The Fraud Equation: Fighting Credit Card Mail Fraud

THE FRAUD EQUATION:

FIGHTING CREDIT CARD MAIL FRAUD

by Leslie Kim

The crime of fraud is an equation. It consists of pieces: this criminal, plus that method, plus an element of opportunity. The solution to the problem of fraud is also an equation: this fraud, minus detection, minus deterrence, minus a team prosecution effort.

This is a simplification, to be sure, but it illustrates the fact that there's no single element to either the perpetration of fraud or the prosecution of the crime. Bringing the culprit to justice involves the processes of identification, dissection, and follow-up action. Rarely does any one person or agency handle a case on their own; it's usually a team effort that combines the talents of many individuals.

When it comes to credit card mail fraud, the U.S. Postal Inspection Service is one of the key players. Who are they? How do they help? What kinds of cases are they looking for? How can they be contacted? Here's an in-depth look:

THE POSTAL INSPECTION SERVICE

The Postal Inspection Service is one of our country's oldest federal law enforcement agencies. Each of the 2,400 U.S. Postal inspectors is a federal law enforcement agent with the authorization to carry a firearm and make arrests. Benjamin Franklin was the first Postal Inspector.

The mail statute, enacted in 1872, allows the investigation of suspected fraud, misrepresentation, deception, and deceit by individuals who use the U.S. mails to obtain goods or services from the unsuspecting public.

With the Violent Crime Control and Law Enforcement Act of 1994 the mail statute was expanded to incorporate a more technologically modern definition of mail that includes 'any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier.' Prior to the statute expansion, crooks would often carefully avoid the use of the U.S. mails. They'd use UPS, FedEx, or other private carriers to make their demands or receive their booty, thereby avoiding prosecution.

Within the Postal Inspection Service, there are 29 inspectors who serve as credit card coordinators, each heading up a team of investigators. The Los Angeles Division credit card team, formed in 1993 in response to the burgeoning problem, is headed as of this writing by Randy DeGasperin. With credit card crimes on the increase, DeGasperin and his investigators are busy night and day.

JOINT EFFORTS

The Postal Inspection units comprise one of the three primary federal law enforcement agencies that address financial crimes. The Secret Service is the primary agency when the case deals with counterfeiting or with fraud by the unauthorized use of an access device (i.e., a credit card account number); the Postal Inspection Service deals with any type of mail theft or mail fraud; the Federal Bureau of Investigation (FBI) assumes investigative control when the banking fraud statutes have been challenged, (i.e. loan fraud or check-kiting schemes). More commonly than not, two or more of these agencies work together, often in a task force.

The Unabomber case poses an excellent example of a joint investigation effort. In this instance, the Bureau of Alchohol, Tobacco, and Firearms (ATF) also figured into the equation because an act was perpetrated with explosives. The Postal Inspection Service was involved because items were being sent through the U.S. mails, and the FBI joined in because the motive of the criminal activities appeared to be terrorism.

Another reason more than one federal agency may be involved is that each division enforces certain laws and statutes under which prosecution can take place. The FBI enforces the most resources and statutes of all the federal enforcement groups, so it's commonly involved in many types of investigations.

Many organized-ring cases also attract the attention of more than one investigative agency. 'It allows each agency to leverage its limited resources,' says DeGasperin, 'and that translates to working smart.'

The Postal Inspection Service receives leads from many sources. Referrals may come from the Better Business Bureau, the Consumers Affairs Department, the various district attorneys, the attorneys general, the media, informants, victims, bank investigators, and more. It's up to the Complaints Section of the U.S. Postal Inspection Service to receive and monitor all correspondence, then to computerize and forward it to inspectors all over the country. The key is gathering follow-up information, which will determine the next step in the investigative process.

Each U.S. Postal Inspection field division office has many teams of investigators. There are teams that deal with mail fraud, credit card fraud, internal theft (i.e., by postal employees), external theft (i.e. stealing mail out of mail boxes, assaults, robberies), and prohibited mailings (including narcotics).

POSTAL INSPECTION AND BANKING

In 1992 the Postal Inspection Service and the banking industry held their first meeting to deal with the growing credit card fraud problem. The Divisional Credit Card Coordinator Program was set up as a result, providing a more unified and effective response to this type of financial crime.

It's now estimated that there are over a million credit cards in the mail every day. The amounts have increased dramatically because of bank mergers and expansions and new types of credit card programs.

Prevention has become a priority: Postal inspectors meet with the major bank security people at least three times a year. Communication is the key, according to DeGasperin. He cites the example of a major issuer readying a huge volume mailing that was to be sent over several weeks. 'When [this bank] introduced a new product, a ... debit card [linked to a credit card], they mailed one to every customer who currently had [the bank's] ATM card. We knew that a high volume of credit cards was going to pass through the system, so we took certain precautions to assure the mail would not be tampered with during the process of mailing or delivery. This is an example of our working with the banks, not just in an investigative capacity, but in a preventative capacity as well.'

