FBI: $200 Million Credit Card Fraud Scam Could Affect Every American Consumer

February 05, 2013

On February 5th, the Federal Bureau of Investigation arrested 18 people who allegedly were involved in a credit card scam that stole at least $200 million, an act that could end up costing everyday American consumers.

The scheme could be one of the largest credit card fraud operatives charged by the Department of Justice, said U.S. Attorney Paul J. Fishman in the FBI's announcement.

The fraud extended across dozens of states and over international borders. The defendants allegedly created over 7,000 of false identities to help them get credit cards, which would also trigger the creation of a credit report. They then would try to improve the credit of these fake people by giving the credit bureaus false information. Because the credit bureaus thought this information was accurate, they'd add it to the credit reports, which would then say these fake people had excellent credit.

The defendants then allegedly used these false identities to get loans--and with excellent credit, they could get more money leant to them--which they never repaid.

Additionally, the defendants allegedly created dozens of "sham" companies that did little, if any, legitimate business. These "businesses" got credit card terminals and used the fake credit cards to run up charges. The terminals came from merchant processors, who are responsible for providing this equipment and settling payments between credit card companies and businesses. As these fake companies ran up charges, the card company would give the money to the merchant processor, who then in turn would pay the sham company, less its processing fee. When they sensed fraud, the merchant processors would close these companies' accounts, but the defendants would then just create new companies and start the process again.

These fake companies also would give fake information about the false identities to credit bureaus, to continue to pump up their credit ratings.

"This type of fraud increases the costs of doing business for every American consumer, every day," said Fishman in a statement. "Through their greed and their arrogance, the individuals arrested today and their conspirators allegedly harmed not only the credit card issuers, but everyone who deals with increased interest rates and fees because of the money sucked out of the system by criminals acting in fraud rings like this one."

"The criminal activity described in today's complaint highlights the activity of an extensive, sophisticated, organized scheme, executed against U.S. financial institutions, which, in turn, affects every citizen of the United States," said Acting Special Agent in Charge David Velazquez in a statement.

The list of fraudulent activities extends even further, showing the complicated web of credit card fraud executed in this plan. The group also allegedly used businesses that willingly helped get more money from the fake credit cards by conducting fake transactions, which credit card companies unknowingly paid out.

The FBI has identified 169 bank accounts that are involved with this scheme, with millions of dollars being wired to Pakistan, India, the United Arab Emirates, Canada, Romania, china and Japan. The FBI believes the entire plan used over 25,000 fraudulent credit cards. The agency is still calculating the cost of this entire scheme, though so far it has confirmed losses of over $200 million.

The FBI worked with the U.S. Attorney's Office, U.S. Postal Inspection, U.S. Secret Service and U.S. Social Security Agency, along with several financial institutions to piece together the conspiracy.

The 13 people charged in the complaint range in age from 31 to 74 and live in New Jersey, New York and Pennsylvania. They have received one count of bank fraud each. They were scheduled to appear in federal court on February 5. A count of bank fraud is punishable by a maximum of 30 years in prison and a $1 million fine.

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