Net Fuels Surge of Fraud in Europe

Online scam artists contributed to a 50 percent increase in credit card fraud in the European Union (EU) last year, ringing up US$553 million in illegal transactions, according to numbers released by the European Commission (EC) on Monday.

To stem the tide, the EC has launched an ambitious three-year “Action Plan” meant to reduce “the growing problem of fraud and counterfeiting on cards and other non-cash means of payment widely used for cross-border transactions.”

Said EC internal market commissioner Frits Bolkestein: “[Criminals] have repeatedly shown their ability to exploit any weak link in the chain. We must work together to beat them at their own game.”

Bolkestein added: “The rate of increase in fraud and counterfeiting of payment cards concerns us all. To date the counter-attack has mainly focused on domestic payments, but the scale of cross-border fraud means we need urgent action at a European and, indeed, international level.”

Confidence Game

The EC believes that if it does not act now to cut down on Web-based credit card fraud, the problem could cripple the developing e-commerce sector.

“Fraud is increasing most in relation to remote payment transactions, especially on the Internet,” the report said. “While sales in e-commerce in recent years have exceeded the most favorable estimates, its potential is inhibited by lack of confidence in the privacy and security of payment transactions performed over the Internet.”

According to the report, in addition to the issue raised from the interception of data in payment transactions, the possibility of hackers collecting information out of Web site databases is a “cause for concern.”

Assigning Responsibility

Acknowledging that reducing online credit card fraud is “principally the responsibility of the payment systems industry and will depend largely on non-legislative measures,” the EC said it could nonetheless play a “useful role” in establishing systems to ensure better communication and stronger cross-border cooperation.

The EC is calling on the online payment industry to “provide the highest economically viable level of security for remote electronic payments by mid-2002 at the latest.”

At the same time, the EC plans to develop “clear and binding rules with adequate sanctions for those found to break them.”

Technology solutions mentioned in the report include new payment options for e-commerce and the introduction of credit cards containing electronic chips.

Money for Crime

The EC made it clear that solving credit card fraud cases should “become a priority issue” for law enforcement because proceeds from these scams “may be used to fund other criminal activity.”

The EC believes that cooperation between law enforcement agencies, credit card companies and the retail sector is crucial to solving credit card fraud cases. As part of this cooperative effort, the EC wants the payment industry and law enforcement agencies in member states to agree on what evidence is needed to prosecute credit card fraud.

One step the EC is taking to increase communication is the establishment of a Web site with information on fraud prevention initiatives and links to relevant organizations. The EC would also like to see the establishment of a single toll-free number within the EU for consumers who have lost their credit cards or been the victim of online fraud.

In addition to increasing cooperation within the EU, the EC is also advocating increased cooperation with non-EU countries.