YOU ARE AT:Archived ArticlesORGANIZED CRIME DOUBLE-DIPS WITH SUBSCRIPTION FRAUD

ORGANIZED CRIME DOUBLE-DIPS WITH SUBSCRIPTION FRAUD

NEW YORK-Wireless telephony providers are hemorrhaging revenues from organized activity by criminals drawn to the low risk and easy money of subscription fraud.

Thieves are exploiting a particularly lucrative window of opportunity right now, one that is likely to remain open for a few years. They have spotted a vulnerable blind side as carriers focus their full attention on year-2000 compliance for billing systems, without which they will become insolvent, said John Valentine, president and chief executive officer of Infoglide Corp., Austin, Texas.

Infoglide is a software company focused on tracking terrorists, serial murderers and rapists, income tax evaders and those who commit Medicaid and car-insurance fraud. The company, recently featured on ABC TV’s “60 Minutes,” expects to release this summer a version of its software designed specifically for wireless telecommunications.

The advent of digital technology may have cut off drug dealers and other organized criminals from cloning phones. However, there are far fewer law-enforcement agencies chasing telephone fraudsters than drug dealers and gangsters, said Norman A. Willox Jr., founder and chief executive officer of the National Fraud Center, Horsham, Pa.

Dual fraud

Even if one avenue has been closed off, wireless telecommunications fraud remains lucrative and certainly less physically threatening to the personal safety of its perpetrators, he said. Furthermore, the propensity of carriers to broaden their distribution outlets has provided a dual fraud opportunity that includes subscription fraud and legitimizing ill-gotten gains from other activities.

“Organized crime has recognized the wireless telecommunications industry as great to launder money through,” Willox said.

“Say I’m a carrier with a lot of sub-agents. [Criminals] set up a distributorship, become a sub-agent, get phones. It’s also a good place to launder money through, so they benefit two ways.”

Additionally, the call-forwarding capabilities of digital wireless handsets have proven a veritable gold mine for thieves, said Tom Prosia, vice president of strategic market planning for Lightbridge Inc., Longmont, Colo.

“Call forwarding provides an ersatz switch so that the recipient of a legitimate call made locally from one wireless phone to another can get on the network fraudulently and forward that call internationally,” he said.

Worst of all, carriers don’t even know what they’re missing even though the measurement tools are available. However, Valentine said Infoglide uncovered $1.2 billion of stolen wireless and wireline services during a single 11-day period in April 1997 when it worked pro bono on a telecommunications fraud investigation for law enforcement agencies in New York.

So convinced is Mary Chacanias that measurement and prevention techniques could reduce subscription fraud dramatically, she said she would entertain negotiations with carriers to pay their costs out of shared savings. Chacanias, formerly director of fraud prevention for Bell Atlantic Corp., joined Hewlett-Packard Co., Palo Alto, Calif., as director of its new Worldwide Telecommunications Fraud-Management Program in late April.

Shared savings is a concept the electric utility industry has employed to encourage its customers who are large power users to implement capital improvements and processes that save energy.

In general, the installed cost of the energy-conserving equipment is measured against what the total electric bill is projected to be over its useful life. That anticipated usage is compared with projections of energy bills for the same time period had the new equipment not been installed. The electric customer’s bill for the new equipment equals its half-share of the projected savings.

Fraud solutions

The solutions to this growing menace are at hand. Here are several examples:

Infoglide Corp.’s software, to be released through third-party distributors this summer, takes aim at weaknesses in the two key methods carriers use today to combat fraud, said Infoglide’s Valentine.

Programmed “to look for pre-defined patterns,” neural networks, which all carriers use to profile calls, “become blind” if legitimate subscriber names and addresses are modified, he said.

Neural networks, for example, failed to uncover a cellular fraud ring operating in Passaic, N.J., where gang members each had post office box numbers and surnames that differed by one or two digits or letters, he said.

Relational databases, computerized master files that centralize information on each subscriber from different departments within the company, “are great at storing accounting information.

“But if the information isn’t exactly the same,” as in a slight misspelling of a name, “relational databases get all screwed up,” Valentine said.

Infoglide’s software, sitting on top of databases, is able to cross various computer protocols and tries many combinations, expecting that most of the data it searches will be incorrect.