The banking industry is also looking for ways to lessen the impact of fraud. The card activation system has had a positive impact because some crooks - at least the small-time ones - just don't think about the process before they leap headlong into it. When the card thief calls to activate a card (because these thieves often have access to the necessary information), he doesn't realize that the phone number he's calling from may be captured, depending on the risk factor of the cardholder's address. The lengths a company is willing to go to varies by the area being serviced. For instance, more stringent deterrents are in place in the New York City metropolitan area than in the middle of Iowa or Nebraska. The system of card activation also deters the amateur thief who doesn't have access to the cardholder's Social Security number.

Banks now electronically file monthly reports on missing credit cards to the Postal Inspection Service. This system allows a head start on investigations in cases when the non-received issued (NRI) count is abnormally high. While a small percentage may be entirely normal, a higher number can suggest a problem.

What happens when an audit suddenly comes through that pinpoints a large percentage of missing cards? The information alone is just a small part of the puzzle. The Postal Service credit card core unit gets to work analyzing the available information. By looking at things like the date, location, and route of the mailing, these investigators attempt to determine where the theft took place.

In order to determine where the loss actually took place, the investigator keeps an eye open for trends and patterns. If the loss numbers are high, it's likely that the problem occurred internally - possibly within a post office, at a third-party processor's location, or at an airport. If a single center processes mail for a certain series of ZIP codes and the major portion of the problem is in those specific ZIP code areas, it's a good bet that the theft occurred within that processing center. Alternatively, if it's a wider band, the investigator might head for the airport that handled the major portion of the mail. Once the analysis has been completed, the next step is to investigate.

Another weapon in the Postal Inspection Service's fraud-fighting arsenal is its Credit Card Mail Theft newsletter, which is sent to banks and security departments all over the country. It provides summaries of significant investigations in each reporting period.

ORGANIZED FRAUD

There are basically two kinds of credit card fraud: friendly and organized. In friendly fraud the perpetrator is someone who knows the victim, often via a close relationship. This might involve, for example, a relative who lifts the new credit card from the household mail. Unfortunately, these kinds of frauds don't often form the basis for a criminal case. It's organized fraud that comprises the high percentage of crimes that lead to federal prosecution.

While organized fraud isn't limited to any one ethnicity or group of people, certain groups keep the credit card teams hopping. The cities hardest hit are Los Angeles, Washington D.C., New York, Atlanta, Houston, Boston, and Chicago. The rings aren't picky about locations; they'll move anywhere an opportunity presents itself.

Recently there's been a heavy increase in cross-country fraud schemes. 'They're hoping to throw a dogleg into the investigative process by moving around to various parts of the country,' says DeGasperin, 'but we've countered by having specific national credit card coordinators in each division office.'

Organized crime rings seem to concentrate on obtaining large numbers of credit cards. They've found that the best way to accomplish this is to recruit people to work within the system. The biggest cases and largest cumulative losses have occurred through internal thefts. Airports and distribution centers are a favorite target for crooks because a high volume of cards passes through these locations.

Recently, a 60-member credit fraud ring was broken up through the joint efforts of U.S. Postal inspectors and the Attorney General's Office. The five leaders were charged with organizing a credit fraud scheme by which postal employees in Los Angeles, Atlanta, Seattle, Houston, and other U.S. cities stole hundreds of credit cards from the mail. The five leaders first activated the credit cards by telephone, then manufactured counterfeit identification documents, which they gave to runners. The runners, in turn, obtained cash advances at banks throughout the United States. Most ring members pleaded guilty to charges that included conspiracy to possess stolen mail, wire fraud, and fraudulent use of credit cards. The five main organizers each faced a maximum possible prison sentence of five years and a fine of $2,500,000.

Unfortunately, this case points out one of the problems inherent in the prosecution process: prison sentences that many feel are too light for the financial ramifications of the crime. The government estimated that the organization described defrauded financial institutions of more than $2.5 million over a three-year period. What message does a five-year maximum sentence send to the criminal community at large? To remedy this situation, meetings with the Department of Justice are now taking place in an effort to increase the sentencing guidelines for financial crimes.

Another problem is with the thresholds for prosecution. It's tough to get a U.S. attorney to accept a case in which the amount of the theft isn't extreme. This varies by jurisdiction, but the answer is often to take this type of case to local law enforcement and let the district attorney prosecute instead.

MAIL DROPS AND IDENTITY FRAUD

Yet another problem that has plagued the investigative industry is the use of mail drops. For a low monthly fee, a credit card thief can assure anonymity by renting an address. Such an address may look valid to the untrained eye - 123 Main Street, Apartment 203, Anytown, Anystate - but in actuality the address is a 3'x5' box obtained with a minimum of identification. 'A favorite joke around the Postal Inspection Service office,' says DeGasperin, 'is that instead of special parking places in front of these [rental] places being set aside for handicapped parking, they ought to label them for law enforcement parking.'

