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Identity Theft

Identity Theft: Coordination Can Defeat the Modern-Day “King” and “Duke”
by Rod J. Rosenstein, U.S. Attorney and
Tamera Fine, Identity Fraud Coordinator
for the District of Maryland

Rod J. Rosenstein, U.S. Attorney for the District of MarylandIn Mark Twain’s iconic novel Huckleberry Finn, young Huck briefly joins forces with two con artists masquerading as a king and a duke. While misrepresenting their identities, the con men hatch a variety of fraud schemes that require them to come up with stories to convince victims that their false identities are legitimate and their nefarious intentions are good. The fraudulent schemes bring the perpetrators face to face with victims and leave them vulnerable to detection. One of the unfortunate consequences of modern technology is that it allows modern-day successors of the king and the duke to perpetrate identity fraud schemes with far less personal risk. Stopping them requires a coordinated effort.

Categories of Identity Theft Victims

There are two primary categories of identity theft victims: the victims whose identities are used fraudulently by criminals, and victims who are induced to extend credit or grant benefits in reliance upon false representations. The victims whose identities are stolen usually are individuals, whereas the victims who suffer immediate financial losses often are corporations and government agencies. Individual victims find their good names, social security numbers or other identification numbers used as a means for the perpetrators to defraud corporate or government victims.

Harm Caused by Identity Theft

Identity theft harms all socioeconomic groups, targets individuals as well as financial institutions, and places victims at higher risk for re-victimization if their identity information is recycled by identity thieves. Individual victims whose identities are used in fraud schemes often suffer significant aggravation and financial losses. Because modern commerce is depersonalized, moreover, many individual victims suffer lasting harm after their names and identifying information become associated with fraudulent transactions. Adverse information connected to their names, social security numbers and addresses in credit report files and other databases may compromise their ability to obtain credit and even employment.

Moreover, identity fraud imposes large financial losses on financial institutions, government agencies, and countless large and small businesses that are defrauded. The Bureau of Justice Statistics estimates of the annual financial loss caused by identity theft are on the order of $17.3 billion in 2007 and 2008, and much of the cost is passed on to consumers through higher prices for goods and services.

Some criminals engage in identity theft not just for financial gain, but to advance other criminal objectives such as evading law enforcement or immigration officials, or obtaining medical care using another’s identity for insurance or payment purposes. That can create significant harm to the victims, including erroneous arrests, unwarranted tax assessments and/or the loss of state and federal benefits when a victim’s identity is used for employment purposes, and even health risks when medical records are tainted with information relating to an imposter. Finally, although financial institutions generally reimburse individual victims for direct financial losses, many identity theft victims incur indirect losses in clearing and monitoring their credit reports, as well as emotional harm from the crime.

Scope of Identity Theft

According to the Bureau of Justice Statistics, approximately five percent of all Americans over the age of 16 were victims of identity theft between 2007 and 2008. That figure is similar to private sector estimates, which range from 3.5 to 4.8 percent per year. Identity theft impacts all people of all income levels, and ages. Incidents of reported identity theft were twice as prevalent among the wealthiest households when compared with the poorest, and over fifty percent more likely among the young (those between the ages of 16 and 24) than seniors (aged 65 or above).

Approximately half of identity theft victims had existing credit card accounts or other financial accounts compromised. These victims were generally quickly compensated by financial institutions with a minimum of effort on the part of the victim, with the financial institution bearing the direct losses. Although fewer individuals reported the opening of new accounts or other uses of their personal identity information, these individuals were significantly more likely personally to sustain losses, both direct and indirect. They also were more likely to report a significant emotional or other non-financial impact from the unauthorized use of their identities.

Federal Enforcement Strategies

Federal prosecutors can help combat identity theft by assigning an Assistant U.S. Attorney to serve as a point of contact and coordinator for identity theft matters and by creating an identity theft working group or task force in each district. The District of Maryland established an identity theft working group in October 2006. Our working group includes state, federal and local investigators and prosecutors, as well as financial institution fraud investigators. The working group meets every other month and seeks to highlight the scope of the problem, enhance coordination within law enforcement and with the private sector victims, provide training for investigators, and identify effective ways to prevent, investigate and prosecute identity theft. The working group sponsors two full-day training sessions each year.

