While most North American payments fraud is related to identity and organized crime, one area—terrorism—stands out in this region compared to other developed markets. Eight percent of the 154 criminals cases reviewed by information-security firm Terbium Labs in its “The Next Generation of Criminal Financing: How Payment Fraud Funds Transnational Crime” report were linked to terrorism. That’s in comparison to the 2% rate for the 112 cases examined in Europe.
Identity-related fraud, at 33%, and organized crime, 32.5%, dominated the North American cases, Baltimore-based Terbium says. Other categories included human trafficking, 17.5%; drug trafficking, 15%; money laundering, 13%; and tobacco, firearms, and automobile trafficking, each at 1%. Figures add to more than 100% because some cases involved multiple fraud types.
Terbium argues that more needs to be done to combat payment fraud and that its harm extends beyond fraud.
“Fraud is a global issue,” Emily Wilson, Terbium vice president of research, says in an email. “Payment cards skimmed in Iowa end up on Romanian carding markets, and are then sold to fraudsters around the world. The payments industry, from the card networks to the issuing banks, need to reevaluate the scale of the problem. This is no longer just someone stealing credit cards out of mail boxes, this is a highly organized criminal economy thriving on stolen payment data. This research illustrates some of the ways that the criminal economy uses payment fraud to fund horrific crimes; the payments industry needs to reevaluate their approach to identifying and investigating fraud with higher stakes in mind.”
In its research, Terbium cites two 2010 cases of credit card fraud that was used to support Hezbollah, which is on the U.S. State department’s list of foreign terrorist organizations. In the U.S. case, the two individuals charged with aiding Hezbollah illegally took large cash advances on credit cards “to purposefully have them discharged during bankruptcy proceedings and use this money to fund Hezbollah,” the report says. They also made cash advances against the credit cards and transferred the funds abroad.
In a Canadian case, an individual purchased vehicles and shipped them to Lebanon for Hezbollah’s use. The individual also was forced by the terrorist organization into bank fraud, credit card fraud, and the export-oriented vehicle theft.
“We initially anticipated seeing a more balanced number of cases between North America and Europe,” Wilson says of the reviewed terrorism cases. “This uneven distribution requires further research to identify whether North America consistently sees such a high rate of terrorism cases in comparison, or if the rates of terrorism-related cases in Europe are masked by selective case availability or dismissal or fraud charges before European cases reach public record.”
Notwithstanding the root reason for criminals to engage in payments fraud, Terbium says the payments industry must do more.
“We know payment card fraud is a multi-billion-dollar problem, and those numbers only continue to increase,” Wilson says. “Where is that money going? How are fraudsters using these funds? What larger trends can we identify in criminal financing? When we think about fraud, we can’t stop at simply reversing charges and reissuing cards–we have to look deeper. We have to think beyond the limited transactional borders of fraudulent activity. We can’t continue with different levels of commitment to ending human trafficking versus fighting fraud. These issues are one and the same.”