Mobile Phone theft and premium rate fraud – A lucrative scam worth billions.

Calls to premium rate numbers are lucrative than simply reselling the phone suggests a report by Daily Mail UK. The report further claims that even the best of the phones don’t fetch a lot of money in the black market. However, there are bigger gains to be made through premium rate fraud.

Over 300,000 phones are reported stolen to police in the UK. Many never get reported as the phones are stolen overseas. The CFCA survey estimates that over $1.4 billion has been lost as a result of theft/stolen phones. However, what’s more disturbing is that more than $4.7 million has been lost to premium rate fraud. Industry veterans suggest that vast majority of the premium rate fraud losses are linked to calls from stolen phones within a short period of the phone being reported stolen. The losses are footed by the subscribers and the businesses affected by this scam.

Industry veteran Colin Yates, Principal at Yates Fraud Consulting, and previously Group Head of Fraud Management for Vodafone, described how the crooks make a quick buck from stolen phones rather than selling it off. Fraudsters collude with premium rate number resellers who advertise large sums of money for generating traffic to specific premium rate number lines and terminating countries. The fraudsters then use the stolen phones to drive traffic to these premium rate lines. The number reseller and the fraudster benefit from the proceeds.

The scam is demonstrated by the Daily mail article for driving traffic to a premium rate line in North Korea at 12p a minute – “Because of the latest technology, fraudsters can connect one phone to as many as six premium-rate numbers at a time. At a rate of 12p a minute, they would make £43.20 an hour. With six phones, that’s £259.20 ($405) an hour.

Usually, the premium rate calls will continue until the call is stopped by the operator. The article claims that, “in one case seen by Citizens Advice, a fraud victim faced charges of £17,000 ($26,600) after having a phone stolen on holiday. In another seen by Money Mail, a 23-year-old faces a £4,300 bill for six-and-a-half hours of calls made by fraudsters after his phone was snatched. Another victim was left with a £6,200 bill after their phone was stolen in Spain. It was used to make 369 calls over 30 hours to a Serbian premium-rate number. We also heard from a serviceman on holiday in Spain who had his phone stolen. He was billed for more than 80 hours of calls by fraudsters.”

While some schemes are hard to detect, a vast majority of the operators still rely on the age old rules based system for detecting such fraud. Despite the prevailing wisdom that the first line of defence provided by the rules based systems are easily breached by organised fraudsters, many of the firms, do not have effective measures for analysing customer call records for fraud argues Colin Yates.

What does this all mean to consumers and business? While there is serious margins on genuine premium rate calls, the perceived and potential losses to the businesses from fraud drives them to transfer the liability to the customers to cough up the money racked up by the fraudsters. However, vast majority of the customers are innocent victims caught up in this scam and often left to their own devices to pay up the bills or face serious consequences.

What should and could be done by the businesses? I am sure the innocent victims would argue that it is the responsibility of the Operators to safeguard the consumer from fraud – same way we (and the businesses) trust the banks for keeping our hard earned money safe from prying fraudsters.

Ultimately, firms investing in sophisticated fraud management systems and resources to protect customers will eventually win their trust and their loyalty for a long time.

About the Author: Shankar is a certified fraud examiner and is the Founder and CEO of Fraud Risk and Security Research Labs. Shankar has over 18 years of experience in developing complex intelligence and fraud prevention systems for Telecoms, Financial Institutions and Governments.

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