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A leaked advisory from specialist police at the UK's Dedicated Cheque and Plastic Crime Unit (DCPCU) to merchants, distributed on 5 August - a week before the Birmingham arrests - warns of the risk:

Criminals have found it possible to insert data capturing equipment into the devices used to input credit/debit card and PIN details at retail outlets. These devices are known as PIN Entry Devices (or PEDs). <p/>

The method involves the theft of PEDs from stores and retail outlets. These stolen PEDs are re-engineered and fitted with additional equipment inside.

It should be noted that the criminals have overcome the security features of several different manufacturers. The compromised devices are then installed into a retail outlet, such as a supermarket or petrol station, (often with the assistance of a collusive member of staff) and card details and PINs captured from transactions. This data is transmitted to the criminals who then use it to create fake credit cards that are used abroad.

DCPCU advised merchants to regularly audit PIN entry systems to detect if devices have been moved or replaced. It also urged caution over the handling of malfunctioning PIN entry terminals, sent back to manufacturers for repair. As possible safeguards, it suggests the placement of internal CCTV systems to cover till areas, as well as IT systems to detect PED replacement. But security experts are sceptical about the effectiveness of such measuresp.

"I find some of the guidelines to be a bit far fetched, especially CCTV monitoring of each terminal," said Jacques Erasmus, director of research at Prevx. "This will cost a lot of additional money to protect the Chip and PIN systems. The scary thing with this attack is it’s so hard to detect - with ATM skimming, it’s much easier to detect [that] the machine has been tampered with."

He added that the production of see-through terminals by manufacturers such as Verifone and Ingenico could be one approach that would uncover terminal tampering, whic typically involves planting Bluetooth tapping on doctored devices.

Saar Drimer, one of three researchers from Cambridge University who have led efforts to investigate Chip and PIN terminal security, is also doubtful about the DCPCU advice.

"Recommending placing CCTV coverage of tills allows crooks to harvest cardholders' PINs during a transaction," he told El Reg. "From a cardholder security perspective, this is clearly undesirable, especially when APACS requires cardholders to be diligent with keeping their PINs secret, or face the loss when fraudsters withdraw money from their accounts using fake cards."

Drimer suggested connection between PIN entry terminals and back-end banking systems would make it easier to detect when tampered devices had been placed on networks. "Payment equipment should have been properly tamper-proofed and designed such that swapping PEDs is made very difficult," he said.

Andrew Goodwill, a director at card fraud prevention specialists The 3rd Man, said that although the latest scam relies on forged cards with counterfeit magnetic strips it was only a matter of time before crooks created counterfeit cards.

"I am astounded at just how easy criminals are able to get access to Chip and PIN machines from companies large and small and how easy it seems to be that they can then bypass the security measures that are built in each machine at manufacture," Goodwill told El Reg. "I believe we are only 18 months to two years away from criminal gangs being able to clone a chip and pin card (including the Chip)." ®

Internet Security Threat Report 2014

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