The District of Maryland has achieved significant increases in the number of identity theft prosecutions, including cases initially opened as fraud cases in which identity theft was subsequently identified and charged. In addition, we have been able to identity large identity theft organizations operating in Maryland, allowing us to focus federal resources on such groups. The success of the program is reflected in part in the increase in federal criminal prosecutions for identity theft violations:

  • FY05 16 cases 34 defendants
  • FY06 30 cases 61 defendants
  • FY07 38 cases 65 defendants
  • FY08 43 cases 85 defendants
  • FY09 41 cases 74 defendants
  • FY10 40 cases 104 defendants

While the majority of fraud offenses continue to be prosecuted in state court, the availability of federal resources serves as a valuable deterrent.

Federal Criminal Statutes Commonly Used to Prosecute Identity Theft Schemes

In most cases, identity theft organizations are identified and all appropriate targets are charged with conspiracy under 18 U.S.C. §1349, §1028(f) or §1029(b)(2), substantive fraud charges such as bank fraud (18 U.S.C. §1344) or access device fraud (18 U.S.C. §1029), and aggravated identity theft (18 U.S.C. §1028A).

The aggravated identity theft statute, with its mandatory consecutive sentence of 24 months, is a valuable tool to prosecute cases that involve identify theft and ensure that they yield significantly higher sentences than other financial fraud cases. In 2009, for example, Maryland’s federal identity theft defendants were sentenced to an average sentence of 67 months, with 16 defendants sentenced to five years or more, and 4 defendants sentenced to ten years or more.

Identity theft is used as a means to commit many different forms of financial fraud, such as cashing United States Treasury checks stolen from the mail; manufacturing and using counterfeit credit and debit cards; stealing data from ATM machines; taking over bank and credit accounts; instant credit schemes; and purchasing luxury vehicles. Points of compromise for personal identity information used in fraud schemes are varied, including the internet, pickpocket crews, bank employees, collection agency personnel, store clerks and restaurant workers, employees of health care providers, and, of course, friends and family members. All of these examples are drawn from past or current federal prosecutions in Maryland. What all identity theft schemes have in common is that the victims are left without knowing the real name of the thief.

Cases Prosecuted in Maryland

Several cases recently prosecuted in Maryland illustrate the value of identity theft working groups in detecting and prosecuting perpetrators. In September 2011, the District of Maryland convicted two defendants in an ATM skimming scheme. The defendants installed small electronic skimmer devices over the card readers of ordinary bank ATMs, as well as small cameras focused on the key pads. When a bank customer inserted a card into the ATM, the data from the card was recorded by the electronic skimmer and the PIN was recorded by the camera. The data was then used to manufacture counterfeit cards that were used, with the PINs, to drain the victims’ accounts.

One of our working group members brought photographs taken by internal ATM cameras of suspects installing the devices and using counterfeit cards. When the pictures were shown at a working group meeting, other financial institution representatives recognized the suspects from footage from their bank ATMs. As a result of coordination among financial institution investigators and federal agents, footage of a car license plate was obtained, leading to the identification and arrest of perpetrators of the scheme. Without effective coordination between financial institution, state, local and federal investigators, those individuals might still be victimizing citizens and financial institutions. Instead, they are detained and awaiting sentencing.

In another case, several suspects were under investigation by state authorities for an instant credit scheme. The victims’ information was obtained by compromising a cell phone carrier’s credit authorization system, then used to open credit accounts in the victims’ names. The scheme involved victims all over the country. The state prosecutor and local investigators, part of the Maryland Identity Theft Working Group, referred the matter to the U.S. Attorney’s Office identity theft coordinator for federal prosecution. During the subsequent joint state and federal investigation, which resulted in the federal conviction of five members of the instant credit scheme, evidence was discovered. of a separate credit card skimming scheme at a local restaurant. Because the conduct in that case was entirely within the state of Maryland and involved almost exclusively local victims, it was referred for state prosecution.

The Huckleberry Finn Solution

In Huckleberry Finn, the faux duke and king meet their comeuppance when they try to implement one of their schemes in a town where the prospective victims had been warned to expect them. Instead of falling for the scheme, the townspeople give the con men the tar-and-feather treatment and run them out of town on a rail. Today, we can combat identity fraud by educating potential victims, enhancing fraud detection by financial institutions, and pursuing offenders who are not deterred. An Identity Theft Working Group is a valuable platform for stakeholders to join together to combat identity fraud by raising the risk of detection. Such efforts will save people from being victimized and lower the costs identity fraud imposes on everyone.