Fraud has long been relegated to the back burner of criminal activity; an unfortunate but expected cost of doing business for financial institutions, and a necessary annoyance for consumers who operate in the global economy. As long as fraud doesn’t get to be too big of a problem, the fraudsters are mostly left alone. In practice, though, fraud – particularly payment card and payment account fraud – provides a reliable, nearly limitless means of funding for much more serious transnational crime. Payment fraud is used to launder money for organized crime syndicates, subsidize the costs of trafficking in drugs, guns, and humans, and provide material support for terrorist groups.
For our latest research, The Next Generation of Criminal Financing: How Payment Fraud Funds Transnational Crime, Terbium Labs investigated the links between payment fraud and serious transnational crime. This research begins to fill a gap in understanding about the use of fraudulent financing in some of the most heinous crimes around the world. Researchers analyzed thousands of criminal cases from North America, Europe, and Australia to identify overlaps between payment fraud – particularly the use of stolen payment cards – and pernicious, transnational criminal activity.
These cases show the true cost of fraud. Fraud is not just an annoyance to consumers and a cost to merchants and financial institutions – it’s also the funding mechanism for Somali organized crime groups trafficking in young girls. Fraud covers costs of living for young men in North America providing propaganda services for ISIS. The widespread availability of compromised payment information and identity data on the dark web provides near-limitless funding to these transnational crime operations, whether through cashing out on stolen payment cards, laundering illicit funds through fraudulent bank accounts, or sourcing new identities for human trafficking victims.
This research exposes the consequences from outdated and inconsistent reporting standards for both financial institutions and criminal justice agents. For every link this report highlights, researchers also faced incredible gaps in documentation, fraud loss reporting, and cases that frequently discard fraud charges in favor of higher profile crimes. This missing data masks the true scale and spread of fraud funding; the data presented here is only the tip of the iceberg.
With this research, we’ve begun to uncover patterns in fraudulent financing for serious transnational crime. Our regional analysis of cases show North America has the highest rate of terrorism-linked fraud cases, with more than seven times as many cases as Europe. Europe, meanwhile, shows significant links between fraud and organized crime, drug trafficking, and money laundering. Western Europe and Eastern Europe differ in their use of fraud to subsidize serious crime, and Western Europe faces higher rates of fraud linked to human trafficking.
In addition to the regional breakdowns, the report also contains case studies on specific trends, including:
- How fraud and automobile trafficking in North America provided material support to Hezbollah – and even furnished vehicles to transport bombs destined for attacks on Israel.
- How an established Sri Lankan organized crime group used North America as a hub to transport compromised point-of-sale systems to Australia in order to exploit Australian consumers and then sell the compromised financial data.
- How Russian drug traffickers borrowed from popular gameplay to create an anonymized scavenger hunt of dead drops around cities thousands of kilometers apart.
This research demonstrates a clear need for change in the way we think about, report, and prosecute fraud. In this initial study, we identified more than $1 billion (USD) in losses from just a handful of cases that contained fraud loss documentation. The true losses are likely exponentially higher, with billions of dollars of fraud funding human trafficking, organized crime, and material support to terrorist groups.
We need to understand the true impact of fraud – not just the financial costs, but also the costs to public safety and national security. With this research, Terbium Labs calls for a paradigm shift in mandatory reporting policies for both financial institutions and criminal justice agencies.
This research uncovers clear links between fraud and some of the most horrifying crimes of our time. Fraud is not just fraud. Fraud is financing. Fraud is funding. Until financial institutions treat it that way, and criminal justice agents investigate with these broader implications in mind, criminal groups will continue to rely on this financing with abandon.