Regional Report : Losing Millions in Asia’s Notorious ‘Plastic Triangle’ : The fastest-growing form of credit-card fraud is creating counterfeits. And Hong Kong is biggest center.

Standing at his cluttered desk, Mike Squires fanned through the fat stack of counterfeit credit cards like a dealer in Las Vegas. Suddenly, he dealt one out--a gold MasterCard ostensibly issued by the Bank of Scotland.

“Now that’s very good,” Squires, chief investigator for Hong Kong’s Independent Commission Against Corruption, said respectfully. “An obscure bank. Good printing. And when the MasterCard people saw that hologram, they went white.”

The hologram, a laser-created image that appears three-dimensional, showed the familiar logo of two glimmering globes. Several other security features also were carefully copied, from special codes in the black magnetic strip across the back to an invisible watermark that showed under ultraviolet light. No flaws were obvious to the naked eye.

This is life in the “plastic triangle”--the center of the global racket in counterfeit credit and charge cards.

While banks and card companies are often loath to provide exact figures, experts estimate that worldwide losses from various forms of credit card fraud last year were at least $1 billion--and possibly much more. And of those various forms, counterfeiting is said to be the fastest-growing type of fraud, probably accounting for at least 10% of the total losses.

MasterCard alone reported $57 million in losses from counterfeit cards last year out of total credit card fraud losses approaching $400 million.

That makes card counterfeiting a major problem not only for the banks, card companies and merchants who honor them but also for consumers around the world. While legitimate cardholders are not responsible for fraudulent charges, the costs are inevitably passed on by the firms that issue the cards.

“Counterfeiting has increased significantly over the last several years in the entire industry,” said Jack Kelly, general manager for Asia Pacific at Visa International, the world’s largest credit card company. “It’s a serious problem.”

“It’s a big problem, and it’s going to get worse,” agreed Mike Womersley, regional security chief for American Express International. “It’s plastic money, but people have yet to treat it with the same prudence they do cash.”

Indeed, with about 600 million major credit and charge cards now being used around the globe, plastic has become a virtual currency. And ever since money has been used, people have tried to counterfeit it. The big difference is that credit cards are often easier: All a crook usually needs is someone’s 16-digit number and expiration date to beat the system. Most retailers rarely check anything else.

To tighten the system, Visa and MasterCard, the two industry leaders, introduced holograms in 1985. It caused an immediate 60% reduction in fraud losses.

But within a year, the first crude copies began to appear. And by the time the companies replaced tens of millions of cards around the world, the crooks were using lasers to make their own sophisticated holograms. Then came microdot printing, secret codes, magnetic strips and other features that can be seen only by microscope or electronic readout. All were soon copied or compromised.

So in the last six months, Visa has tried putting a complex code in a triple-track magnetic strip. Merchants in Hong Kong also have been issued small data terminals that automatically read and verify the cards and issue receipts without stamping them. Someday, cards may carry computer chips, photos or bar codes as well.

“You’ve always got to improve,” says George H. Y. Chan, fraud prevention manager at Hongkong Bank, which issues nearly half the cards used in the territory. “The crooks are always trying to get ahead of you.”

Not all the fakes are so fancy, of course. A few are misspelled: Instead of “lost and stolen,” one in Mike Squires’ collection reads “lust and stolen.” Others have the hologram crudely stamped, or badly faked with tiny bits of aluminum foil. One forger tried to copy a Hong Kong bank’s embossed image by hand-painting it onto the card.

“Here’s one that appears to be drawn with pen and ruler,” said Esmond K. S. Chan, Asia Pacific security director for MasterCard International, selecting one from his own collection of more than 100 compromised cards. He shows another fake under a microscope. “There’s sometimes finer details they overlook.”

Half of all card counterfeiting losses were in Asia last year, according to the experts. And nearly half of the Asian losses are traced in one way or another to Hong Kong.

Thanks to algorithmic codes, widespread use of card-checking data terminals and a police crackdown that has led to 180 arrests in two years, Hong Kong banks say they are suffering fewer losses now. But the city is still known as the world capital of card counterfeiting--a crossroads of the “plastic triangle” of credit card fraud that also includes Thailand, Malaysia and now southern China.

Hong Kong police say that local syndicates linked to Chinese organized crime triads engrave, emboss and encode fake cards using numbers provided by corrupt retailers and technology that is commercially available. Then they simply send the counterfeit cards overseas.

“Hong Kong is to counterfeit credit cards what Paris is to haute couture, “ said police superintendent Martin Cowley, who heads the counterfeit and forgery section of the Commercial Crime Bureau. “It’s the center of an export drive.”

