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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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April 14, 2014

Danger Ahead! ATM Cash-Outs

The Federal Financial Institutions Examination Council (FFIEC) issued a warning in April to financial institutions about criminals continuing to launch attacks against ATM and web-based card management systems, especially those of small- to medium-size financial institutions (FI). Dubbed "unlimited operation" by the U. S. Secret Service, this type of attack can saddle a financial institution with fraud losses in the millions of dollars. As we highlighted in a post from last May, a bank in Oman experienced this type of attack in late 2012, which resulted in a loss to the bank of almost $40 million. Imagine the impact of a loss of that magnitude to a small to midsized FI.

These attacks are especially concerning for a number of reasons. First, the criminal organizations that carry them out are highly sophisticated and well-organized, and they have an international reach. The Oman attack included a money mule network across 26 countries—including the United States—performing more than 36,000 withdrawals in a 12-hour period.

Second, unlike typical counterfeit card fraud attacks that involve a large number of accounts, the criminals behind the card management system frauds need to compromise only a small number of card accounts. The attack that resulted in the $40 million loss involved only 12 accounts. Early in this type of operation, the criminals generally obtain the PINs of the cards for these accounts by conducting some sort of covert surveillance (pinhole camera or shoulder surfing). They then counterfeit the cards using those PINs.

Third, the attacks are generally timed to take place around holidays, when bank, IT, and fraud monitoring staff levels are low.

Fourth, the criminals get remote access to the financial institutions' card management systems to reset account balances and card withdrawal parameters. They can then use the counterfeit cards over their pre-established transaction limits or balances and drain the ATMs of all cash. The criminals usually obtain access to FIs' networks using e-mail phishing schemes that target processor or network employees. Through gullible employees, malware is loaded onto the network that later gives the criminals access to the FIs’ card management systems.

Major online networks now have transaction velocity monitoring capability, which detects a high number of transactions on an individual account. This approach is necessarily only a secondary and reactive measure, not a preventive measure.

FIs should immediately address the risk mitigation steps that the new FFIEC warning outlines. Because the vast majority of small to midsized FIs depend on third-party processors to run their card management systems, it is imperative all FIs verify that their processors have the controls and safeguards in place to prevent such attacks, and they should insist on seeing validation of those controls.

Photo of David LottBy David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

December 23, 2013

Here We Go: Number 10!

As the year draws to a close, the Portals and Rails team would like to share its own Top 10 list of major payment-related events that took place in the United States this year.

  1. The Consumer Financial Protection Bureau finalized Dodd-Frank 1073 money transfer rules.
  2. The payments industry experienced increased regulatory scrutiny of third-party processors and high-risk business customers.
  3. Major global ATM cash-out fraud attacks—including many U.S. ATMs—totaled $45 million.
  4. FTC issued a proposal to ban telemarketers from using remotely created checks and payment orders.
  5. Debit networks sought a compromise on an EMV interface—while there is little movement on the issuance of EMV cards.
  6. The newly designed $100 bill with additional security features was released.
  7. Several major data breaches occurred, and identity theft occurrences skyrocketed.
  8. Cyber Monday online sales were up 17 percent, with phones and tablets representing almost a third of the total.
  9. Virtual currencies received increased public, legislative, and regulatory awareness after the U.S. Department of Justice took action to close down virtual currency operators Liberty Reserve and Silk Road.
  10. U.S. District Court Judge Richard Leon threw out Regulation II debit card interchange fees and routing rules.

And as we head into 2014, here are a few payments-related topics we will be following closely:

  • As regulators continue to monitor developments in the virtual currency market, will the usage of virtual currency as a legitimate medium of exchange expand among the merchant community?
  • Will 2014 finally be the “Year of the Mobile Payment” as stakeholders have yearned for over the last several years? What progress will be made in addressing the awareness, security, and education aspects of mobile payments?
  • With online and mobile commerce showing no signs of slowing down, what authentication solutions will be most widely adopted to prevent a rising tide of card-not-present fraud?
  • How will merchants and card issuers deal with EMV implementation?
  • What effects will the regulatory attention on third parties and high-risk businesses have on the due diligence practices of financial institutions?

Wishing you all happy holidays and a fraud-free 2014!

Photo of David LottBy David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

July 8, 2013

Money Mules: Unwitting Accomplices?

