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Portals and Rails

July 07, 2014

Fighting the High-Tech Criminals

The days of small gangs or the lone criminal committing "grab-and-go" robberies or counterfeiting checks and currency are certainly not over. However, crime stories involving millions of dollars and criminal networks that span the globe tend to grab the headlines these days. Just about everyone has heard about the recent data breaches at major retailers and ATM cash-outs that have netted criminals millions of dollars. A presentation at a recent payments security conference addressed the role of high-tech criminal groups in such crimes and the major threat they present to the security and reputation of our payment system. The speaker described how law enforcement agencies are working vigilantly to shut down these large global criminal enterprises and their cybercriminal activities.

The speaker detailed the composition of a criminal network, which closely resembles the organizational structure of a multinational corporation with numerous subsidiaries. This image shows the major components of the criminal enterprise.

major compoenents of the criminal enterprise

  • Executives—These people serve as the originating group and ultimate beneficiaries of the spoils of their successful attacks. They identify the types of criminal cyberactivity to pursue, including identifying the target companies or computer systems.
  • Financiers—If the executives don't have the financial resources to carry out their scheme, they often link to a funding source. The financiers may receive a share of the executives' profits as compensation, or they may simply treat the transaction as a loan, charging interest until the loan proceeds are repaid.
  • Exploiters—The hackers and software personnel identify vulnerabilities in software or systems and write malware code to compromise a target's account credentials. They normally receive compensation based on the type of attack and the level of sophistication.
  • Botnet operators—A botnet is a network of compromised computers. The botnet operators, sometimes called "bot herders," control these systems. They run automated programs in the background, so they are often undetected by the legitimate computer owners, to send massive amounts of spam, conduct spear phishing attacks, or in some other way launch attacks against their targets. Botnet operators receive payment based on the number of compromised computers they use and the time required for the attack.
  • Money mules—These players are in the most vulnerable group; they are the people on the street, retrieving the stolen funds and sending them, minus their cut, to the executives. Some law enforcement authorities have said that mules' share of the ill-gotten proceeds can be as high as 60 percent, depending on an operation's level of risk.

While these players are closely linked, they are generally separate criminal groups that have developed niche roles. The separation provides some safety to the executive group in that if members of one of the linked groups are arrested, executives can find another group to take their place so they can continue their illegal activities.

The major global criminal networks have proven to be formidable because of their resilience, but they are not invulnerable. Law enforcement agencies in the United States and other countries are working together to attack these networks through a variety of strategies. Unfortunately, in many cases, the core criminal leaders are physically located in safe havens, so called because local policies may prevent extradition or because governmental officials may be complicit or corrupt so they ignore the criminal activity as long as the targets of the crime are outside their borders.

Portals and Rails salutes the law enforcement personnel for their tireless efforts in this constant battle.

Photo of Deborah Shaw

July 7, 2014 | Permalink | Comments (0) | TrackBack (0)

June 30, 2014

A Call to Action on Data Breaches?

I recently moved, so I had to go online to change my address with retailers, banks, and everyone else with whom I do business. It also seemed like an ideal opportunity to follow up on the recommendations that came out after the Heartbleed bug and diligently change all my passwords. Like many people, I had a habit of using similar passwords that I could recall relatively easily. Now, I am creating complex and different passwords for each site that would be more difficult for a fraudster to crack (and at the same time more difficult for me to remember) in an attack against my devices.

I have found myself worrying about a breach of my personal information more frequently since news of the Heartbleed bug. Before, if I heard about a breach of a certain retailer, I felt secure if I did not frequent that store or have their card. Occasionally, I would receive notification that my data "may" have been breached, and the threat seemed amorphous. But the frequency and breadth of data breaches are increasing, further evidenced by the recent breach of a major online retailer's customer records. This breach affects about 145 million people.

As a consumer, I find the balance between protecting my own data and my personal bandwidth daunting to maintain. I need to monitor any place that has my personal data, change passwords and security questions, and be constantly aware of the latest threat. Because I work in payments risk, this awareness comes more naturally for me than for most people. But what about consumers who have little time to focus on cybersecurity and need to rely on being notified and told specifically what to do when there's been a breach of their data? And are the action steps usually being suggested comprehensive enough to provide the maximum protection to the affected consumers?

