The Green Sheet, discussed the repercussions of various types of financial fraud and listed the current top five fraud trends. Here are five additional significant fraud trends to keep an eye on." />
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The Green SheetGreen Sheet

The Green Sheet Online Edition

September 27, 2010 • Issue 10:09:02

Further fraud trends in 2010

By Nicholas Cucci
Network Merchants Inc.

Editor's Note: In "Fraud trends in 2010," The Green Sheet, Aug. 23, 2010, issue 10:08:02, I discussed the repercussions of various types of financial fraud. I also listed the current top five fraud trends.

Following are five additional significant fraud trends that, when combined with those listed previously, round out the top 10 trends this year:

1. Insider fraud

Lost jobs. Overwhelming debt. Desperate times. The challenging economy has decimated the finances of many. Even virtuous people sometimes resort to crime in times of personal crisis if an unmonitored opportunity occurs, said the TowerGroup, a research and advisory services firm for the financial services industry.

Celent LLC, also a research and advisory firm, estimates approximately 60 percent of bank fraud cases involving data breaches or theft of funds are inside jobs. Unfortunately, employees and contractors with access to financial institutions' systems are positioned to exploit the systems' vulnerabilities.

The face of internal fraud is changing due to the increasingly sophisticated underground economy. Historically, employee fraud involved account skimming and other small-scale attacks that put money in the employee's pocket. Today, with access to the online fraud forums, employees can advertise and sell customers' personal and financial information without stealing directly from accounts. Employees more easily rationalize this type of fraud, especially those acting out of desperation.

2. Use of money mules

In November 2009, the Federal Deposit Insurance Corp. warned financial institutions about an uptick in scams involving unauthorized funds transfers from hacked online bank accounts to "money mules," who are people hired through work-at-home scams to help cybercriminals launder money.

Typically hired via Internet job search websites, money mules move money for generic-sounding international corporations. Under the pretense of job titles such as "finance manager," they wire deposits made into their personal accounts to overseas accounts via Western Union Co. or MoneyGram International.

The FDIC provided the following examples of suspicious events that may indicate money-mule account activity:

  • A customer who just opened a new account suddenly receives one or several deposits, each totaling a little less than $10,000, and then immediately withdraws all but approximately 8 to 10 percent of the total (possibly the mule's "commission").

  • A foreign exchange student with a J-1 visa and fraudulent passport opens a student account with a high volume of incoming and outgoing money and transfer and wire activity.

3. Exploitation of avatars and virtual markets

In the virtual worlds of massively multiplayer online games (MMOG), players use 3-D representations of themselves, called avatars, to interact with other players online.

Residents in virtual worlds can move about, chat with other residents, participate in activities, and trade or buy virtual items and services from other residents. However, just like in the real world, criminals have discovered that virtual worlds can be lucrative.

According to the Journal of Virtual Worlds Research, criminals cause many problems in Second Life, one of the most popular MMOG sites. With little regulation or observation by law enforcement, the fraud underground has found ways to operate within Second Life and other online gaming environments, using the following:

  • Phishing: Criminals email potential victims, posing as employees of Linden Research Inc., the operator of Second Life, and asking to confirm usernames and passwords via a link in the email. Once attackers possess the users' credentials, they can transfer funds out of accounts, assume users' identities and perform other actions as if they are the users.

  • Money laundering: Second Life has a real economy in which users can buy and sell items using Linden Dollars. Several online resources allow residents to convert Linden Dollars into U.S. dollars or other currency, and vice versa. Rates fluctuate based on supply and demand. Currently, no federal agency monitors these transactions. This situation provides an excellent back channel for terrorists, criminals and even legitimate business owners to transfer funds to parties undetected.

  • Skimming using fake SL Exchange terminals: This fraud occurs when a perpetrator places a fake terminal on top of an actual SLExchange terminal within the game. Once this is done, the attacker sits back and waits for victims to use the terminal.

    A victim's avatar comes along and deposits money into what the avatar believes to be his or her SLExchange account. Instead, the money is deposited into the attacker's account, and the victim is unaware until the money is long gone.

4. Sale of black market data

At the heart of the underground economy is the selling of stolen data.

From credit card numbers to bank account credentials, every piece of information has a price and is subject to the law of supply and demand. The supply is constantly growing along with increased overseas demand for stolen data.

For example, credit cards have different prices based on their country of origin and card type (Visa Inc., MasterCard Worldwide, American Express Co. and others).

Visa Platinum cards go for more than Visa Classic cards. Often, data from multiple cards are sold in batches at relatively low prices.

Similar to legitimate online retailers, sellers of black market data frequently receive ratings on the quality of their data. Also, many of the crooks are acquainted and know where to go when they want to obtain certain types of information.

5. Creative money laundering

Most people don't have too much cash on hand. But after selling stolen data or using stolen data, criminals don't want to raise suspicions by having too much money in bank accounts or risk keeping it on hand.

Fraudsters rely on a range of money-laundering tactics to hide their money. Unique to the fraud underground is the use of money mules, as described earlier, to transfer money into foreign bank accounts.

Criminals also launder money through otherwise-legitimate online enterprises and invest in large-scale brick-and-mortar enterprises to hide their ill-gotten gains.

Examples include buying restaurants or developing real estate. Albert Gonzalez, who admitted to participating in the notorious TJX Companies Inc. breach, reportedly was ready to purchase equity in a Miami nightclub before his arrest. end of article

Nicholas Cucci is the Marketing Director for Network Merchants Inc. He is a graduate of Benedictine University. Prior to joining NMI, Cucci worked in the payment processing division for a Fortune 500 company and has advised several large retailers on credit card fraud protection, screening and risk assessment. He can be reached at or 800-617-4850.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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