Wireless fraud, now and in the future: a view of the problems, some solutions

Mobile Phone News, Oct 24, 1994 by Dennis Walters, William Wilkinson, Jr.

The following article was written for MPN by Dennis Walters and William "Lex" Wilkinson Jr. of Walters, Wilkinson & Associates Inc., a security consulting firm based in Easton, Pa. The firm provides risk management, loss prevention and fraud investigation services to the wireless industry. The company has wireless service clients throughout the U.S. and Canadian markets. Telephone: 800/424-1116 or 610/258-2707.

No other American business has experienced the extraordinary growth enjoyed by the cellular telecommunications industry over the past five years. But as the legitimate cellular industry grows, a parallel cellular fraud industry is growing with it. The full scope of this threat continues to be debatable as industry and law enforcement experts disagree on the estimates of losses. But they acknowledge that the cost is in the hundreds of millions of dollars.

Cellular mobile radio telephones provide nearly 20 million users with convenient, on-the-go communications in America alone. More than 17,000 new subscribers are activated each day. The result is greater efficiency and productivity in businesses and personal lives.

Unfortunately, the same benefits enjoyed by legitimate subscribers also attract criminals who rely on effective, efficient communication to carry out their illicit business activities. In addition to organized criminals, thousands of otherwise legitimate business people and public figures have accepted tempting offers for free cellular service, which requires only a one-time payment for a guaranteed "no-bill" cellular telephone. Criminals Declare War on Technology

An entire culture of sophisticated computer "hackers" and highly paid software engineers has developed over the last decade. These elements not only direct their fraud efforts against financial institutions, credit card companies, long- distance telephone services and commercial corporations, they provide valuable instructions to others concerning the latest methods to defeat supposedly fraud-proof technology. At their annual conference in Austin, Texas, in December 1993, hackers declared a technological war on American and Canadian businesses.

In the United States, detailed instruction manuals are sold on such timely subjects as cellular phone and computer "phreaking," popular computer viruses, hacking automatic teller machines, and methods to manufacture or obtain fraudulent credit cards.

Although nearly 40 percent of all American businesses rely on voice mail systems and automatic telephone attendants, criminal organizations have figured out elaborate schemes to gain access to the cellular networks and to the international public switched telephone network (PSTN). This often is accomplished by simply hacking into those voice mail or private branch exchange (PBX) systems to capture outgoing dial tones. According to the U.S. Secret Service, it often takes less than 30 minutes to decode those networks and get free telephone access to the world.

On the one hand, major telecommunications companies are announcing that laptop computers, global positioning system trackers, modems, Newton Message Cards and cellular telephones may be the answer to the needs of an increasingly mobile office population. On the other hand, criminal competitors are importing technicians and technology to use personal computers to alter the electronic serial numbers (ESNs) in cellular telephones without the need to physically access the phones' logic boards.

The proliferation of cellular phone "cloning" has been made easier by several generations of software with no legitimate use. It is now possible to buy a copy of reprogramming software with 50 mobile identification number (MIN)/ESN pairs from roaming markets ready to be loaded into a variety of cellular phones.

It takes about three minutes to "download" the existing MIN and ESN and reload the phone with a legitimate customer's information. This software is available through mail-order sources or "electronics flea markets" for less than $50. Since January, new adapters have been imported from Taiwan that enable counterfeiters to clone the newest dual-mode cellular phones, without the need for software or other peripheral support.

While satellite service businesses have asked the FCC to lift restrictions that prevent independent, international satellite companies from making connections to the PSTN, an international crime organization continues to buy the latest in satellite technology for use in international telecom fraud.

Operating successfully since 1987, a group of Palestinians and several copycat spin-offs have cost the long-distance and cellular carriers millions of dollars each year. These criminals have been joined by Chinese, Nigerian, Jewish, Russian, Iranian, Pakistani and numerous South American crime groups that have recognized the lucrative fraud opportunities the wireless telecommunications industry provides.

In addition to accessing customer files, gangs roam the streets of major cities using portable ESN/MIN readers to capture the legitimate subscriber's ESN/MIN pair for counterfeiting. When the legitimate phone attempts to register a call, the portable reader acts like a miniature cell site to intercept the data, which is then sold for a few dollars.