ATM Arrests Are Reflection of Crime Trend

The indictments last month against eight men for allegedly stealing millions from local ATMs are an ominous harbinger of more such crimes, bank and law enforcement officials say.

“ATM fraud is the wave of the future,” said Lonny Chavez, the supervisor of the white-collar crime squad of the Federal Bureau of Investigation. “It’s definitely a growing problem--it’s nationwide.”

According to a 1995 banking study, the most recent data available, electronic thieves stole nearly $100 million from ATM machines in the United States that year. The West, because of the large number of teller machines in California, accounted for more than 70% of those losses.

The men indicted last month allegedly set up hidden video cameras at two gas stations and a carwash in Woodland Hills and Long Beach to record customers typing in their personal identification numbers.

They also hooked up laptop computers to the PIN pads to download account numbers, according to federal authorities. Then they made late-night withdrawals for hundreds of dollars at a time, authorities said.

“It used to be that shoulder surfing--looking over the shoulder of someone to see them put their PIN number in--was the method of choice,” Chavez said. “But now we’re seeing more and more sophisticated crimes.”

The first electronic ATM fraud of this kind, Chavez said, happened in Orange County last spring when FBI agents arrested four people who attached a laptop computer to an ATM terminal to read PIN codes and account numbers. Fortunately, FBI officials discovered the operation just as it was beginning, Chavez said.

As a practical matter, electronic ATM fraud is much more difficult to perpetrate than credit-card fraud, Chavez said, because it requires someone with technical prowess to design a computer program to read the access cards and record PIN numbers.

But, Chavez said, many of the tools needed to commit the crime, including blank cards with magnetic strips and machines to code them, are available at many computer stores.

“This kind of thing may be rocket science to you or me, but some of these folks have very good knowledge of these computers,” said Chavez.

Security experts say ATM cards are more secure than credit cards but have some characteristics that make them vulnerable.

“The magnetic-strip technology that ATM cards use has been around for 30 years, and that’s a long time,” said Barry Schreiber, a criminal justice professor at St. Cloud State University in Minnesota and a bank consultant on ATM fraud.

“Magnetic-strip cards are cheap--and they have been effective--but recently there have been some breaches in security.”

Schreiber said security could easily be improved by following the lead of many French and Scandinavian banks, which have changed over to encrypted microchip cards. Banks have also been watching developments in biometric technologies, which would allow ATM machines to scan fingerprints or retinal patterns in the eye.

But with an estimated $11 billion in ATM transactions at 165,000 machines nationwide last year, the potential expense of such improvements has given banks pause.

“The dollar amount and numbers of these kinds of schemes has not yet reached the ‘ouch point,’ ” said Schreiber. “The fraud losses are really very small from the industry’s point of view--but there will be more of it.”