Almost all states have data breach notification laws, and with recent breaches, a number of them are considering strengthening those laws. Congress has held hearings, federal bills have been proposed, and there has been much debate about whether there should be a consistent national data breach notification standard, but no direct action to create such a standard has taken place. Is it time now to do so, or does there need to be more major breaches before the momentum to create such a standard makes it happen?

Photo of Deborah Shaw

June 30, 2014 in consumer protection, cybercrime, data security, privacy | Permalink | Comments (0) | TrackBack (0)

June 23, 2014

Do Consumers REALLY Care about Payments Privacy and Security?

Consumer research studies have consistently shown that a top obstacle to adopting new payment technologies such as mobile payments is consumers' concern over the privacy and security protections of the technology. Could it be that consumers are indeed concerned but believe that the responsibility for ensuring their privacy and security falls to others? A May 2014 research study by idRADAR revealed the conundrum that risk managers often face: they know that consumers are concerned with security, but they also know they are not active in protecting themselves by adopting strong practices to safeguard their online privacy and security.

The survey asked respondents if they had taken any actions after hearing of the Target breach to protect their privacy or to prevent credit/debit card fraudulent activity. A surprising 79 percent admitted they had done nothing. Despite the scope of the Target data breach, only 4 percent of the respondents indicated that they had signed up for the credit and identity monitoring service that retailers who had been affected offered at no charge (see the chart).

Consumers Post Breach Actions

In response to another question, this one asking about the frequency at which they changed their passwords, more than half (58 percent) admitted that they changed their personal e-mail or online passwords only when forced or prompted to do so. Fewer than 10 percent changed it monthly.

When we compare the results of this study with other consumer attitudinal studies, it becomes clear that the ability to get consumers to actually adopt strong security practices remains a major challenge. At "Portals and Rails, we will continue to stress the importance of efforts to educate consumers, and we ask that you join us in this effort.

Photo of Deborah Shaw

June 23, 2014 in consumer fraud, consumer protection, data security, identity theft, privacy | Permalink | Comments (1) | TrackBack (0)

June 16, 2014

Banking on the Financial Institutions as Gatekeepers

With all the changes and new participants in the payment industry, financial institutions remain the participants in the best position to know their customers. They still play a central role in transactions, so laws, regulations, and rules view them as gatekeepers, best able to protect consumers from unauthorized payments and fraudulent business practices. This gatekeeper role has never been simple, but the increase in the number and type of businesses conducting transactions over the internet and mobile devices has added to its complexity and difficulty. Complicating the gatekeeper role further is the increasing number of intermediaries involved in the payments stream.

Over the years, regulators have issued guidance to institutions highlighting issues related to high-risk businesses and service providers. In the fourth quarter of 2013, both the Office of the Comptroller of the Currency and the Federal Reserve Board issued guidance on third-party risk management for financial institutions. The new guidance highlights the growing importance of managing relationships with payment participants and makes it clear that institutions have to focus on managing customer relationships, which starts at onboarding.

Regulatory pressure is one approach to keeping the payments system safe, and so is the pressure that law enforcement agencies put on financial institutions. A recent example includes the crackdown of the New York Department of Financial Services on unlawful payday lending practices.

Payments system rules are also effective in keeping financial institutions focused on indicators of the fraudulent use of a payment type. For instance, NACHA Operating Rules include a provision that says an institution is out of compliance if its businesses have a return rate for unauthorized transactions over 1 percent. (A previous post addressed proposed enhancements to the NACHA Operating Rules to address additional indicators of fraud.)

An even stronger type of pressure exerted on financial institutions is when an agency bans a payment type entirely or restricts its usage. For instance, the Federal Trade Commission issued a proposal last year to ban the use of remotely created checks by telemarketers. If a payment type is banned, the financial institution's role is to enforce the ban with its business clients.

The emphasis on the financial institution's gatekeeper role underscores the continued importance of protecting consumers from fraudulent payment practices. It also highlights the fact that this role is not an easy one and brings with it certain risks and costs.

Photo of Deborah Shaw

June 16, 2014 in banks and banking, regulations, risk management | Permalink | Comments (0) | TrackBack (0)