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Excerpt from A Speech to The Federal Deposit Insurance Corporation (FDIC) Payment Security Conference

- By MagTek Chief Security Officer Tom Patterson, January 21, 2010

Billions of dollars are being stolen every year from thousands of banks, hundreds of thousands of merchants, and millions of consumers— and it’s being used to fund gang activity, organized crime, and terrorist plots. And it’s got to stop. Our identities and credit card information are being stolen across America, by waiters and waitresses in our restaurants, by clerks at our stores, and even our ATM machines and gas pumps. In fact, every time we hand over our credit or debit card, Americans are taking a risk that our critical information could be stolen. Last year, over $4 billion dollars was stolen from us with these methods and others like them, and many of these thefts are being perpetrated by people and machines that have been co-opted by criminal gangs.

Gangs in America, like the ‘‘Bloods’’ and the ‘‘Crips’’, have now moved aggressively into the counterfeit card business, providing the devices (called skimmers), and paying out $20 for every card number stolen. In fact, counterfeit card fraud is now the third largest revenue source for many of our largest gangs, moving ahead of extortion. They make their money by selling blocks of these freshly stolen identities up-stream, to foreign organized crime.

A 2009 United Nations report has identified Russian organized crime as the world’s largest source of counterfeit card fraud, just ahead of the Chinese triad gangs. The largest of these, known as the Russian Business Network, is well known for purchasing these aggregated lists of identities and card numbers, combining them with near-perfect looking fake cards and then selling them on underworld- sponsored auction sites to the highest bidder.

One of the largest bidders for these counterfeit cards this past decade has been Al Qaeda, who repeatedly purchases them for use in funding their terror plots around the world. The horrific bombing in the nightclub in Bali, which killed 202 people, was funded in large part by recently skimmed cards. A captured Al Qaeda handbook describes in great detail how to fund their plots, including the transliteration ‘‘obtain credit card numbers and use them to fund the struggle.’’
The security of our citizens should be paramount, especially in light of its negative effects on merchants and banks, and its role in funding of US gang violence, transnational organized crime, and global terrorism. It’s time for our financial services industry to put a stop to this, by working together to allow merchants to tell the difference between our real cards, and these fakes that
are plaguing our way of life.

It’s now possible for banks and merchants to easily and economically completely eliminate
counterfeit cards from our world, and they can do it today. By adding a simple ‘‘card authentication’’ check to the credit and debit process, which works with the same 3 billion cards we already have in our wallets and the same ‘‘swipe’’ that we’ve come to trust over 10 trillion times per year, we will allow our retailers to simply decline counterfeit card charges and thus wipe out counterfeit card fraud around the world.

All it takes to make this a reality is for the banks, processors, and merchants to agree to share the ‘‘magnetic fingerprint’’ inherent in the magnetic stripe of every card we use, and rather than arguing over costs we can be sharing the savings that come to all of us by saving billions of dollars of fraud every year. Already, we have the initial commitments to register the first 100 million
cards, and make this check available to the first 250,000 merchants. But we need the rest
of the players to take this step.

I am here today to urge you to join the coalition to wipe out counterfeit card fraud (www.NoCardFraud.com), and to do your part in protecting the identities of millions of Americans, improving the financial health of millions of retail stores and banks, shutting down a key criminal activity of gangs and organized crime, and disrupting the funding of global terrorists.