BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
INTERNATIONAL BUSINESS Like Stealing Plastic from a Baby High-tech credit-card fraud is rising fast throughout Asia The scam was as simple as running a credit card through a ''skimmer.'' That was Koon-cheong Chang's job. A waiter at a Hong Kong tourist spot called the Peak Cafe, Chang took cards from tourists, most of them Japanese, then quietly swiped an extra copy on a small machine in his pocket that copied the receipts onto a computer chip. According to police, the card numbers were then faxed to Japan, where a criminal gang headed by Chang's brother-in-law used them to make counterfeit credit cards. Weeks later the victims noticed luxury goods and electronics purchases from places like Guam popping up on their card bills. All across Asia, credit-card fraud is on the rise. The newest technique is to use sophisticated technology to steal card numbers and then manufacture fake credit cards. The favored victims are Japanese. Credit-card fraud involving Japanese has risen 45% in the past three years, while thefts in which fake cards are used has increased eightfold. The rate of such frauds, now running at $1.60 for every $10,000 in card charges, is still only half that in the U.S., but rising fast. LAX LAWS. Gangs from China and Malaysia target Japanese because their cards often come with high credit limits, and Japanese laws against counterfeiting are loose. Counterfeit cards were rare in Japan before three years ago, and it is still not illegal to make or hold forged cards or to pilfer data used to produce them. Police must either prove a credit-card fraud has taken place or bust counterfeiting rings for breaking tax, trademark, or customs laws. ''Japan is a good country for these criminals because the economy is so big, and the laws are so lax,'' says Akira Arakawa, security and risk manager at MasterCard in Tokyo. Card issuers are now pushing politicians to pass tougher laws. One troubling development: Gangs use the fake cards to buy goods, then sell the merchandise to finance more lucrative ventures such as drug trafficking and transporting illegal immigrants. The police do have some success stories. Hong Kong and Japanese police working together nabbed Chang and his brother-in-law Man-fat Chan in Tokyo, and both are serving prison terms. In fact, probes led by Hong Kong's Independent Commission Against Corruption (ICAC) have led to some 200 convictions--though over a 10-year period. Technology is helping the counterfeiters keep ahead of the police. The skimmers they use are made for such legal purposes as electronic entry to offices and can be bought for $25 in any electronics store. Typically, gang members will recruit restaurant employees or store clerks to scan the numbers for them. And the money is so good that collaborators aren't hard to find--Chang was paid $130 per number. Counterfeiters in Japan and Taiwan recently have taken number skimming to a new level by putting chips in machines at restaurants and other stores used to authorize credit transactions. Criminals break into the stores at night, drill a hole in the back of the machines, then disable their sensor alarms by pouring glue over them. They insert a chip that will record numbers as cards are run through the scanner (photo). The thieves return later, remove the chip, and sell the data. Once the crime is committed, the gangs can move fast across borders. ''The equipment to make cards fits in a suitcase, so it's a mobile factory,'' says ICAC investigator Jim Bell. The chips on which numbers are stored are programmed to erase their memories--and incriminating evidence--unless they are examined with special equipment recently developed by the credit-card industry. So card companies in Japan and the rest of Asia are focusing on catching thieves when they use the cards. That involves teaching Asian and Japanese retailers how to spot fakes. Real cards, for instance, include three-dimensional holograms that do not peel off, four-digit codes printed below the embossed card number, and ultraviolet sensors. Robert DeMaria, director of risk management at Visa International Asia Pacific, says card companies are also spending more time monitoring card activity. Visa now looks for similar transactions during short time periods and matches these sales against the cardholder's habits. Still, the crooks seem to adapt to each new countermeasure. They are now ready to follow the credit-card issuers as they push into China. There, law enforcement is lax, and counterfeiting of all kinds is rampant. For the credit-card gangs, the boom should continue. By Ken Belson in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Like Stealing Plastic from a Baby CHART: Victimizing Japan TABLE: The New Numbers Game INTERACT E-Mail to Business Week Online

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