Recent news articles about the two major ATM cash-out frauds that yielded $45 million for the perpetrators have noted a critical element of the global crime—the extensive network of criminals that performed thousands of cash withdrawals over a few hours at ATMs in approximately 24 countries. Known as "money mules," these individuals help transport or launder stolen money and merchandise in exchange for a small share of the ill-gotten gains.

The mules in the ATM cash-out scheme were willing participants, but in many cases, individuals serving the role of a money mule may not be aware of their criminal involvement and may even themselves become victims of fraud. The most common tactics for enlisting the help of unknowing money mules are posting work-at-home advertisements on major legitimate employment websites, purchasing pop-up ads, or sending e-mails.

Earlier recruiting efforts were easy to spot because they often used poor grammar or spelling, were not specific in describing the job, and usually based the hiring company outside the United States. More recently, recruitment efforts have used well-written ads with high-quality graphics. These ads often stress the convenience of the position for the worker and the significant earnings potential. When hired, the individual is sometimes engaged as a mystery shopper or in some similar function to make the transfer of money or goods seem normal to the business operation. Some schemes initially engage the person in conducting legitimate transactions with the goal of developing a level of comfort for the individual with the process and the promise of bigger, more lucrative transactions to come in the future.

As with many crimes involving multi-level organizations, it is not the masterminds but the money mules who are most often apprehended. They are the ones whom law enforcement officers can locate relatively easily because they are the ones who provide their financial account information or shipping address as part of the transaction. Unknowing money mules risk criminal prosecution, financial loss, and smearing of their reputations. It’s also possible that they will themselves experience identity theft or fraud against their financial accounts because they may have provided sensitive personal information during the recruitment process.

As cybercrimes continue to spread, the mule recruitment efforts will expand and probably become more sophisticated. Individuals must exercise safer computer security practices, and financial institutions, consumer protection agencies, and law enforcement must continue to provide education about this type of scheme to help increase everyone’s ability to detect such fraud. Not only will early detection help prevent individuals from becoming unwilling victims, but also it will aid in the investigation of these criminal efforts by law enforcement.

Brian Krebs (KrebsonSecurity) has a good article, which includes a money-mule training video, providing more information about this type of crime to help individuals avoid getting caught up in one of these schemes. We welcome your suggestions on how the educational effort can be strengthened.

Photo of David LottBy David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

May 20, 2013

ATM Cash-Outs: A Major Escalation

The banking news this week has been dominated by the story about the two ATM cash-out schemes that netted the criminals a total of $45 million. (We mentioned the $40 million fraud involving prepaid cards issued by a bank in Oman in a post earlier this month.) The news articles and opinion pieces have focused on what I consider secondary aspects of this attack—counterfeit card production and prepaid cards. Some observers have pointed to this attack as further justification for a faster move to EMV reader capability in the United States. While it is certainly true that an EMV-only environment will virtually eliminate counterfeit card crimes such as this, the reality is that a dual EMV-magnetic stripe environment is going to exist, both here in the United States and the rest of the world, for quite some time. And while some categorize the United States as the only EMV holdout, the fact that 94 percent of the ATM cash withdrawals took place at ATMs outside the United States shows that we are not the non-EMV island that we are often portrayed as. Others have pointed out that the targeted cards were tied to prepaid accounts, implying or outright stating that a prepaid card management application is less secure than a regular debit card management application. This is not the case, as the fraud was not a product or an access device issue.

The real threat from this attack comes from the criminals' ability to gain access to the card management application on a real-time basis. It is still unclear whether they gained the account number and PIN from accessing the card management system or through the more traditional skimming means. What is clear is that they had the ability to continually replenish account balances and reset usage limit parameters during the 10–13 hour attack that involved more than 3,600 withdrawal transactions from ATMs located in 26 different countries. The investigation of the two processors located in India will tell if there was some level of insider involvement or if the criminals learned how to gain access to the card application and make the changes to keep the fraudulent attack going.

So how should bankers and card management processors address these concerns? I would suggest they consider an immediate review and understanding of their card management application access controls that identify the personnel having the authority to make "on-the-fly" changes to specific account parameters. Some access is required for actions such as flagging a reported lost or stolen card, but other parameters should be completely off limits or tightly controlled and monitored. Another safeguard would be to have account velocity monitoring, which would identify unusual card usage activity or usage from different parts of the world occurring at about the same time.

This highly sophisticated and coordinated attack is a game changer for the security controls of all types of card management applications. Let us know how you are responding.

David LottBy Dave Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed