Are Street Gangs using Check Fraud to Fund Themselves?

We keep hearing how white collar crime is becoming more organized. A recent story in Arizona shows how traditional gangsters are getting involved in white collar crime.

In 2006, Postal Investigators investigating checks being stolen from the mail tied the activity into one of the more violent street gangs operating in the Hermosa Park area of Phoenix. This led to one of the biggest street gang cases of the year.

Yesterday, Phoenix police and FBI agents began serving warrants on the gangsters involved in this activity. 102 were indicted in this operation. By the end of the day, they had 38 of them in custody. The arrests are being hailed as crippling the gang in the Hermosa Park area.

Of course, this doesn't mean that this gang wasn't involved in more traditional activity. Also confiscated in the arrests were "24 weapons, 18 cars and trucks, 43 pounds of marijuana and cocaine and Ecstasy," according to the story in the azcentral.com about this. In another story on this by ABC15.com, officials commented that several of the people arrested were connected to violent crimes in the area.

According to the authorities involved in this investigation, this gang is suspected of stealing more than $2 million dollars using stolen and counterfeit checks in the past couple of years.

Often legitimate checks stolen from the mail and other sources are counterfeited. Since the checks are copies of legitimate items, they often pass initial scrutiny at a financial institution.

In recent years, check fraud has exploded. Last year, an International task force monitored the mail in several countries and confiscated checks being produced overseas and mailed to several countries. Additionally, a wide array of check producing software and even the paper with anti-fraud security features can be bought in Office Supply stores and even on the Internet.

Another phenomenon that fuels check and many other types of fraud is the easy availability of counterfeit identification. The distribution and sale of counterfeit documents is also controlled by organized crime. I've written about this frequently and have spoken to Suad Leija and her husband, who have gone to considerable effort to educate the public (and the authorities) about how widespread and organized this activity is.

Suad's website, Paper Weapons has a lot of information on this subject.

Organized check fraud activity has been around for a few years. In 1996, Special Agent Keith Slotter of the FBI wrote a very telling paper on this subject. "The principal ethnic enterprises involved in illegal check fraud schemes include Nigerian, Asian (particularly Vietnamese), Russian, Armenian, and Mexican groups. The majority of the Vietnamese, Armenian, and Mexican organizations base their operations in California, especially in the Orange County, San Francisco, and Sacramento areas," according to the paper.

While the arrests in Phoenix represent a small part of the overall problem with check fraud -- it does point to the fact that organized criminals see check fraud as a lucrative income stream.

OCCRP reports on Eastern European/Eurasian organized crime

(Photo courtesy of the OCCRP site)

Eastern European/Eurasian organized groups seem to have their hands in a wide variety of organized criminal activity. They are often mentioned when referring to anything from auction fraud to payment (credit/debit) card skimming and computer crimes.

eBay claims there are entire towns in Romania making a living via auction fraud on it's well known site.

A new site called the Organized Crime and Corruption Reporting Project has been launched by a group of journalists to cover this activity, which seems to have to have a global reach.

In their own words, here is their vision:

The Organized Crime and Corruption Reporting Project (OCCRP) is a joint program of the Center for Investigative Reporting in Sarajevo, Romanian Center for Investigative Journalism, Bulgarian Investigative Journalism Center, Media Focus, the Caucasus Media Investigation Center, Novaya Gazeta and a network of investigative journalists in Montenegro, Albania, Moldova, Ukraine, Macedonia and Georgia.

Our goal is to help the people of the region better understand how organized crime and corruption affect their lives. OCCRP seeks to provide in-depth investigative stories as well as the latest news pertaining to organized crime and corruption activities in the Eastern Europe and Eurasia. In addition to the stories, OCCRP is building an online resource center of documents related to organized crime including court records, laws, reports, studies, company records, etc that will be an invaluable resource center for the journalists and public alike.

The site has been given financial support by the Foundation Open Society Institute (FOSI) and the United Nations Democracy Fund.

Although many of the journalists aren't well known in Western Europe and North America, they have been recognized as putting out some award winning work:

Recently, the program’s first project on energy traders was awarded the Global Network of Investigative Journalists “Global Shining Light Award” for quality investigative journalism under adverse conditions. The project was done in cooperation with SCOOP.

Journalists who have participated in projects published on this website have included Stanimir Vaglenov, Alison Knezevich, Boris Mrkela, Sorin Ozon, Eldina Pleho, Beth Kampschror, Stefan Candea, Roman Shleynov, Mirsad Brkić, Michael Mehen, Mubarek Asani, Paul Cristian Radu, Milorad Ivanović, Vitalie Calugareanu, Vlad Lavrov, Michael Mehen and Altin Raxhimi. The Editors are Rosemary Armao, Paul Radu and Drew Sullivan.

The site covers a wide variety of organized criminal activity (besides what I mentioned above) coming out the the area. Some of these activities include narcoterrorism, illegal arms sales, shell companies and even tobacco smuggling.

Interestingly enough, by reading through the site, I discovered that organized crime even has it's hands in the energy business in the region.

This subject, or the underlying causes of it aren't covered in depth when we read about this phenomenon in the West. Normally, we hear rumors pointing to mysterious Eastern European gangs associated with a sophisticated scam that has surfaced in our own back yard.

In scam circles, some of these people are referred to as "Vlads," which refer to Vlad Tepes, who as the inspiration for the Dracula story. Recently, a person who goes by the name of "Vladuz" has given eBay and the authorities considerable grief when hacking into their system.

Given that this activity reaches far beyond Eastern Europe and Eurasia, this has always amazed me. If you live in any major city in North America or Western Europe, Eastern European/Eurasian organized crime groups are probably operating not very far from where you live.

As the site matures, my guess is that it will provide evidence to ties between these groups and terrorist organizations, also. In fact, if you read what is on the site, some of the evidence I mention is already being written about.

The OCCRP is an excellent and well-written resource for the lay person and professional writer to learn more about a problem, which has become International in nature. Furthermore, since it is written by journalists from the Region, it is a great research tool for anyone interested in the subject.

OCCRP site, here.

Major cybercrime and identity theft group smashed in NYC

It appears that the Manhattan District Attorney and the United States Secret Service have dealt a significant blow to a Internet crime ring dealing in stolen credit card information, cybercrime and identity theft.

The New York/New Jersey Electronic Crimes Task Force and a host of other agencies assisted in the investigation, also.

From the DANY press release:

Manhattan District Attorney Robert M. Morgenthau announced today the indictment of seventeen individuals and one corporation on charges related to global trafficking in stolen credit card numbers, cybercrime, and identity theft. Three defendants will be arraigned today.

The three defendants to be arraigned today are VADIM VASSILENKO, YELENA BARYSHEVA and JOHN WASHINGTON.

Six other defendants – TETYANA GOLOBORODKO, DOUGLAS LATTA, ANGELA PEREZ, KOSTAS KAPSIS, LYNDON ROACH and KEITH CUMMINGS – were arraigned earlier. Two defendants, EDUARD KHOLSTININ and OLEKSIY YARNE, are in custody in other states on unrelated charges and six other defendants are still being sought.

Also indicted is WESTERN EXPRESS INTERNATIONAL, INC., a corporation formerly headquartered in mid-town Manhattan at 555 Eighth Avenue. Western Express’s corporate officers are VADIM VASSILENKO and YELENA BARYSHEVA. TETYANA GOLOBORODKO was the manager of WESTERN EXPRESS.

Although not specified in the press release, most of the surnames of the indivduals involved appear to be Russian, or Eastern European. Most experts concede that Russian and Eastern European organized crime organizations are the major players in the stolen payment card information business.

The activity involved in this appears to highly organized, and technically sophisticated:

The Western Express Cybercrime Group carried out its criminal operations through a structure consisting of “vendors,” “buyers,” “cybercrime services providers,” and “money movers.” The “vendors” were individuals who sold large volumes of stolen credit card numbers and other personal identifying information through the internet. The “buyers” used the internet to purchase that information from the “vendors,” for the purpose of committing additional crimes such as larceny and identity theft. The “cybercrime services providers” promoted, facilitated, and aided in the purchase, sale and fraudulent use of stolen credit card numbers and other personal identifying information through various computer services that they provided to the “vendors” and the “buyers.” Finally, other defendants operated as “money movers.” Those defendants provided financial services and conducted financial transactions for other participants in the criminal enterprise in order to move funds and launder the proceeds of criminal activity. The “money movers” relied on anonymous digital currencies, such as Egold and Webmoney, to buy, sell, and launder the proceeds of criminal transactions, and conducted their business online, using websites, instant messaging, and email. Some of the defendants charged in the indictment played more than one role.

Those involved in the Western Express Cybercrime Group interacted and communicated through “carding” websites – that is, websites devoted to trafficking in stolen credit card and personal identifying information. They relied on the use of nicknames, false identities, anonymous instant messenger accounts, anonymous email accounts, and anonymous digital currency accounts to conceal the existence and purpose of the criminal enterprise, to avoid detection by law enforcement and regulatory agencies, and to maintain their anonymity.

The entire operation was set up under a business in Manhattan known as Western Express. This business appears to have been nothing more than a sophisticated money laundering operation:

The corporate defendant WESTERN EXPRESS INTERNATIONAL, INC., through its managerial agents VADIM VASSILENKO, YELENA BARYSHEVA, and TETYANA GOLOBORODKO, provided financial services designed to conceal the source and destination of funds earned through the trafficking of stolen credit card numbers and other personal identifying information, as well as the identity of individuals engaged in such transactions. They used conventional banks and money transmitters to move large sums of money for their clients, thus permitting their clients to remain anonymous and insulated from reporting requirements. They also provided information and assistance to other members of the group through the WESTERN EXPRESS websites Dengiforum.com and Paycard2000.com.

Apparently, this business had about $35 million flow through it's various accounts and is responsible for a known $4 million in credit card fraud. The investigation also revealed that they trafficked over 95,000 credit card numbers.

The press release stipulates that this is only what has been identifed thus far.

In February 2006, Western Express was also indicted for running an illegal check cashing/wire transfer service. Through it's various websites it offered one-stop financial services enabling Eastern European customers to do business in the United States and vice-versa.

This business was also a front for laundering the proceeds of a lot of fraud activity:

The investigation has revealed that their clients were involved in widespread illegality beyond the mere receipt of funds under fictitious aliases and addresses, including a variety of cyber-crimes such as “re-shipping” schemes and “phishing,” “spoofing” and spamming.

DANY press release, here.

Sophisticated Russian check fraudsters arrested in Fresno

Eastern European organized crime, particularly that of the Russian variety, has become a huge problem, worldwide.

On September 18th, six people of Russian origin got caught in what appears to be a pretty large check scam. The press and Fresno PD can only speculate, whether or not, the people arrested were organized criminals. I'll let the reader come to their own conclusion.

Nonetheless, the story reflects what many consider a growing trend in criminal activity becoming more organized.

CBS 47 in Fresno is reporting:

Fresno Police said ten people were involved in this very complex case involving multiple schemes. In one of the scams they would allow someone else to write check on their account.

They would then go back to the originating bank and claim someone had stolen their checks and was writing illegitimate checks. The bank would then refund their money and the suspects would essentially double their funds. They would even file police reports to make it look legitimate.

The case took Fresno Police more than a year to sort out. It appears the group was involved in hundreds of cons and scams.

The reason only six of the ten were arrested is that four of them fled the country.

CBS 47 story, here.

Organized criminal activity has become a huge problem in recent years. In California, where this occurred, the Attorney General issued a pretty extensive report detailing the problem, here.

The amount of known groups in the activity (not only Eastern Europeans) is getting out of control (my opinion).

I've also written a few things about organized crime, primarily from a financial crimes perspective, which anyone can read (if they're interested), here.

Self service stamp machines targeted by credit card thieves

Photo courtesy of Leff at Flickr

New scams are invented daily. Here is one, where self-service stamp machines (the kind that accept payment cards) are being targeted at Post Offices.

David Bowermaster at the Seattle Times is reporting:

In mid-July, three men left their homes near Los Angeles and traveled to Seattle to buy postage stamps.

But these were no ordinary collectors. Armed with at least 27 stolen credit-card numbers, federal prosecutors say, Artem Danilov, Stephan Melkonyan and Karapet Kankanian fraudulently purchased more than 3,200 books of stamps worth nearly $24,000 from Seattle-area post offices in just more than a week. A federal grand jury Thursday charged the men with an assortment of crimes.

Following a pattern that Postal Service investigators have uncovered in at least five Western states, the men made mass purchases of stamps after normal working hours from automated postal machines, which are accessible 24 hours a day in the lobbies of many post offices around the country, prosecutors allege.

While these three were caught (two Russians and an Armenian), it appears this activity has been occurring throughout the Western United States.

The illegal stamp-buying scheme appears to be a novel breed of identity theft, one that blends high-tech thievery, online commerce and the retro currency of the U.S. mail.

James Vach, a spokesman for the U.S. Postal Inspection Service in Seattle, said investigators first encountered a wave of fraudulent stamp buys in the Los Angeles area late last year.

Since then, the Postal Service has uncovered illegal stamp-buying schemes in Washington, Oregon, Arizona and Colorado.

The Postal Inspectors suspect a larger ring is involved and some of the stolen credit card numbers used have been traced to a car wash in Southern California.

According to the article, here is how the suspects were using the stolen credit card numbers:

Danilov, Melkonyan and Kankanian allegedly used a credit-card reader to embed the stolen credit-card numbers onto the magnetic strips of gift cards from a variety of retailers, Brown said, a process that allows the gift cards to function like credit cards.

They then used the adulterated gift cards to repeatedly buy books of stamps from postage machines in one post office after another. Customers used to be able to buy dozens of books of stamps per transaction from the automated postage machines, but the Postal Service has since limited the number to try to fight such fraud.

Although the authorities don't know where all the stamps were being sold, according to a assistant U.S. Attorney, some of them are being fenced on eBay.

A lot of stolen merchandise is fenced on eBay and other auction sites. A lot of this stolen merchandise is purchased with fraudulent credit/debit card information.

Out of curiousity, I decided to see if new stamps (the kind used for postage) could be found on eBay. Amazingly enough, I found what I consider a large selection with offers of free shipping and discounted prices. What I found can be seen, here.

Of course, at a glance, it can be hard to tell what is legitimate and what is not on an auction site.

A lot of stolen gift cards (used in this instance to clone the cards used) are also fenced on auction sites. I wonder if the value on them had already been used, or if our suspects lifted them at a retailer before a dollar value was loaded on them at a point-of-sale (register)?

Seattle Times story, here.

If you spot this type of activity during a visit to the Post Office, you can report it to the Postal Inspectors, here.

Although two of the suspects apprehended were Russian, the U.S. resident was an Armenian from Southern California. Recently, Armenians (from Southern California) have been tied into similar type activity. The previous posts, I've done on these stories can be seen, here.

Eurasian organized crime loots public coffers

Well placed government sources claim that the government loses $300 billion a year in healthcare fraud - with about half of this figure being stolen from immigrant gangs - many of whom hail from the former Soviet Union.

Troy Anderson of the LA Daily News reports on one small part of the overall problem:

Lana Michael and her husband collected welfare benefits in 2003, claiming they earned less than $24,000.

But authorities say Michael, the former office manager of a job-training center for immigrant welfare recipients, also owned a liquor store and recycling business.

And, authorities say, she drove a $76,000 luxury car, shopped at Neiman Marcus and Saks Fifth Avenue and had $147,980 stashed in her bedroom dresser.

Lana Michael is also known as Svetlana Djangarian was part of an elaborate scheme, where welfare to work checks were issued from the inside and cashed using fake ID. Fraudulent tax returns were also filed.

Daily news story, here.

No wonder programs designed to help the less fortunate are in trouble!

Why Should We Allow Eastern Europe to Export Cyber Crime

I just got finished reading an article from Business Week called "Meet the Hackers." It highlighted a trend that could very well be what's behind some of the massive "information breaches," we see on almost a weekly basis.

Here is an excerpt from the article:

The picture that emerges is of organized gangs of young, mostly Eastern European hackers who are growing ever more brazen about doing business on the Web. They meet in underground forums with names like DarkMarket.org and theftservices.com to trade tips and data and coordinate scams that span the globe. (Those and other Web sites and organizations named by investigators did not respond to e-mails, instant messages, or phone calls seeking comment.) "Financial payment fraud has evolved tremendously," says John Corbelletta, a former police officer who is director of fraud control for Visa U.S.A. Inc. "Most of the cases I investigated when I was a cop involved people who had their cards stolen out of their purse. We didn't even think of counterfeiting cards."

One of them, a young man from the Ukraine (Dimitry Ivanovich Golubov) was recently arrested, and then released with the help of some highly placed friends in the Ukranian government. This was someone, who our government was interested in prosecuting and allegedly a "godfather" type in the cyber crime circles.

Why is it so easy for these sites to exist? Obviously the writer was able to send them messages "seeking comment?" The sad truth is it is far too easy to set up rogue sites, and all we need do is look at the volume of "phishing" activity that is out there. Whether they set up with foreign IPS providers, or hack into an existing site, they seem to have no problem getting a Internet address.

They have stolen so much information, it has become pretty cheap on these "carding" sites. In fact, they are becoming so brazen; they are now selling "how to kits" with everything a "budding" fraudster needs to get started.

With 82 million identities floating around (the amount compromised recently), it shouldn't surprise us that our "identities and personal information" are so cheap. Quite simply, there is a surplus of information out there for sale.

For an interesting article from the Washington Post on how cheap our information is being sold for, link here.

Eastern European organized crime is a worldwide issue and they aren't only involved in cyber crime. They are also involved in guns, prostitution, extortion, car theft, black market, drugs and the "human flesh" trade.

Here are some interesting statistics from the United Nations:

"The number of known criminal groups in Russia increased between 1990 and 1997 from 785 to an astronomical 9,000, with a combined membership of more than 100,000, according to the country's Interior Ministry. In Moscow, some 189 criminal organizations were active in 1996, of which 23 had branches abroad."

