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The bank managed to block ,000 of those fraudulent charges, but the bank’s processor, which approves incoming transactions when the bank’s core systems are offline, let through the other ,000.
Why wouldn’t the scammers do what fraudsters normally do with this data, which is simply to create counterfeit cards and use the phony cards to buy gift cards and other high-priced merchandise from big box retailers?
The New England bank said Master Card initially insisted that the charges were made using physical chip-based cards, but the bank protested that it hadn’t yet issued its customers any chip cards.
The chip also includes an internal counter mechanism that gets incremented with each sequential transaction, so that a duplicate counter value or one that skips ahead may indicate data copying or other fraud to the bank that issued the card.
And this is exactly what has bank fraud fighters scratching their heads: Why would the perpetrators go through all the trouble of taking plain old magnetic stripe cards stolen in the Home Depot breach (and ostensibly purchased in the cybercrime underground) and making those look like EMV transactions?
“And then in one day we matched a month’s worth of fraud on those cards thanks to these charges from Brazil.” The New England bank initially considered the possibility that the perpetrators had somehow figured out how to clone chip cards and had encoded the cards with their customers’ card data.
In theory, however, it should not be possible to easily clone a chip card.
“The [Canadian] bank in this case would take any old cryptogram and they weren’t checking that one-time code because they didn’t have it implemented correctly,” Litan said.
“If they saw an EMV transaction and didn’t see the code, they would just authorize the transaction.” Litan said the fraudsters likely knew that the Canadian bank wasn’t checking the cryptogram and that it wasn’t looking for the dynamic counter code.
The bank said Master Card is currently in the process of checking with the Brazilian merchants to see whether they had physical transactions that matched transactions shown on paper.
In the meantime, it appears that the largest share of those phony transactions were put through using a payment system called Payleven, a mobile payment service popular in Europe and Brazil that is similar in operation to Square.
Most of the transactions were for escalating amounts — nearly doubling with each transaction — indicating the fraudsters were putting through debit charges to see how much money they could drain from the compromised accounts.