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Investment Firms Report Increased Credit & Debit Card Fraud

Financial institutions in the securities and futures industries last year reported a large increase in the number of suspicious transactions attributed to debit and credit card fraud -- nearly double the number reported in 2007, new statistics released by the federal government show.

The numbers come from an annual report released by the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. The report tracks so-called "suspicious activity reports" (SARs), which financial institutions are required to file when they spot customer transactions of $5,000 or more that set off various red flags most commonly associated with money laundering or other fraudulent activity.

Originally, these filings were required only of traditional financial institutions, but in 2003, the government began requiring the reports from trading firms and mutual fund providers, too.

According to FinCEN, the number of SARs that investment firms attributed to credit and debit card fraud jumped up 95 percent in 2008, by far the largest increase among any category. FinCEN spokesman William Grassano said the tie-in to credit and debit card fraud is because trading firms allow customers to tie their balances to debit, credit and money market accounts.

"Sometimes there is unusual or unexplainable activity involving money moving, such as payments made from one account to another, unauthorized purchases or cash advances from different places around the globe," Grassano said.

The FinCEN study doesn't state the exact reason behind each SAR report, but stock trading and mutual fund account numbers and/or online credentials for those accounts stolen via malicious software likely account for a large amount of the activity that spurred those reports, said Ed Rodriguez, a former criminal investigator at Treasury and now a senior consultant at Watkins, Meegan, Drury & Co., LLC, a financial services firm in Washington, D.C.

The government says SARs reports are one of its main weapons in the battle against money laundering and other financial crimes, since these reports generate leads that law enforcement agencies use to initiate investigations. But financial institutions -- particularly brokerage firms -- have long fought the reporting, Rodriguez said.

"There really should be a lot more filing of these reports by the financial firms, but the industry doesn't feel like they see enough results [from law enforcement] to justify the filings," Rodriguez said. "When you break it down to the number of filings versus the cases generated from those reports, it is small percentage."

A chart showing the SARs report breakdowns by category (some of them extremely vague) is below. The full report is available here (PDF).


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By Brian Krebs  |  May 21, 2009; 6:45 AM ET
Categories:  Economy Watch , Fraud , U.S. Government  | Tags: 2008, credit card fraud, finCEN, sars  
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