Sophisticated cybercrooks have developed a technique for tampering with the PIN Entry Devices on Chip-and-PIN readers to steal users' card details and PINs.
Police from the Dedicated Cheque and Plastic Crime Unit (DCPCU) recovered stolen PIN pads and hundreds of fake cards in a raid on a counterfeit card factory in Birmingham earlier this week. Two as yet unnamed people arrested during the raid were charged on Tuesday with conspiracy to defraud.
Equipment recovered from the factory included kit to swipe card details and make counterfeit cards - stolen Chip-and-PIN terminals, a card reader/writer, computer software and counterfeit magnetic stripe cards.
According to a police statement, "Early indications are that these criminals have been tampering with retailers’ chip and PIN terminals in order to steal card transaction data and PINs from these machines."
Crooks have apparently developed a technique for installing data capturing technology on PIN entry devices. Devices are first stolen and compromised before being placed back into a retail outlet, sometimes with the assistance of a corrupt insider.
Card details and PINs captured from subsequent transactions are either captured on the device or transmitted to crooks who use the data to create counterfeit cards. These fake cards are then used abroad to withdraw funds.
The introduction of Chip-and-PIN as an alternative to signatures in authorising credit and debit card transactions is credited with reducing fraud on the high street. Even so card fraud losses last year rose 25 per cent from £427m in 2006 to reach a total of £535.2m last year, an increase largely blamed on criminals using stolen UK card details overseas.
International fraud losses rose from £117.1m in 2006 to £207.6m in 2007, according to the latest figures from banking association APACS. The majority of these losses came from ATM withdrawals in countries yet to upgrade to Chip-and-PIN.
Detective Chief Inspector John Folan, head of the DCPCU, described the arrests as a "significant development" in the fight against this type of fraud. He sought to reassure the public that the police had the problem of compromised PIN terminals under control.
"To date, compromised Chip-and-PIN terminals have been found in less than 30 retail outlets throughout the UK. Together with the banking and retail industries we are working to ensure this figure is minimised," he said.
The DCPCU includes officers from the Metropolitan and City of London police forces who work on secondment alongside banking industry fraud investigators. The banking industry finances the unit through APACS.
Sandra Quinn, director of corporate communications at APACS, said that Chip-and-PIN remains the safest method of payment for goods and services: "In the unlikely event a cardholder is an innocent victim of this or any type of fraud, they enjoy excellent protection under The Banking Code, which means that they will not suffer any financial loss."
Andrew Goodwill, a director at card fraud prevention specialists The 3rd Man, said the attack made compromised PIN entry devices in stores as big a treat as the better known risk of bogus ATM machines. "Now it's not just cash machines, it's every card reader in every shop or restaurant."
"The PIN access devices are being re-engineered. It seems like crooks have broken the encryption on the chip but this is unclear," he added. ®