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CRM 1000-1499

1029. Fraudulent Presentment and Related Unauthorized Credit Card Transactions Made by Access Device—18 U.S.C. § 1029(a)(7)

This provision became effective September 13, 1994, as part of the Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, § 250007, 108 Stat. 1796. The basis for Subsection (a)(7) of 18 U.S.C. §  1029 arises from the various ways that the major credit card issuers treat in-person and telemarketing transactions. Transactions in-person, those in which the customer physically presents a credit card to a merchant for payment for goods or services, requires the customer to sign a credit card draft. In turn, the merchant's bank or the credit card issuer treats these signed transaction slips in much the same way that checks would be treated. The merchant is credited with the value of the transaction at the time of deposit or submission for payment, and the merchant is charged a small fee for each transaction. Conversely, telemarketing transactions, i.e., transactions made via a telecommunication system, do not require a customer signature and, therefore, are more carefully scrutinized by the credit card systems. Consequently, the telemarketer is charged a substantially higher fee for processing the transactions.

Telemarketers often launder credit card transactions through merchants, a practice which both systemsþ rules expressly prohibit. Fraudulent telemarketers generally are unable to obtain merchant accounts from card issuers through which they can receive cash. To obtain money on the credit card numbers they obtain through their fraudulent telemarketing schemes, they find legitimate merchants who have merchant accounts with the credit card issuers and are willing, for a small percentage of the "sale" amount, to create a fake credit card sales draft, i.e., a counterfeit (fake) access device, and submit it through the merchant account to the credit card issuer for payment. Prior to the enactment of Subsection (a)(7) to 18 U.S.C. § 1029, which expressly addresses this practice known as "factoring," the fraudulent, i.e., fake (counterfeit), credit card sales drafts practice was prosecuted successfully under 18 U.S.C. § 1029(a)(1)("knowingly and with intent to defraud produc[ing], us[ing], or traffic[king] in one or more counterfeit [fake] access devices"), 18 U.S.C. § 371 or § 1029(b)(2)(conspiracy), 18 U.S.C. § 1344 (bank fraud) if a Visa merchant account; 18 U.S.C. § 1341 (mail fraud) if the United States Postal Service was used to execute the fraud on the credit card issuer; or 18 U.S.C. § 1343 (wire fraud) if interstate wiring was the means of executing the scheme to defraud. See United States v. Luttrell, 889 F.2d 806 (9th Cir. 1989)(as counterfeit access device), vacated in part on other grounds, 923 F.2d 764 (9th Cir. 1991)(en banc), cert. denied, sub nom. Kegley v. United States, 503 U.S. 959 (1992); United States v. Mason, 902 F.2d 1434 (9th Cir. 1990)(bank fraud); United States v. Brown, 31 F.3d 484 (7th Cir. 1994)(mail fraud), reh'g. and suggestion for reh'g. en banc denied (1995); United States v. Stewart, 33 F.3d 764 (7th Cir. 1994)(mail fraud); United States v. DeBiasi, 712 F.2d 785 (2d Cir.)(wire fraud), cert. denied, sub nom. Eboli v. United States, 464 U.S. 962 (1993). For example, in Brown the defendants were charged under the bank fraud statute with a large-scale scheme to obtain money by paying merchants for fraudulently processing counterfeit credit card transactions for numerous fraudulent telemarketers. The court specifically noted that while the defendant's conduct clearly violated the bank fraud statute, the enactment of 18 U.S.C § 1029(a)(7) would now provide an explicit prohibition against this type of conduct. [NOTE: For Federal jurisdiction, all 18 U.S.C. §  1029(a)(1)-(7) offenses must "affect interstate or foreign commerce."]

Legislative History

The legislative history of Subsection (a)(7) of 18 U.S.C. §  1029 states only that it is intended to prohibit "arranging for another person to present access device transaction records for payment to a credit card system member or its agent without the authorization of the credit card system member or its agent." H.R. Rep. 102-242, 102d Cong., 2d Sess. (1992).

[cited in JM 9-49.000]