“This isn’t just a search technology. No other technology can go across all these databases,” Valentine said.

“We found by accident that our technology really makes cellular phone stuff sing.”

Valentine said the accident pertains to pro bono work Infoglide has done at the request of police departments in the Southwest and Northeast to crack wireless telecom fraud rings. A public announcement of one such major bust is pending, he said.

The National Fraud Center started out dealing with the assets stolen from bankrupt savings and loan associations during that crisis in the early 1980s. Credit-card companies are among its major customers.

“We are the only company in the world to look at the back end, with research analysts and investigators who feed analyses to the front end for information systems design,” NFC’s Willox said.

In October, the company introduced NFC Online, which offers cellular phone fraud investigation professionals round-the-clock, one-number access within seconds to 20 powerful databases. Password access permits searches with variables, including residential or business name, phone number, address, Social Security number, neighbors’ names, bankruptcy filings or property ownership.

The National Fraud Center also offers Fraud Detect, a database it developed to help its clients flag potential conflicting information during credit or other application processes. It also offers PROBES, a proprietary relational database that develops multiple relationships among all types of fraud data to detect patterns, trends and provide forecasts of fraudulent activity.

Earlier this spring, the National Fraud Center teamed up with Systems/Link, Cranbury, N.J., to create a limited liability corporation. Its purpose is to integrate NFC’s D-fense, which does dial-digit analysis to prevent subscription fraud with Systems/Link products, the FraudTech profiler and RoamX, “which has 95 percent of the roaming data in the U.S.,” Willox said.

The jointly run corporation will distribute the combined product and will have a consulting arm.

The National Fraud Center, which relies on third-party distributors, also does work with Lightbridge, Willox said.

Lightbridge’s Fraud Sentinel, a subscription fraud prevention tool, is used by 26 carriers in 75 markets across the United States.

“In an ideal world, you stop subscription fraud before it starts,” Lightbridge’s Prosia.

Lightbridge, headquartered in Burlington, Mass., recently acquired Coral Systems in Longmont, Colo.

“Coral Systems’ FraudBuster profiler records off-the-switch, real-time call activity and billing information, so it puts Lightbridge in the position of delivering the front end,” Prosia said.

“In many cases, it can take one-to-two billing cycles for a carrier to notice fraud, but we’ve gotten it down to a matter of days. Most profilers are proficient at detecting cloning, but we’ve adapted it for subscription fraud.”

Befo
re acquiring Coral Systems, Lightbridge also had developed a suite of tools that integrate at the point of activation to evaluate potential subscribers, he said.

These include gathering “the significant seven”-name, address, work and home phone numbers, date of birth, driver’s license and Social Security numbers. Those seven facts are matched against negative databases that store information like invalid postal addresses and whether the geographic distance between work and home numbers given are reasonable. They also are matched against the databases of carriers across the country containing information on bad debt write-offs.

Hewlett-Packard has a state-of-the-art fraud management system called accessSS7, said Chacanias. It monitors Signaling System No. 7 digital switching network links in real time to search for a variety of carrier-defined fraud scenarios.

The new Fraud-Management Program is intended to offer consultation to carriers whether or not they use accessSS7, she said. Fraud audits are a big part of the mix.

“This is the biggest stumbling block, the need to know and quantify the amount of fraud. Without it, you don’t have a leg to stand on,” Chacanias said.

“A lot of the embedded systems never separated out pay phones, wireline, wireless. We’ll collect and spin the data so the worst areas can be dealt with first.”

Hewlett-Packard’s program then can recommend prevention tools and how to integrate them into carriers’ systems, said Ron McDowall, product manager.

“Most larger companies outside wireless have been burned, and they’ve brought in online customer-credit databases, but this isn’t often done in wireless,” Chacanias said.

“It takes seconds, and sometimes speed has to be in there with the business process.”

However, she cautioned against expectations of a silver bullet. Instead, she said a variety of high-and low-tech processes and procedures are needed, depending on a carrier’s individual circumstances.

“Hopefully, the wireless industry will evolve to be more in a prevention mode,” Chacanias said.

As consumers become increasingly weary and wary of subscription fraud, carriers that market themselves for the security they offer against this crime may find a marketing advantage, in addition to other benefits, she said.

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