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The earliest illegal skimmers, book-size devices that required AC power, were discovered a few years ago under gas station counters, where there was plenty of room for a laptop computer that stored card numbers and code. But Mick Chandrani, head of the Secret Service office in New York City--now the Silicon Valley of the criminal underworld--says today's skimmer boom started in early 1999, when electronic gray marketeers started peddling a new generation of miniaturized, battery-powered skimmers with a memory chip that could store data from as many as 300 cards. The new wireless devices, outfitted with their own memory chips, can be secreted in a pocket or hung on a belt like a pager. "The sad fact is that the charge-card companies make everything so consumer friendly that it's very simple to compromise the system," says Joe Russo, supervisor of the charge card-fraud squad for the Secret Service's New York City field office.
Six major charge-card issuers--American Express, Bank of America, Chase Manhattan Bank, Citibank, Discover and MBNA--have started to fight back by cooperating with the Secret Service to pool information about fraudulent transactions and to generate computer analyses that flag locations where numerous cards may have been skimmed. The Visa and Mastercard associations, along with American Express, are refining their security programs, called neural networks, to do a better job of spotting suspicious transactions before they are consummated. (If, for example, someone in Hong Kong tries to buy something with a card that was used just two hours earlier in Chicago, the computer will reject the transaction.)
But the card companies are reluctant to spend much money to combat a threat they still regard as relatively small. "I think we have to look at the size of the skimming problem vs. the cost to solve it," says John Shaughnessy, senior vice president of risk management at Visa USA, which estimates that fraud losses from skimming represent less than one-tenth of 1% of total sales.
Individual cardholders are not liable for fraudulent charges made to their accounts by skimmers or other scam artists. But those cardholders can be in for a rude shock when thousands of dollars worth of purchases suddenly show up on their monthly statements. Card companies urge their customers to read their bills closely and report improper charges promptly. But even if they do, they face the hassle of paperwork and of acquiring new charge cards. And the losses incurred by the charge-card companies eventually get passed along, largely invisibly, to consumers through higher interest rates and card fees.
What's more, Secret Service agents point out that the skimmers, even if they are a relatively minor annoyance to credit-card companies, are feeding a sizable chunk of change into the coffers of Asian, Russian, Nigerian and Latin organized-crime cabals. "For some of these inherently violent groups," says Regan, "skimming is too lucrative to ignore."