Counterfeit Fraud Detection Tips, Tools and Techniques Sean Trundy, COO

1. Counterfeit Fraud Detection Tips, Tools and Techniques Sean Trundy, COO James Smith, SVP, Sales & Marketing

2. Counterfeit Currency Activity increases 160% Financial institutions absorb $5 billion to $11 billion in total fraud losses associated with resolving unauthorized retail transactions For every $1 of fraud, merchants on average are paying more than $3. How Peru Became the World's Counterfeit Capital By Lucien Chauvin / Lima Number of Victims Rises to 380 in Gas Station Fraud Los Angeles Times Police have identified 380 victims of credit or debit card fraud at a Sierra Madre gas station with losses exceeding $109,000, Police Chief Marilyn Diaz said Monday.

3. Agenda • UVeritech - Introduction • Counterfeit Fraud– An Overview • Types of Counterfeit Fraud • Losses • Counterfeiting Techniques • Sources of Counterfeit • What’s Next? • Document Authentication Methods • Visible/Physical Document Inspection • Covert Feature Detection(UV, IR, MG) • Forensic Analysis • Tools for Detection • Live Product Demo

4. UVeritech Background • Founded in 2000 • Leaders in “counterfeit fraud prevention” solutions • Pioneered POS counterfeit detection scanners in enterprise accounts • Multiple layers of Fraud Prevention • UV, Automated Currency Detection, Image Capture, Verification and Authentication

5. A Leader in Fraud Prevention Solutions • 14 of top 20 US banks use our products over 14,000 units over 20,000 units over 28,000 units • Over 1000 Credit Unions installed • Over 500,000 units sold • Marquis customers in all verticals

7. Counterfeit Fraud Overview Counterfeit fraud is the act of intentionally presenting a forged item in order to gain a benefit. While often associated primarily with currency (e.g. counterfeit money), in fact, counterfeit fraud can include an amazingly far-reaching range of items, including: • Negotiable instruments (cash, checks, cashiers checks, postal money orders, traveler checks, gift certificates) • Identification Documents or “breeder” documents to create a false identity (e.g. birth certificate, driver license, passport) • Title documents showing ownership (vehicle, real estate) • Certificates of Authenticity for collectibles and rare articles • Coupons, “promotional dollars”, or other store currency • Credit cards, gift cards, P-Cards, stored value cards

8. Currency Counterfeiting 2009 Saw 77% Increase over 2008 Secret Service made 2,506 domestic arrests and assisted in 360 foreign arrests for counterfeiting offenses, and helped to remove more than $182 million in counterfeit U.S. currency from circulation, up $79 million from FY2008.

9. Currency Counterfeiting Counterfeiting on the upswing

10. Currency Counterfeiting • Factors Contributing to Increased Counterfeit Currency • Digital Tools • Office Copier Technology/Digital Graphics Programs • Printer/Toner Technology • Criminal “Social Networks” propagating files and know-how • Organized Crime Participation • “Mass Production” factories utilizing washed notes • Improved quality, quality control programs, incremental improvements over iterative generation • Foreign Government Collusion • North Korea, Iran, Bulgaria, Columbia and China produce “Supernotes” • Access to Intaglio printers and heavy offset presses

11. Currency CounterfeitingTypes of Counterfeit Notes • Washed Notes - “Bleaching” Genuine Banknotes • Produces Genuine US Banknote Stock upon which to print higher-denomination counterfeit note • Washed Notes pass the pen-test, and most common visual inspection techniques • “Feels” like real money – because it is! • SuperNotes– Produced on Same Equipment used by BEP • Heavy Offset Presses, similar paper, similar inks, ability to reproduce many of the physical characteristics of genuine banknotes • Digital Notes - The Most Common Form of Counterfeit • Copier/PhotoShop productions – can typically be identified by lack of intaglio printing, lack of “covert” security features, and incorrect paper • Altered Notes • Bank notes altered to appear as higher denomination, e.g. “raised” notes

12. Currency CounterfeitingWashed Notes

13. Currency CounterfeitingAltered Notes; Digital Notes Copy Genuine

14. Counterfeit Negotiable Instruments • Negotiable Instrument Types • Money Orders, Postal Money Orders, Cashiers Checks • Traveler Checks • State and Federal Treasury Checks – e.g. Tax Returns, Social Security, Unemployment, etc

15. Traveler Checks - Features

16. Traveler Checks - Features

17. Postal Money Order- Features

18. Counterfeit Identity Documents Identity theft is a form of fraud or cheating of another person's identity in which someone pretends to be someone else by assuming that person's identity, typically in order to access resources or obtain credit and other benefits in that person's name. • The FTC estimates that as many as 9 million Americans have their identities stolen each year.

19. Identity theft by category

20. Counterfeit Identity Documents Common Techniques For Stealing ID Information • Dumpster Diving. They rummage through trash looking for bills or other paper with your personal information on it. • Skimming. They steal credit/debit card numbers by using a special storage device when processing your card. • Phishing. They pretend to be financial institutions or companies and send spam or pop-up messages to get you to reveal your personal information. • Changing Your Address. They divert your billing statements to another location by completing a change of address form. • Old-Fashioned Stealing. They steal wallets and purses; mail, including bank and credit card statements; pre-approved credit offers; and new checks or tax information. • Pretexting.  They use false pretenses to obtain your personal information from financial institutions, telephone companies, and other sources.

