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Vladimir Golubev

Plastic cards in Ukraine – fraud classification

Vladimir A. Golubev According to Ukraine’s National Bank Payment System Department, on July 1, 2003, eighty-five banks (nearly 55% of their total number) were fixed as members of intrastate and international payment systems that issue and acquire payment cards.

In the second quarter of 2003, the full quality of operative cards issued by Ukrainian banks has increased by 8% and makes more than 8016 pieces.

The number of card cash dispensers has grown up to 3770, payment terminals – up to 23817 and imprinters – up to 26162.

Payment card operations have also risen up to 35 million, card turnovers reaching 7762 million UHR.

Card account balances have increased as well up to 2579 million UHR (for physical persons – up to 2486 million UHR, for juridical ones – up to 92.8 million UHR).

On July 1, 2003, people’s card account balances in national currency were 59.8% of total sum and those in foreign exchange – 40.2%. Economic subjects’ card account balances in national currency made up 73.9% of general sum, those in foreign exchange – 26.1%.

Today there is also a dangerous tendency to enhance losses inflicted by bank technology crimes. In 2000-2003, commercial banks accounted for more than 78.5% of all damages caused by economic crimes. The level of only credit frauds in Ukraine is 4-5 times more than that in other countries (above 82% falls on Kiev).

The system of legal and financial security of banks and their clients, as well as its development should be considered together with methods of illegal plastic card transactions that can be divided into nine main types:

1. Counterfeit cards^;
2. Lost or stolen cards swindle^;
3. Frequent payment of services and goods^;
4. Post or phone order fraud^;
5. Repeated cash drawings^;
6. False slip^;
7. Cash dispenser fraud^;
8. E-recorder connected to the POS-terminal or money access machine (“Skimming”)^;
9. Others.

Crimes committed by applying plastic cards can be referred to the most dangerous economic ones because their negative influence is not reflected on the work of a bank itself but also on other subjects of the economic activity. Such offences cover corpus delicti specified in Ukraine’s Penal Code Articles 90, 200, 36.

The above classification shows that ways of committing plastic card frauds have their own distinctive features. As a rule, they are based on criminal actions directed at obtaining any access to the cashless settlement system (as a preparatory stage of fraud). In most cases, all these procedures are perfectly disguised that makes it difficult to reveal, expose and investigate frauds.

One of the criminal structure widely used method of obtaining payment card requisites is to create porno web sites. According to foreign special services, the Internet porno business is closely linked with criminal groups specialized in plastic card frauds.

Porno web sites are also used to launder stolen card requisites. For example, after making use of a porno site, a card owner finds out with surprise that he/she subscribed for it and every month this service will be charged for, it being quite problematic to cancel.

Finally, card requisites can be empirically found. For example, if a swindler knows a card number, he/she can easily determine its validity term. In fact, the plastic card is usually issued for two-year term. The parameter of “card validity term” fixes a month and two last figures of a year when a card is expired. Thus, a swindler should compute only 24 possible variants of this parameter. This task can be settled in the virtual world rather than in the real one. A swindler should send at most 24 computer-based requests to obtain a highly probable card validity term. After that, known card requisites can be used in various ways. The simplest method is to make an electronic card transaction. However, producing a counterfeit card with computed requisites to purchase in real shops is a more effective way of using a gained knowledge. In this case, such a fraud is qualified as “Counterfeit”.

In conclusion, it should be noted that all plastic card frauds are based on illegally obtained information on requisites of currently valid cards. The increase in homeland plastic card market makes the problem of banking cards security more acute. The mass issue of plastic cards makes them very cheap thereby enhances the risk of their counterfeit. Though methods of fighting plastic card frauds are constantly improved, bank losses make millions US dollars. Every year about $2 billion are stolen in the world by using Visa and Europay plastic cards. The practice shows that the number of card frauds depends on the maturity of the market. Swindlers are looking for countries with considerable issues of plastic cards but without enough experience in fighting e-card misuses.

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