Fraud Ring Bust Points to Challenge for Online Sellers

The recent bust of a $30 million airline ticket fraud ring points to a festering challenge for travel sellers who have led the online retail marketplace since the advent of the Internet a decade ago.

Beth Phillips, U.S. Attorney for the Western District of Missouri, in early July charged 38 defendants nationwide in a series of indictments that allege an extensive network of what she called “black market travel agents” who used the stolen identities of thousands of victims as part of a multimillion-dollar fraud scheme to purchase airline tickets for their “customers.”

A spokesman for ARC, which helped the U.S. investigation, said that the term “black market travel agents” is a misnomer because none of the accused are travel agents, either ARC-appointed or not.

“They are bad actors and none of them were travel agents,” the spokesman told Travel Market Report.

ARC got involved in the investigation before the indictments were announced, culminating what Phillips described as a probe that began with local law enforcement and “ultimately exposed an extensive nationwide black market for airline tickets.”

“Six federal indictments allege that 38 defendants used stolen credit and debit card information from thousands of identity theft victims to purchase tickets, which they sold to their customers at a steep discount,” Phillips added. “These separate criminal conspiracies resulted in an estimated total loss of more than $20 million to numerous domestic airline companies, financial institutions, other merchants and cardholders.”

The fraudsters allegedly would purchase tickets on airline Web sites for their “customers” using the stolen credit and debit card information in return for cash payments.

Both ARC and IATA estimate that airlines lose about $1.5 billion a year to fraudulent purchases on their Web sites.

Airline Web sites have replaced online travel agencies as the target of bad actors, since the online travel sellers developed systems to ferret out fraudsters who cost the OTAs thousands of dollars in losses from debit memos and service fee chargebacks, Michael Long, chief product strategist for Accertify, told Travel Market Report.

Accertify Inc., led by a team of former Orbitz executives, provides e-commerce companies with software, tools and strategies for preventing online fraud and mitigating risks.

ARC and Accertify have announced a strategic partnership in which ARC will provide ARC Sentry Powered by Accertify fraud prevention products for second tier airlines and travel agencies to provide protection against fraudulent purchases on their Web sites.

Eight major airlines, including Delta, Mexicana, Southwest, JetBlue, Alaska and AirTran, already contract with Accertify for its fraud detection and prevention products and services, specifically designed by OTA veterans for the challenges faced by online merchants.

In the past five years, airline Web sites have increasingly been targeted by fraudsters, said Long, especially as the OTAs have instituted effective antifraud programs and airlines have pushed consumers to their own Web sites. And now, as the major carriers institute programs like those provided by Accertify, the second tier carriers are being targeted by the bad actors, thus the partnership with ARC.

Long said that the online marketplace changes the rules from the traditional merchant-consumer interaction, where there is personal interaction and the merchant is protected from fraud when they follow the guidelines set by the credit card industry.

However, in the online marketplace liability for fraud is shifted from card issuer to merchant as the OTAs found out in the early days of the online travel marketplace, when they were under attack by fraudulent players.

Fraud resulted in huge costs to the OTAs from both debit memos from airlines, seeking to recover losses to fraudsters, and from chargebacks from the card companies that wiped out the OTAs’ service fees.

Indeed, some legacy travel agencies have faced similar debits in recent years from airlines seeking to recover funds lost to fraudulent ticket purchases, as one Atlanta agency experienced when it got hit with a $6,000 debit from United for tickets purchased on the phone by someone using stolen credit card information, unbeknownst to the agency.

Online fraud, as Long noted, results in losses in nearly every tier of the travel purchasing process.

The multiple victims of fraud in the travel world include the persons whose credit card information was stolen to make fraudulent air ticket purchases on an airline or OTA Web site, with the airline defrauded and the travel agency debited by the airline and the credit card company incurring a disputed charge from the consumer, and so on.

Long said that hotel and car rental Web sites could be new targets for bad actors as these segments of the industry begin offering prepaid reservations on their traditionally reservations-only Web sites.

One of the key strategies in battling fraudsters is gathering data, and Long said that Accertify’s strength is in leveraging all the information from its online merchant clients to spot patterns in fraudulent purchasing in order to catch it and prevent it. He compares this model to birds on a wire.

“The battle against fraudsters is really a data battle,” he said, noting the more information online merchants have the better protected they are while allowing legitimate customers to get through the process without any hassles.

Travel sellers can prevent fraud by using their knowledge of their customers and their purchasing behavior, said Long. “It really is a data challenge,” he said, noting that the challenge for travel sellers changes with their volume of sales – the higher volume the more they have to use data to battle fraud.

Dottie Hogan, head of ARC’s Risk Management team, says, “We encourage the agency community to remain alert to phishing e-mails and telephone calls. There’s always a risk associated with accepting card-not-present transactions. Any documentation faxed or e-mailed can be altered, so we tell agents to stay vigilant.”

ARC provides Fraud Prevention resources on its Web site at http://www.arccorp.com.