# COMBATTING CROSS-BORDER CREDIT CARD FRAUD

 

By Derek Nowek

 

For a growing number of U.S. merchants and exporters, creditcard fraud is a serious concern in cross-border electronic commerce,particularly in transactions with the NIS. Anecdotal evidence suggests that,over the past four years, credit card fraud in international transactionsoriginating in Russia and Belarus has increasingly become a problem. In 1997,for example, **America Online** had tocut direct access to its users in Russia because too many people were usingstolen or counterfeit credit card data to sign on for email and Internetservices. More recently, Belarus has originated a rash of attempts to defraudU.S. vendors of computer systems, peripherals, and other high-tech components.In a February 1999 incident, for example, a Florida-based computer resellershipped $40,000 worth of computer parts to Belarus before the credit card fraudwas discovered. 

 

Knowing how to spot credit card fraud and what precautions totake can significantly reduce a merchant’s exposure and potential loss ininternational transactions originating from the NIS region and, indeed, theentire world.

 

Technology’s Two-Way Street 

With the latest technology at their disposal, credit cardcrooks can counterfeit entire credit cards, along with their magnetic strips,or use sophisticated programs to generate mathematically correct credit cardnumbers that will register as “valid” when run through an electronic swipeterminal. They can also simply steal credit card data from unsuspectingcardholders. 

 

Although the methods of credit card fraud in foreign salestransactions can vary widely, the recent wave of fraud attempts targeting U.S.computer companies in Northern Virginia and California have much in common. Allof the U.S. merchants received an authentic-looking fax or email from a companyin Belarus requesting a quote on computer parts. The company claimed to be amanufacturer or a retailer of computers and components looking for U.S.suppliers that could replace orders from financially stricken Russia. TheBelarus company was interested in large purchase orders with volume discountsand fast deliveries. In further correspondence, U.S. merchants were often askedto underdeclare the invoice value of the shipment to help the company offsethigh import taxes. The Belarus company then provided up to 10 credit cardnumbers and requested the shipment be sent via UPS or a similar carrier withoutthe company’s name on the invoice and without freight insurance. 

 

Chris Slade, account manager at **Boost Peripheral Systems** (Sacramento, CA, *www.boostsystems.com*), received such a purchase order. He becamesuspicious after two of the four credit cards he was given were declined andthe Belarus company promptly sent a batch of new numbers. “I don’t want to seeany American companies getting ripped off, especially ours,” said Slade, aftereventually tracing the credit card information to a bank in Stockholm anddiscovering it was bogus.

 

Unfortunately, some merchants with no prior credit card fraudexperience believe they are in the clear when they key in the numberselectronically and are given a transaction approval code. In fact, all theverification does is to check that the number is valid and sufficient funds areavailable for the purchase. However, under the rules of most credit cardmerchant account agreements, merchants bear the full cost of fraudulent creditcard transactions that take place via mail order, the telephone, or theInternet.

 

How to Minimize Credit Card Fraud

U.S. companies can take a number of precautions to protectthemselves from credit card fraud, especially in cross-border transactions.These precautions can range from simple, do-it-yourself steps to validate eachorder, to sophisticated antifraud software, to automated verification servicesoffered by specialized providers. The method or methods used should depend onthe company’s experience in foreign sales in the NIS region, knowledge of thelocal market, and the number and size of transactions.

 

Antifraud experts recommend takingthe following steps for each foreign sales order:

 

1.  Examine the email address on thepurchase order. If the order came through a free email service provider, suchas hotmail.com, juno.com, and europe.com, consider declining the order. Expertsagree that a high rate of credit card fraud occurs through these anonymous,untraceable email addresses. A convenient way to determine if an order comesfrom a free email service is to substitute “www” in front of the domain portionof the address and look up the provider’s website. Another way to check forfree email services is to browse a list maintained by **Antifraud.com** (*www.antifraud.com/redflag.htm*),an Internet-based service that helps companies protect themselves againstonline credit card fraud.

2.  Request the name and phone number ofthe bank that issued the credit card, including the exact name of thecardholder and the exact billing address.

3.  Get the transaction approval code fromyour merchant account vendor. Then, call the customer’s credit card bank toverify the credit card data.

4.  Call the cardholder to reconfirm thepurchase order. Often, the telephone number on the otherwise authentic- lookingpurchase order will be bogus.

5.  Pay extra attention to large orderswith multiple credit card        numbersand different “bill to” and “ship to” addresses.

6.  Insure the shipment with a freightforwarder or an independent insurance company and do not underdeclare theinvoice or shipment value.

7.   Stay informed. A number ofInternet-based resources are available to help merchants spot credit cardfraud. 

 

“There is usually very little that law enforcement agenciescan do for you in international fraud cases,” according to Dr. Audri Lanford,an authority on Internet fraud and a co-editor of **Internet ScamBusters** (*www.scambusters.org*),a web-based newsletter and compendium of tips and resources on Internet fraudissues. “The best way to reduce the risk of credit card fraud is to implementsound verification procedures and stay up-to-date on the current scams,” shesaid.

 

In the end, if you suspect credit card fraud, insist on awire transfer payment before processing and shipping the order. This is theonly safe way to ensure you receive payment for your exported merchandise. 

 

*Derek Nowek covers customs for **BISNIS**in Washington, D.C.*