Blog post

Chavez figures out how to stop cross border fraud

By Avivah Litan | May 24, 2011 | 3 Comments

Just back from a trip to Venezuela, where many forms of crime and fraud, especially Point-of-Sale fraud, are rampant. According to the numerous bank managers I met with, merchants look the other way as their card readers are swapped out with those that have card skimmers installed.

President Chavez has mandated that the country move to EMV chip cards later this year which should stop this type of fraud that the Venezuelan banks have to pay for. But typically when a country moves to chip cards, the rate of cross border fraud increases since the magnetic stripes are still present on the new EMV chip cards and can still be skimmed at the card readers. The skimmed mag stripe data is used to counterfeit cards that can be used in other countries where ATM machines and point-of-sale equipment still accept magnetic stripe cards.

To my surprise, when I mentioned the trends with cross-border fraud, the Venezuelan banks were not concerned. Upon further questioning, I learned the strange reason why – Chavez also restricts how much money Venezuelans can spend on their cards outside their home country. Each time a Venezuelan leaves the country, he or she has to get explicit permission to use the card for a very limited period and for a very small amount.

This of course is a source of great frustration to the Venezuelan card holders. It may be one way to stop cross border fraud but it comes at a great economic cost to the country’s citizens.

Meanwhile, not much at all is being done to stop physical crimes and assaults in the country. Many people are afraid to take public transportation or to use their smartphones (typically blackberries) in public places, where there have been numerous reports of murders committed in order to steal a blackberry. I was warned to keep my cell phone off while taking a taxi, since motorcyclers have been known to just pry open a taxi door on the spot, grab a smartphone from someone’s hand, and sometimes push the victim out of the cab.

Venezuela has other non-sensible economic symptoms. For example, the government has kept gasoline prices artificially low in the oil-rich country in order to gain favor with its citizens (of which about 70% or more are unbanked and severely impoverished). It only costs about $1 to fill an SUV’s gas tank (the country is full of SUVs and large trucks), but the country, which is also water-rich, can’t produce enough electricity to sustain its needs. Blackouts and brownouts are common across Venezuela.

The trip certainly gave me a greater appreciation of the democratic freedoms I enjoy in this country, and the ability to speak up when I don’t agree with some of the rules that govern us (and our payment systems). After meeting some very talented, educated, and hardworking individuals down there, I only wish they could enjoy the same.

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  • That is an eye opening report Aviva. I’d never considered that a govt might do individual/manual card by card autos for out of country purchases – that must take extraordinary man hours… Unless folks have largely given up on those sorts of purchases (the chilling effect you cited).

  • Oops my iPad made “auths” into autos. Errata!

  • Avivah Litan says:

    I agree Rebekah. My mouth dropped when I first learned of this. It’s ironic that such tight controls are put on out-of-country payments but virtually none exist to curb domestic crime.