"The Ministry estimates that about 40,000 Russian businesses are controlled by organized crime. Among these are law firms, banks and other businesses that can launder money. Many have global links."

In another UN report about Russian Organized Crime in the United States, it said:

"Russians have recently become the principal purveyors of credit card fraud in the U.S., supplanting the West Africans."

It appears that cyber crime isn't the only thing they are involved in that is a threat to human decency. Sadly enough, some of the greatest victims are their own citizens - many of whom - are sold into slavery in some of this criminal activity.

There is also increasing evidence of collusion amongst the various organized crime factions of the world, and some say terrorist factions. Al Qaida teaches it's minions to survive via credit card fraud. Recently, the RCMP (Royal Canadian Mounted Police) made a pretty good argument for this.

With the sheer amount of data breaches and evidence of the information being sold (pretty cheaply) over the Internet, a financial disaster could be in the making. It also seems that whenever it is traced, it goes back (largely) to Eastern Europe.

I decided to check out the recent (highly publicized) arrest, where 565 cyber criminals were caught and discovered that none of the arrests, or law enforcement support seem to come from these Eastern European countries.

Since I'm certain that this is not because of a lack of effort on the part of law enforcement, perhaps we would make greater headway if our politicians took some action. If Eastern European governments are failing to cooperate, maybe our governments should put some "economic" sanctions in place designed to make them see the "light."

Ironically enough, 26.5 million veterans, many of whom trained to protect us from a perceived threat from this part of the world during the "Cold War," might be having their identities sold (cheaply) over some of these "carding" sites somewhere in the near future.

My message to Eastern Europe is that they need to stop exporting their problems to the rest of us and should they fail to do so, we should exercise our combined political voice to stop their personal attack on millions of innocent people.

Counterfeit Postal Money Orders Showing Up in IScams Again

If someone you know over the Internet asks you to cash a money order -- or offers it you as a form of payment -- it's probably best to remember the old legal term "Caveat emptor, or "Buyer Beware."

As reported by readers and other sources, the Internet market is (again) being flooded with counterfeit U.S. Postal Money Orders. After not being around for awhile, these items are raising their ugly head again.

The U.S. Postal Inspectors have speculated in the past that these items are being counterfeited in Western Africa and Eastern Europe. For an interesting article from the NY Times about this, link here.

This is probably the best article, I've read on this subject.

The Postal Inspectors also have a page on how to identify counterfeit money orders.

Yes, counterfeit Postal Money Orders are making a come back, but the core activity has never stopped. The Internet is full of counterfeit methods of payment and the best way to avoid becoming a victim is to recognize the social hook the criminal uses, or "something too good to be true."

While we thought counterfeit Postal Money Orders were a thing of the past, they were replaced with counterfeit items from other money order issuers and legitimate money orders, which were altered.

Of course, there are also those counterfeit cashiers checks, which have been done from so many different financial institutions, it seems impossible to keep up with.

Internet fraud artists are constantly mutating their methods to confuse their victims.

In a recent post on Internet scams, I wrote:

"Thus far, these money orders are showing up mostly in Advance fee fraud (419) scams.

The Advance Fee scam is where a ruse is used to get a victim to send them money (nowadays normally wire-transfer) in anticipation of riches (or sometimes love) to come. The best known is the "Nigerian Letter," but the activity has mutated into romance, lottery, auction, check cashing, work at home and reshipping (as mentioned below) scams.

In a lot of the more recent Advance Fee activity, the victim is tricked into involving themselves in criminal activity, whether it be forwarding stolen merchandise, or negotiating bogus financial transactions and sending the funds elsewhere."

When someone from a Internet source offers free money, romance, or to pay more than something is worth - you are probably dealing with a fraudster.

Anyone, who does this for them, ends up with a huge loss. Even if you can convince the authorities you are a victim, the civil responsibility will still fall on you.

To make matters worse, a lot of petty criminals are getting in on the action, also. They get on the Internet, impersonate victims, get the instruments and then cash them with no intention of sending money back to the crook that sent them the item.

I predict, it's going to get harder and harder to convince the authorities that the person cashing them is totally innocent. Recently - in a "Judge Judy" episode - her "honor" chewed a defendant up and down for cashing a bunch of counterfeit money orders (through her sister's account) and claiming to be "totally innocent." In less than a minute, Judge Judy was easily able to establish that this victim had benefited financially from her transaction and had in fact never wired any money anywhere.

Best bet for all of this is to learn how to spot this activity and when we do, run away from it as fast as we can!

Of course, reporting it and making other's aware can help, also.