21. Counterfeit Identity Documents Cont’d Common ID Theft Techniques • Hacking computer networks, systems and databases • Exploiting breaches that result in the publication of personal information such as names, Social Security number or credit card • Advertising bogus job offers in order to accumulate resumes typically disclosing applicants' names, home and email addresses, telephone numbers and sometimes their banking details • Exploiting privileged IT users to access personal data on their employers' systems • Infiltrating organizations that store valuable personal information • Brute-force attacking weak passwords; compromising weak password reset questions • Obtaining castings of fingers to falsify fingerprint identification • Browsing social networking websites for personal details published by users

22. Coupons; Store Currency

23. Types of Counterfeit FraudCredit Cards, Gift Cards • Fake Cards • Card “Skimming” • Breached data theft • Stolen Cards • Card not present Transaction • Presented with Fake ID

24. The Cost of Fraud For every $100 of fraud, total losses equal $310 Lexis–Nexis 2010 True Cost of Fraud Study In addition to the transactional (dollar) losses, organizations also incur: • Associated expenses • Audits, legal, investigative, report preparation (SAR’s, CTR’s), employee interviews • Loss recovery – e.g. pursuit of lost funds • Fees and interest

25. Counterfeit Fraud Losses • $200 million in counterfeit currency in the U.S. (2009 US Treasury) $109M confiscated by Secret Service in 2008 • $12.2 billion in losses due to check fraud(2006 American Bankers Association) • $500 million per year in credit card fraud • $31 billion in US existing account fraud(2009 Javelin Strategy and Research) • $221 billion worldwide per year due to identity theft (Aberdeen Group)

26. Counterfeit FraudTechniques Amateur • Alteration • Digital • Chemical Wash Professional • Engraved/Off-set • “Breeder” Document Replication

27. Who is Counterfeiting? • Foreign Governments • Foreign Organized Crime • Domestic Organized Crime • Domestic “small time” operators • Domestic – “Opportunity Forgers”

28. Document AuthenticationCommon Methods • Document Authentication Methods • Visible/Physical Document Inspection • “Test” the paper by feel • Look at colors and “visible” security features • Color shifting, Holographic, thermal sensitive • Covert Feature Detection • Ultra-Violet • Infra Red • Magnetic • Forensic Analysis • Pattern Matching • Content Matching

29. Document AuthenticationPhysical Inspection • Color-Shifting Ink • Holographic Images • Thermal Ink

30. Document AuthenticationPhysical Inspection Intaglio Printing

31. Document AuthenticationVisible Inspection • Watermarks Artificial Genuine

32. Document AuthenticationCovert Feature Inspection “Covert” features, by definition, are hidden features that cannot be read without technological assistance • Ultra-Violet • Fluorescent “glowing” features • Infra-Red • Special ink only reflects infra-red light • Magnetic (MICR) • Machine readable characters printed with magnetic ink

33. Verifying UV Features Ultra-Violet security features are popular and used quite commonly because: • The fluorescence is visible to the naked eye • The printing techniques are understood and easy to control • Features can be easily varied, and are able to be made into interesting, compelling designs (which can be easily remembered)

34. Traveller Check UV Features

35. Money Order UV Features

36. ID Document UV Features

37. Currency UV Features

38. Verifying IR Features Infra-Red ink features appear as monochromatic and require an IR viewing filter for human eye to see. Infra-Red features are popular for government controlled documents (ID’s, currency, etc.) because: • Machine Readable Characters are easy to be read • Optical Character Recognition (OCR) software can see IR printed letters and numbers better than visible light • Casual counterfeiting operations are incapable of reproducing IR printed features and/or are unaware of them

39. Currency IR Features

40. ID Document IR Features

41. Forensic Examination • Pattern Matching • MCR/MRZ (Machine Readable Character Recognition/ Machine Readable Zones) • Data Match/ Data Compare • OCR • Bar-Code • RFID • DigiMark

42. Document AuthenticationPattern Matching

43. Data Compare Intelligent data- base recognizes document and looks for visible and stored data in expected locations

44. Tools for Counterfeit Document Detection • Visible Review Aids • UV Lights • Infra-Red Viewers • Machine-Readable Character Devices • Forensic Analysis Devices

45. Aids for Physical Document Review • Magnifying Glass/Jeweler’s Loupe • Enables verification of micro-printing Requires very detailed knowledge of document design and layout. Slow process; potentially offensive to customers • Starch-pen/ink testing pens • Tests validity of paper and/or the ink used in printing process Forgers now use paper that can pass the litmus test, higher-end laser printers can stump the ink-tester pen

46. Ultra-Violet Devices

47. Infra-Red Devices

48. MRC Character Reader Devices

49. Forensic/Advanced Analytical Devices Infrared Pattern Seal/tamper check Visible Pattern UV check

50. Layered Fraud Prevention POS Ultra-Violet Devices-POS and Perimeter Protection Verify Currency, Driver Licenses, Credit Cards, Traveler Checks, Money Orders, Passports, etc. Advanced currency and ID scanners Detects counterfeit “Super Bills” Mag-strip, optical character and bar-code readers Age verification for restricted products High Speed Money Counting Machines ID Validation and image capture authentication