If you think cloning is just about creating identical sheep, you better grab hold of your wallet. Cloning, also known as skimming, is a burgeoning and highly effective form of credit card fraud.
Skimming is costing credit card users stateside and worldwide millions in phony charges, as stolen clones are sold and used in the United States and elsewhere around the globe.
The practice took off in the United States several years ago and is beginning to approach the scale of fraud that plagued credit cards in the early 1990s before new precautions were taken, according to Gregg James, a special agent with the Secret Service's Financial Crimes Division in Washington.
As many as 10 to 15 restaurants a week around the United States are cited by industry sources as harboring skimmers, James says. And while the agency and credit card companies are tight-lipped about the actual dollar losses because of competitive concerns, he called New York a "hotbed" of skimming among U.S. cities. Skimming is also keeping Canadian authorities busy and is growing in Mexico.
"Any place you use your card, you could be a victim," adds James.
An Unknowing Victim
Kathryn Mangold learned that the hard way.
A manager at a leading hospital in London — where the scam so far is centered — she unknowingly became a victim in April, when a week after shopping in central London she received a letter from Barclaycard, Britain’s biggest credit card company, which had issued her Visa card.
Normally very vigilant and careful with her cards, she was shocked to read that there had been abnormal activity on her account. After speaking directly to the bank she found out that someone had gone on a shopping spree the weekend after her shopping trip and, using her card details, they had spent the equivalent of more than $800 in a computer superstore and a toy store chain.
Lucky for her, the bank acted quickly and canceled her account number.
Says Mangold, “Although my faith in credit cards has been shaken there is no viable alternative at the moment.”
Fraud Adds up to Millions a Year
Mangold has plenty of company. Skimming is costing credit card issuers the equivalent of more than $350,000 a day.
According to the group that manages the United Kingdom’s payment clearance system, such counterfeit fraud is responsible for losses of $72 million in Britain in 1999. That figure almost doubled last year and is expected to double again this year.
And experts say skimming is also one of the most difficult types of credit card fraud to prevent, because the criminals work so fast that they leave almost no trace.
Interactive Step-by-Step Guide to Skimming
Working the Skimming Scam
Here’s how the scam is run. Criminal gangs recruit gofers, who then find temporary work within restaurants, hotels and retail outlets. The recruits are given small, illicit, electronic devices known as skimmers that capture all of the credit or debit card’s details in the few seconds that it takes to swipe the card through the machine.
When unsuspecting customers go to pay their bill, their card is first swiped through the legitimate credit card machine, but then, secretly, it is also swiped through the smaller skimmer machine.
The gofers then pass the gadgets onto counterfeiters, who pay them the equivalent of around $150 for their part in the crime. Once the details have been given to counterfeiters, they download the information onto a computer and make up a fake card.
The "cloned" card is embossed with the details of the victim’s credit card and passed on to gang members who, police say, may sell it for between $400 and $700, depending on the perceived credit limit.
Used for Two Days, Discarded
Gold or platinum cards are normally targeted because of their higher credit limit, meaning the bank takes longer to realize there is a problem. And criminals spend, on average, about $2,800 per card, with large and frequent transactions typically over a two-day period before discarding the card, according to one expert.
While the whole process of getting a cloned card onto the streets can take less than a day, the customer is none the wiser, since his own his credit card is in his wallet. In fact, victims may not realize they’ve been taken until they check their statements at the end of the month.
By that time the criminal has moved on and the electronic and paper trails are cold. In lucky circumstances, like Mangold’s, bank computers pick up on unusual account activity and contact their client sooner.
London at Heart of the Action
While skimming is affecting credit card users throughout the world, London has become the center for this latest scam. London police recently cracked a massive credit card fraud ring and earlier this year, two Russian nationals were sentenced to four years each and also served with a deportation order for their part in the crime.
One, Vladimir Stronguine, distributed skimming devices and controlled a network of Eastern European waiters working throughout London’s restaurants. The second, Alexander Tanov, was the “card maker” who had turned his bedroom into a credit card factory.
Tanov’s equipment was capable of producing near perfect replicas of American Express, Visa and MasterCard credit cards. Police found 500 credit card details on his computer — only one in five had been taken from cards issued by British banks, the rest had been lifted from cards issued in the United States and Europe.
At the time of the arrests, police found evidence of fraud totaling $300,000. Had the Russians been left to continue, authorities believe the operation would have resulted in losses of $7 million.
'It Is a Global Problem'
According to Tim Parsons of the City of London Police, organized crime gangs from the Continent and Eastern Europe, Asia, Russia and Africa, are targeting central London because of the thousands of people who visit daily.
“Tourists areas are especially being hit because they tend to be easy targets,” added Parson. “People normally always have credit cards on them.”
But while card details are often stolen in Britain, experts say the cloned cards are used all over Europe, the Middle East, Asia and America.
“The rapid growth in counterfeit fraud is not a U.K.-based problem, it is a global problem,” says Brian Moore of Europay, the European arm of MasterCard International. “Coupled with the fact that fraud is no longer an opportunist crime but an organized crime, people need to be very aware of where their card is at all times.”