3 Banks Service Majority Of Spam-Driven Sales

The majority of the world's spam-driven sales are serviced by just three banks.

That surprise finding comes from a new paper that literally "follows the money" for global spam. The paper, to be delivered at next week's IEEE Symposium on Security and Privacy 2011 in Oakland, Calif., is credited to 15 researchers from four institutions--the University of California at Berkeley, University of California at San Diego, the International Computer Science Institute, and Budapest University of Technology and Economics.

Interestingly, their research takes a different tack from most spam studies, which largely focused on how spam is distributed. Today, that's largely via botnets. "While most attention focuses on the problem of spam delivery, the email vector itself comprises only the visible portion of a large, multi-faceted business enterprise," said the researchers.

In fact, the so-called "spam value chain" involves numerous components, including not only botnets, but also domain registration, name server provisioning, hosting services, and proxy services. But spammers must also process orders, which requires "payment processing, merchant bank accounts, customer service, and fulfillment."

To see how these components work together, the researchers studied three months of real spam data, gleaned from captured botnets, spam feeds, and URLs advertised via spam--among other sources. From there, they grouped spam operations into three broad categories: counterfeit software, fake luxury goods, and pharmaceuticals. Finally, they made more than 100 purchases from spam-advertised sites, gathering further data about everything from the merchant banks they used to their and fulfillment operations.

As a result of their analysis, the researchers said that one of the principle weak links in the spam value chain is payment handling. In fact, "95% of spam-advertised pharmaceutical, replica, and software products are monetized using merchant services from just a handful of banks," they said.

All told, they saw 13 banks handling 95% of the 76 orders for which they received transaction information. (Only one U.S. bank was seen settling spam transactions: Wells Fargo.) But just three banks handled the majority of transactions: Azerigazbank in Azerbaijan, DnB NOR in Latvia (although the bank is headquartered in Norway), and St. Kitts-Nevis-Anguilla National Bank in the Caribbean. In addition, "most herbal and replica purchases cleared through the same bank in St. Kitts, ... while most pharmaceutical affiliate programs used two banks (in Azerbaijan and Latvia), and software was handled entirely by two banks (in Latvia and Russia)," they said.

Surprisingly, all software orders and 85% of pharmaceutical orders used the correct Visa "Merchant Category Code," which identifies what's been sold. "A key reason for this may be the substantial fines imposed by Visa on acquirers when miscoded merchant accounts are discovered 'laundering' high-risk goods," said the researchers.

Meanwhile, orders were fulfilled from 13 suppliers in four countries: the United States--Massachusetts, Utah, and Washington, all for herbal purchases, as well as West Virginia for pharmaceuticals--plus India, China, and New Zealand. Most pharmaceuticals came from India, while most herbal products came from the United States, likely due to weak regulations, they said.

So, what's the next step? To help stop spam, the researchers suggest targeting the related payment infrastructure, since options are few and switching costs high. In particular, they suggest that U.S. issuing banks should refuse to settle "card not present" transactions for items from known-spammers, given that with a bit of undercover work, keeping tabs on said spammers doesn't appear to be too difficult. Furthermore, at least where pharmaceuticals and counterfeit software is concerned, there may already be a legal basis for blocking transactions.

"We note that a quite similar action has already occurred in restricting U.S. issuers from settling certain kinds of online gambling transactions," they said.

Some type of legal change, however, may be required to get U.S. issuing banks to comply. "Spam is actually very profitable for the banks and credit card companies that move the money. That might affect how likely they are to actually do something about this," said Mikko Hypponen, chief research officer at F-Secure, in a related blog post.

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