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Larry C. Adams, CPA
Phoenix, Arizona USA
Certified Public Accountant
Certified Fraud Examiner
E-mail
fraudwritr@aol.com
Telephone (602) 995-8008
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July
2002 Topics
Credit Card Generator, Friendly Fraud, Keep
It Under Your Hat, LUHN Formula, Modulus 10, Mod 10, Double-Add-Double, and
Triangulation
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This article is in the
July/August 2002 issue of
The White Paper, the Journal of the Association of
Certified Fraud Examiners.
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Fraud In Other Words:
Professional Jargon and Uncensored Street Slang
By Larry C. Adams, CFE, CPA, CIA, CISA
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Credit Card Generator
 A “third-party fraud” in which the fraudster creates a credit card number
using programs found on the Internet, often on hacker sites. Using a search
engine query, you can find over 5,000 sites offering a credit card generator (CCG)
or credit card verifier. A generator program allows you to select any type of
card number you want – Diners, Carte Blanche, Visa, MasterCard, American Express
or JCB (Japanese Credit Bureau). You can select any issuing bank or country. The
first four or six numbers are the Bank Identification Number (BIN). The program
will calculate the rest of the card number. One free site will allow you to
download 1,000 usable credit card numbers. The fraudster hopes to find a working
number that is already in use and not previously reported as stolen. The
fraudster tests these numbers by making “under the radar” purchases for small
amounts at grocery stores, gas stations, movie theaters, or porn sites, where
transaction speed is a higher priority than fraud detection. If a generated
number works, the fraudster attempts larger purchases. A perpetrator can submit
a card number to hundreds of retail Web sites at one time.
Steve Gilmore, “Businesses Pay the Price for Online Credit Fraud”, http://moneycentral.msn.com/articles/
smartbuy/scam/1546.asp,
March 14, 2002.
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Friendly Fraud
A scheme in which a consumer uses his own credit card to purchase items on a
Web site. When he receives the bill, he claims he did not authorize the
transaction or receive the merchandise and services. The merchant knows the
consumer visited the site because it gathered a significant amount of
information about the consumer including his e-mail address. Unfortunately, a
lot of this information is not useful in a chargeback dispute of a
card-not-present (CNP) transaction. Gartner Inc. surveyed 156 top retailers with
median revenue of $250 million and found that 2.64% of the retailers’ Internet
transactions were chargebacks, compared to 1.24% of their offline transactions.
Individuals typically commit friendly fraud. Organized crime typically commits
non-friendly fraud. Non-friendly fraud occurs when a fraudster obtains someone
else’s account number and uses it to buy goods and services.
Peter Petrone, “Detecting Credit Card Fraud in CNP Transactions”, ACFE
Arizona Chapter meeting, March 12, 2002.
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Keep It Under Your Hat
 To keep something secret. This phrase was popular in the American West in
the 1800s. Most men carried their important documents, maps, and money inside
their large cowboy hats. They wanted to keep them secret and shown to no one.
Their hat was the first thing they put on in the morning and the last thing they
took off at night. If someone knocked their hat off or pushed it askew, that was
cause for a fight because their secrets might be revealed. In the 1920s, a
popular song begged “Keep it under your hat! You must agree to do that. Promise
not to breathe a word.” Today the phrase frequently refers to insider trading or
bribery.
Bob Willis, “Cowboy Hat Tricks”, Highroads, AAA Arizona, Phoenix, Arizona,
March/April 2002, pages 29 – 31.
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LUHN Formula (Modulus 10, Mod 10, Double-Add-Double)
The simple Modulus 10 algorithm was created in the late 1960s by a group of
mathematicians. Almost all institutions that create unique account and
identification numbers use this formula. Credit card companies adopted the LUHN
formula to generate, validate, and verify the accuracy of credit card numbers.
The formula generates the last number of a card number, known as the checksum
digit. The calculation doubles every other digit, adds all the digits together,
and then subtracts the total from the next highest number evenly divisible by
ten. Businesses use the formula to make sure a credit card is valid before
sending the number for debit authorization. In Canada, the LUHN formula is used
to check the validity of a person’s Canadian Social Insurance Number (SIN). The
formula is in the public domain and anyone can use it.
Mike Hall, “Validation Algorithms”, http://www.brainjar.com/js/validation/
default2.asp,
March 14, 2002.
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Triangulation
 A scheme that uses three parties to commit fraud using online auctions - the
perpetrator, an online merchant, and a consumer. The fraudster advertises
popular consumer electronics products, such as digital cameras, at deeply
discounted prices on an online auction site. When a buyer places the highest
bid, the fraudster orders the merchandise from a manufacturer’s Web site or a
retail Web site and requests the package to be shipped to the address of the
auction winner. The fraudster pays for the order with the credit card number
stolen from a previous auction customer. The fraudster receives payment from the
current auction winner though a person-to-person money-transfer service that
routes the money to a foreign bank account, often in Eastern Europe. The
fraudster never touches the merchandise because he can orchestrate the scam from
thousands of miles away. The manufacturer or retailer learns of the scam when it
receives a chargeback from the credit card company. The unsuspecting buyer loses
out when the police stop by to question him and collect the stolen merchandise
to keep for evidence. The auction buyer is scammed again when his credit card is
used to purchase more merchandise for other buyers.
Daniele Micci-Barreca, “International Fraud and Technological Solutions”,
eCTA News Archives, eCurrency Trade Association Inc., http://www.exchangeprovider.net/
ecta.cgi?page=news&artnum=09,
March 14, 2002.
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Larry C. Adams, CFE, CPA, CIA, CISA,
is an audit consultant in Phoenix, Arizona. His latest book is Fraud In Other
Words, Second Edition, 1999. He is a member of The White Paper Editorial Review
Board. His e-mail address is
fraudwritr@aol.com.
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ã Copyright 2001 Larry C. Adams. All
rights reserved.
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