One way to combat this problem is to contact the Issuers Clearing House for MasterCard and Visa, which assists issuers to identify bad addresses. Another is to obtain a list of mail drops in a particular area. There's also an investigator's chat line with online discussions about ongoing investigations and recently solved crimes. Members of the International Association of Credit Card Investigators (IACCI) can access the organization's e-mail network, which provides secured information only otherwise available to law enforcement, banks, and the FBI.

'The most common cases my teams see are in the area of financial identity frauds,' says DeGasperin. 'Somehow an individual's financial information has been compromised by a suspect. This particular type of crime is certainly on the upswing.' The same scams were occurring in the 1980s, but at that time it was referred to as credit card application fraud and the media pretty much ignored it.

When identity fraud cases are referred to the Postal Inspection Services, the victim's name and address are logged in and the customer is contacted by letter. The victim is advised to contact the three major credit bureaus to report a compromise of their financial information. As soon as a crime is confirmed, the mail drop box is shut down. As incoming mail to that same address is monitored, other similar frauds are usually discovered.

While banking industry officials may think that all the federal investigators have to do is stand around the mail drop offices and wait for the criminals to appear, it just doesn't work that way. 'They've become far more sophisticated,' relates DeGasperin. 'They've moved away from using mail drops. In some instances they use actual addresses, such as a rented apartment.'

In cases of identity fraud where a mail drop is used, the information listed on the application generally isn't valid. This leaves very little in the way of a paper trail for the investigator to follow. If a phone number is listed, it often belongs to a cellular phone. The home address listed is probably just another mail drop. Today's technology has made the crook's job so much easier. The list of prefixes assigned to cellular phones, however, is generally easily obtainable from the servicing phone carrier.

PARTNERING FOR SOLUTIONS

Education plays a big part in the eventual solution. The average officer on the street hasn't had a lot of training in the area of credit card fraud. They might suspect a problem when they stop a car and find an embossing machine and a bag of mail in the back seat. And if the driver is carrying a stack of credit cards, each with a recent issue date, it could be one heck of a good indication that the cards were stolen from the mails.

The Postal Inspection Service wants to help. Investigators are readily available to participate in seminars for law enforcement groups, banks, or anyone else involved in the fight against financial fraud. And while this agency, like most federal law enforcement agencies, tends to pay more attention to the large cases, the investigators are willing to look at any and all cases. Some of the largest cases have begun with a single referral.

Obviously, the better a case is put together, the more chance it has to be scooped up. Good records are of the utmost importance. 'We not only want industry to bring us their cases,' summarizes DeGasperin, 'we also want them to learn from the process and to be able to prevent future frauds from occurring. We do not want to be thrust into the role of policemen. We want to participate in a partnership.'

U.S. POSTAL INSPECTION SERVICE CREDIT CARD COORDINATORS

Inspector/Division Coordinator

 

Mailing Address / Phone Number

Atlanta Division / (404) 608-4549

McCoy

P.O. Box 16489

Atlanta, GA 30321-0489

 

Boston Division / (617) 439-3630

J. Fuccillo

P.O. Box 2217

Boston, MA 02205-2217

 

Buffalo Division / (716) 853-5322

R. Verrochio

1200 Main Place Tower

Buffalo, NY 14202-3796

 

Charlotte Division / (704) 329-9127

R. Bowen

2901 I85 South, GMF

Charlotte, NC 28228-3000

 

Chicago Division / (312) 765-4498

M. Szluka

433 W. Van Buren

642 Chicago, IL 60669-2201

 

Cincinnati Division / (614) 469-4345

K. McCafferty

P.O. Box 837

Columbus, OH 43216-0837

 

Cleveland Division / (216) 443-4000

M. Rae

P.O. Box 5726

Cleveland, OH 44101-0726

 

Denver Division / (303) 295-5337

M. Kimball

1745 Stout St., 900

Denver, CO 80202-3034

 

Detroit Division / (313) 226-8238

D. Mills

P.O. Box 330119

Detroit, MI 48232-6119

 

Fort Worth Division / (214) 393-6477

J. Travell

P.O. Box 162929

Fort Worth, TX 76161-2929

 

Houston Division / (713) 238-4410

D. Beaty

P.O. Box 1276

Houston, TX 77251-1276

 

Kansas City Division / (816) 932-0474

J. Reed

3101 Broadway, 850

Kansas City, MO 64111-2416

 

Los Angeles Division / (213) 729-4019

R. DeGasperin

P.O. Box 2000

Pasadena, CA 91102-2000

 

Memphis Division / (901) 576-2135

J. Knight

P.O. Box 3180

Memphis, TN 38173-0180

 

Miami Division / (305) 436-7238

D. Jones

3400 Lakeside Dr., 6^th Fl.

Miramar, FL 33027-3242

 

Newark Division / (201) 596-5400

J. Fresco

P.O. Box 509

Newark, NJ 07101-0509

 

New Orleans Division / (504) 589-1206

M. Winston

P.O. Box 51690

New Orleans, LA 70151-1690

 

New York Division / (212) 330-3493