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Brussels, 1 July 1998

Fraud: Commission proposes a broad framework to counter abuse of non-cash payments

The European Commission has launched a major initiative against fraud and counterfeiting concerning payment cards, electronic money, cheques, home banking and other non-cash means of payment. The new framework strategy, as outlined in a Communication, has two components. Firstly, it proposes a Joint Action that would ensure that fraud against all forms of non-cash means of payment is recognised as a punishable criminal offence in all EU Member States. Secondly, the Communication also outlines a broad strategy to secure safe non-cash transactions for consumers, companies and others in Europe. The key message is that problems concerning fraud and counterfeiting of non-cash means of payment must be tackled broadly by a comprehensive and consistent set of actions.

The document was adopted on the initiative of Commissioners Anita Gradin, (responsible for anti-fraud measures), Mario Monti (financial services) and Yves-Thibault de Silguy (economic and financial affairs).

Non-cash payments, such as traveller's cheques, payment cards, home and phone banking and transactions over the Internet are rapidly growing in volume. For example, the turnover of the global payment card industry alone is fast approaching ECU 2,000 billion per year. An estimated ECU 2.7 billion per year are declared lost as a result from card crime. Issuers in the EU incur approximately 25 per cent of all payment card losses.

While crime against payment cards and other non-cash payments is becoming increasingly international, measures to combat them are mainly taken domestically. This has led to substantial differences in legislation between Member States and it creates difficulties in tackling cross-border crime.

A case of ATM-fraud (automatic teller machine) in Germany last year could very well illustrate this. There, a person set up a false ATM-display in a department store. Customers, believing in the safety of the system, entered their cards into the machine. While the customers thought that nothing happened, the culprit was in a car nearby, downloading the card-codes in his GSM-phone, for further illicit use. The fact that the crime in this case was committed only in Germany facilitated the arrest of the person. But the GSM-phone could just as well have been located in nearby Belgium. In that case, the Belgian authorities would not have been able to catch the culprit until he actually tried to use the stolen data in Belgium, i.e. as long as he only targeted non-cash transactions outside Belgium.

On a larger scale, criminal organisations are known to exploit differences in legislation between Member States and tend to operate from the least protected market. The increased sophistication and internationalisation of criminal behaviour clearly demonstrate the need for a coordinated action at European level in this area.

The anti-fraud framework proposed by the Commission consists of two parts.

The first part, a proposed Joint Action, describes the types of behaviour that should be criminalised, irrespective of what kind of payment instrument that is being targeted. Among the offences listed are to steal or counterfeit a payment instrument; to possess a counterfeited or falsified instrument; to knowingly use or accept payments via a forged or stolen instrument; to manipulate data such as account information; to handle, possess and use device making equipment for illicit purposes. It would be for each Member State to integrate the behaviour qualified as criminal offences by the Joint Action into its national legislation.

The Joint Action also provides the mechanisms for cooperation between Member States. It requires Member States to ensure that relevant services and bodies with responsibilities in the field of payment systems cooperate in the fight against fraud and counterfeiting of non-cash means of payment.

The second part of the anti-fraud framework sets out a number of preventive actions for consideration by all parties involved. The Commission invites the parties to consider the following initiatives:

the payment systems industry: enhance the security of payment products and systems; upgrade the tools for access to payment products; train and educate users of payment products.

individual issuers and users: promote reasonable and fair responsibilities and liabilities between the various parties to a payment system; encourage early detection of criminal offences.

authorities: coordinate information gathering and awareness raising initiatives; assist industry, issuers and users in efforts to achieve a secure environment by promoting a supportive regulatory and non-regulatory framework.

The Communication falls within the Action Plan on Organised Crime, adopted by the European Council in Amsterdam in June 1997. The Action Plan, among other things, calls on the Council and the Commission to examine and address, by the end of 1998, the issue of fraud and counterfeiting related to all payment instruments including electronic instruments.

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