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Americans to be guinea pigs in vast chip-and-PIN security experiment

PSA: If you really want to steal millions – embarrass the banks enough

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Black Hat 2014 Next year US banks will begin a wide-scale rollout of chip-and-PIN bank cards, just 11 years after the UK made it mandatory.

In doing so, Americans will take part in a vast experiment to test chip-and-PIN against chip-and-sign when it comes to stamping out money thieves.

Not every US bank is keen on the PIN system, so some customers will get chip-and-sign cards instead. The results of the split approach will be studied by security experts to determine the pros and cons of each system; whether PINs are really more secure than a signature and whether chips are more tricky to clone than magnetic strips, for instance.

Singapore is another country that prefers chip-and-signature and, as mentioned, Blighty does chip-and-PIN – so it will be eyeopening to compare those to the outcome of the rollout in the US and its 242 million adults.

Chip-and-PIN systems aren't perfect, said Ross Anderson, a professor of security engineering at the UK's University of Cambridge, in a presentation today at the Black Hat USA hacking conference in Las Vegas.

For example, Prof Anderson told of a chip-and-PIN terminal that was used shortly after the security mechanism was introduced in the UK. The device was supposed to be tamperproof: it had contact switches that would brick the device if the top cover was removed, for instance.

Hacking terminals

In 2008, one of Professor Anderson’s students bought some of the devices on eBay and found that if you took the back panel off them, there was an recess that gave access to the motherboard. By drilling at a precise point, the team was able to install a wiretap that recorded all transaction data.

It turns out that the recess was intended to hold extra cryptographic electronics, but the banks decided they didn’t need it. Prof Anderson alerted the banking industry to the problem, but was told it wasn’t a serious issue.

Later that year two men were arrested after they managed to install bugging devices on the aforementioned model of chip-and-PIN readers, which were stored in a warehouse in Dubai. The equipment was then shipped out to retailers in the UK and Holland. According to Prof Anderson, the pair allegedly stole millions of pounds, but the banks refused to give evidence against them at trial for fear of embarrassment. The two walked from court as free men.

The American experiment in chip-and-PIN and chip-and-signature will produce some very interesting data, but if the experience in the UK is anything to go by, it won’t kill card fraud by any means, Anderson said. While chip and PIN did cut some types of crime, crooks got smart – with some potentially fatal consequences for victims.

For example, while point-of-sale fraud fell after the UK rollout of chip and PIN, online fraud rocketed. To combat this, banks gave customers a little gadget into which one can insert their card, type in a valid PIN, and generate a one-time access code for verifying an internet transaction – such as moving money between accounts or paying for stuff. These devices are pretty popular with criminals, too.

“If you get mugged at knife point and you hand over a chip-and-PIN, card the nice young gentleman can ask you what your PIN is and he can check it on the spot with his device,” Anderson explained.

“If you gave him the wrong PIN he might, for example, cut your ear off and invite you to try again. In the old days a bad guy would have to frogmarch you all the way to an ATM.”

One of the big untold stories about the implementation of chip-and-PIN in the US is, according to Prof Anderson, an effort by the banking industry to shift fraud costs onto the consumer.

He warned that banks were changing their terms and conditions to make consumers liable for fraudulent use of smart-cards and, unless regulators get involved, this move will accelerate. ®

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