In the last year or so, Hong Kong Chinese have been arrested using forged credit cards in at least 22 countries, from Austria to Australia. At least 80 Hong Kong Chinese have been arrested in Europe. In Saipan, three Hong Kong men were arrested carrying 51 forged cards in a hollowed-out Bible. Losses are rising sharply in Canada, where Hong Kong Chinese have built large enclaves.

South Africa seized its first counterfeit cards in January: A Hong Kong man with fake cards was arrested after he was spotted limping at the airport. Police found three large diamonds stuffed in his socks. Four other men were also arrested, one carrying 117 fake cards in his briefcase.

Seventeen men were arraigned here last week for using fake cards in Guam, Switzerland and Malaysia. “They had $2 million in cash advances from a casino in Malaysia,” said Squires, the anti-corruption chief. “Las Vegas better watch out.”

For now, at least, few counterfeit credit cards are reported in the United States. There are other problems instead. Cards are routinely stolen from the mail, especially on the West Coast. Some dishonest merchants make double imprints. And some thieves solicit card information by advertising as telemarketing; viewers who phone in with their card numbers get ripped off instead.

In Hong Kong, the crooks mostly get the numbers by bribing colluding merchants for slips from real cards. In the last year, night managers from three five-star hotels and clerks from Citibank and Chase Manhattan Bank have been arrested for selling confidential card information. Japanese cards are the most prized since they tend to have the highest spending limits.

The Hotel Conrad, a plush two-year-old, 513-room luxury hotel that soars in a gleaming marble and glass tower in Hong Kong’s central district, knows the problem only too well.

On May 31, the police announced the arrest of the hotel’s night manager for alleged bribery and conspiracy. For over a year, they said, he had sold credit card slips from 390 mostly Japanese guests for payments totaling $3,766. A local gang then used the authentic card details to make counterfeit copies for use around the world.

“He was taking the cards at night and selling the numbers,” said MasterCard’s Chan. “He was in a perfect position to compromise the information.”

Once the fakes were made, three-to-six-member teams of “drivers” fanned out to South Africa, England, France, Italy, Switzerland, Austria and other countries. Often posing as Japanese tourists, they loaded up on Rolex watches, cameras, jewelry and other pricey goods for resale back in Hong Kong. In one case, three sets of false cards were used simultaneously in London, Canada and Thailand before the Japanese owners of the genuine--but compromised--cards had even checked out of the hotel.

Total losses are unknown, but early estimates are at least $1 million, police said. The Conrad, which is operated by Hilton Hotels, also lost business and money, especially after Japan’s Channel 10 interviewed Japanese tourists whose cards had been copied and warned prime-time viewers that Hong Kong was “full of criminals.” Ultimately, the hotel called police--and stopped accepting Japanese Visa cards.

“It was pretty clear this was targeted at the Japanese,” said a Conrad spokeswoman. Undercover officers worked the hotel for months before the night desk manager was arrested while allegedly handing a package of card copies to his contact. The spokeswoman said the problem is now over, and occupancy has begun to recover.

“It’s not unique to the Conrad,” the spokeswoman added. “In Hong Kong, it’s not unique to the hotel industry. It’s everywhere.”

Police Superintendent Cowley argues that the object of the credit card industry--giving cards to as many people as possible, encouraging their use as much as possible and in as many places as possible--is “incompatible with an effort to combat fraud.”

“The system is riddled with weaknesses,” he said. “And the villains have found every one. And boy, they have exploited them ruthlessly.”

How Bank Cards Foil Counterfeiters

Forgers of credit cards are creative and technically adept, forcing companies to wage a high-tech war with an ever-changing battlefront. Here are some recent strategies.

FRONT

* Hologram, a laser-created image that appears three-dimensional, is difficult to copy--but not impossible, card companies have found.

* Embossed security character signals sales clerk--and potential forger--that card has extra security. It also makes card more difficult to duplicate.

BACK

* Card validation code, derived from special algorithmic calculations, is encoded onto black magnetic stripe by computer.

* A second validation code, also algorithmically derived, is printed on signature strip after account number using indent printing. It uses reversed italic font that is difficult to alter. Any attempt to tamper with signature or numbers will discolor strip.

* At point of sale, store clerk swipes the card through computer terminal, which compares the account number and the two algorithmic numbers against the authorized numbers. If the two sets match, the clerk continues to process the transaction. If not, the card may be confiscated.

SOURCE: MasterCard International

The Plastic Triangle

Hong Kong is crossroads of region known for credit-card counterfeiting. The so-called plastic triangle includes Thailand, Malaysia and southern China.