempts. Some 5 to 10 percent of all
>applications his firm receives are turned away as potentially fraudulent,
>he said.
>
>Phyllis McNeill, a spokeswoman for Global Payments, another processing firm
>hit in the scam, confirmed a fake account had been set up in T-Data's name
>with her company. She said the account was actually set up through a
>reseller, and was shut down after eight transactions had been performed.
>
>Randy Lobban, director of risk management at North American Bancard, said
>the con artists were able to open up an account at his firm and pass eight
>charges through the system, but the funds were never released.
>
>"They never got any money," Lobban said. He alerted the U.S. Postal
>Inspection Service to the incident.
>
>Representatives at First Data and Wells Fargo also confirmed that fake
>accounts had been opened at their firms.
>
>  An official at Beacon Bank in Minnesota, where one of the checking
>accounts used to receive the stolen funds had been set up, confirmed that
>he had discussed the situation with Duhl, but would not provide further
>comment.
>
>  Corporate ID theft
>Whoever impersonated T-Data were clever enough to throw a few monkey
>wrenches in the path of anyone trying to detect them.
>
>When applying for the compulsory credit check needed to obtain the fake
>merchant account, for example, the thieves didn't use T-Data's tax ID
>number. Instead, they used the name and credit profile of a man unconnected
>with the company. Steven Wiencek, who lives on Long Island near the
>company, didn't even know his credit had been checked until contacted by
>MSNBC.com for this story.
>
>But the application, which listed Wiencek as company president, gives his
>Social Security number and driver's license number, suggesting the people
>behind this scheme have access to a wide swath of stolen credit cards and
>stolen identities.
>
>Another attempt at misdirection was foiled by an alert mail carrier.
>
>  The application for the merchant account used a slight variation of 
>Duhl's
>address -- apparently an attempt to ensure that mail to Duhl would be lost.
>But a knowledgeable local postal worker recognized the company name anyway,
>leading Duhl to discover the dupe.
>
>"Without that, I may not have found out about this for a long time," he 
>said.
>
>  The thieves were also persistent. Using one stolen credit card, they
>attempted to steal $2,500 through five separate faked merchant accounts,
>according to an affidavit of credit card fraud supplied by Duhl.
>
>  Another corporate ID victim, John Bartholomew of Abcom Services, said he
>was lucky, because Duhl contacted him just as the scam began.
>
>  "We are a management company in long-term health care. We would have no
>reason to use credit cards," he said. The firm had been in business for 21
>years, and never accepted a single charge -- until the criminals stole his
>company's name, Bartholomew said.
>
>True to form, the criminals hijacked his brand name and set up merchants
>accounts using his company's name and a similar -- but slightly altered --
>street address.
>
>  The good news is, Bartholomew was able to warn the merchant account
>providers soon enough that only about $4,000 in charges were run through
>his company's name. The bad news is, some of the providers are still trying
>to make him pay the bill for the charges. He figures he's spent about
>$5,000 in legal fees trying to clean up the mess.
>
>Who are they working with?
>Rob Douglas, a consultant who operates PrivacyToday.com, blames the
>merchant account providers for never checking to see if the name on the
>account application actually represented a real person who worked at the
>firm.
>
>"You have to ask what the companies that set up the merchant accounts are
>doing?" he said. "Who has the responsibility to do due diligence that they
>are in fact working with who they think they are working with when they
>open an account?"
>
>But several of the merchant service providers pointed out the difficulty of
>stopping all fraudulent applications in a world where identities are so
>easily stolen.
>
>  "For all of us, it's a tough business," Steinberg, of Merchant E 
>Services,
>said. "It's a large, large problem."
>
>Duhl himself blames the banks where the money was to eventually wind up --
>wondering how the thieves were able to set up accounts in the post-Patriot
>Act era. Apparently worried as much about security implications as his
>personal loss, Duhl contacted the FBI, the Secret Service and the U.S.
>Postal Inspector's Office.  None of the agents he spoke to returned phone
>calls placed by MSNBC.com.
>
>  He says he is frustrated that none of the agencies seem to have taken any
>interest in the incident -- particularly because at least one phone call
>was placed to Pakistan using the cell phone purchased in his company's
>name, and one of the bank accounts used to funnel money was established by
>suspects who presented Russian passports as identification, he says his own
>research revealed.
>
>  "No one in the government seems like they are going to get interested in
>establishing a case," Duhl said.
>
>  Douglas, who consults with firms trying to deal with the new trend of
>corporate identity theft, says there's little small companies like Duhl's
>can do to prevent this kind of incident. But one piece of practical advice
>he offers larger firms: search the Web once a week for evidence of
>impersonation.
>
>"As strange as it sounds, companies need to have one or more people
>assigned to surf the Web and see if there are mirror sites out there, just
>like we tell parents to surf for their child's name," he said.
>
>Bob Sullivan is the author of Your Evil Twin: Behind the Identity Theft
>Epidemic
>
>--
>-----------------
>R. A. Hettinga <mailto: rah at ibuc.com>
>The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
>44 Farquhar Street, Boston, MA 02131 USA
>"... however it may deserve respect for its usefulness and antiquity,
>[predicting the end of the world] has not been found agreeable to
>experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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