The Evolution of Law against Payment Frauds

Christopher Chen is Associate Professor of Law at the College of Law, National Taiwan University.

List of Abbreviations

1 Introduction: The Interaction of Law, Technology and the Payment Services Market

Prologue

I. General Framework: Technology, Market and Institutional Change

II. An Overview: The Interaction of Technology, Financial Services and Fraudulent Activities in the Payment Market

A. Payment Process and Payment Services

B. Technology and Provision of Payment Services: From Physical to Digital 6

C. Technology and Fraud

D. Legal Institutions on Payment Services and Fraud

E. Summary

III. Interested Parties in Adopting Payment Technology and Countering Fraud

A. Regulators and Lawmakers

B. Financial Institutions

C. Telecommunication Firms and Internet Service Providers

D. Other Technology Firms and Start-Ups

E. End Users and Fraudsters

IV. Map of the Book

Reference

2 An Overview of the Evolution of Payment Services and Fraud

I. Introduction

II. Overview of Payment Instruments and Services

A. Basic Scenario

B. Cash: Coins and Notes

C. Negotiable Instruments

D. Card-Based Payment

E. Wire or Inter-Bank Transfer

F. Informal Money Transfer

G. Electronic Payment Services

H. Cryptocurrencies

I. Obstacle to Cross-Border Payment

J. Summary

III. Payment Fraud: A Broad Overview

A. Defining Fraud

B. Why Is Fraud Wrong?

C. Mechanics of Payment Fraud

IV. Chapter Summary

Reference

3 From Metal to Paper: Fraud Related to Cash Notes and Coins

I. Introduction

II. Cash Payment Fraud

A. Producing Counterfeit Money

B. Using Counterfeit Money

III. Legal Institutions Against Cash Fraud

A. Criminal Sanctions Related to the Production of Counterfeit Money

1. Criminal Sanctions for the Production of Counterfeit Money

2. Possessing or Making Tools or Materials for Counterfeit Money

B. Criminal Sanctions Related to Possession, Transport and Use of Counterfeit Money

C. Control Over the Issuance of Money and Security Features

IV. Summary and Reflection

Reference

4 Fraud in Paper-Based Negotiable Instruments

I. Introduction

II. Types of Fraud Related to Negotiable Instruments

A. Forgery or Alteration of Negotiable Instruments

B. Imposters: Unauthorised Issuance or Transfer of Negotiable Instruments

1. Unauthorised Issuance of a Cheque

2. Unauthorised Use of Personal Stamps

3. Fake Signature of Issuer

4. Fake Signature for Endorsement

C. Using Fake Negotiable Instruments

D. Issuance of Cheques With Insufficient Funds in a Bank Account

1. Issuing a Blank Cheque With No Intention to Meet Payment

2. Making a Payment With a Genuine Cheque but With Low Credibility

G. Summary

III. Legal Institutions Against Fraud Related to Negotiable Instruments

A. Criminal Sanctions for Forgery or Alteration of Negotiable Instruments

1. Forgery

2. Making or Possessing Tools or Materials to Forge or Alter a Negotiable Instrument

3. Criminal Sanctions for Using or Possessing Forged Negotiable Instrument Documents

4. Summary

B. General Fraudulence: Penalties for Issuance of a Negotiable Instrument With Insufficient Funds

C. Control Through the Banking and Clearing System

1. Customer or Chequing Account Agreement

2. Automated Clearing of Cheques

3. Security Features on Cheques

D. Civil Laws Regarding Negotiable Instruments

1. Signature by the Issuer

2. Crossing Out or Parallel Lines

IV. Summary and Reflection

Reference

5 The Evolution of Fraud Related to Card-Based Payment

I. Introduction

II. Types of Fraud Involving Cards

A. Counterfeit Cards

1. Cloning a Credit or Debit Card

2. Forgery or Alteration of Stored-Value Cards

3. Acquiring Counterfeit Cards and Forging Signatures

B. Using a Counterfeit Credit Card

C. Unauthorised Use of Cards

1. Unauthorised Use of a Person’s Credit Card With Correct Information

2. Unauthorised Use of Another Person’s Card With a Forged Signature

3. Unauthorised Use of Another Person’s Stored-Value Card

D. Acquiring a Credit Card With False Information

E. Fraud in Relation to Card Systems

F. Summary

III. Legal Institutions Countering Card Fraud

A. Criminal Sanctions on Payment Card Fraud

1. Criminal Penalty for Forgery of Cards

2. Criminal Sanctions for Using Forged or Altered Cards

3. Criminal Sanction on the Illegal Acquisition of Card Information

B. Anti-Fraud Mechanisms Adopted by Card Issuers

1. Security Measures by Card Associations

2. Banking Regulation on Credit Card Fraud Control

3. Self-Regulatory Rules on Banks’ Conduct

4. Regulation for Stored-Value Cards

C. Responsibility of Cardholders

1. General

2. Terms and Conditions for Credit or Debit Cards

3. Terms and Conditions for Stored-Value Cards

IV. Summary and Reflection

Reference

6 From Physical to Digital: Fraud Related to Inter-Bank Transfer and Electronic Payment

I. Introduction

II. Types of Fraud Related to Electronic Payment

A. Imposters: Unauthorised Inter-Bank Transfer

1. Unauthorised Bank Transfer in a Bank Branch

2. False Payment Instruction Made Remotely

B. Imposters: Unauthorised Remote Payment With Payment Cards or e-Wallets

1. Unauthorised Transfer by Bank Card

2. Unauthorised Use of Credit Cards Electronically

3. Unauthorised Access to e-Wallets

4. Unauthorised Transfer by Misusing Computer

Records

C. Insufficient Fund

D. Fraud by Unauthorised Payee

E. Fraud for Informal Money Transfer

F. Summary

III. Legal Institutions Countering Payment Fraud Involving Electronic Transfer

A. Criminal Sanction Against Abuse of Electronic Payment System

B. Regulation of Banks, Payment Services Providers and Payment Systems

1. Banking Regulation on Wire Transfer Regarding Fraud

2. Regulations Specifically for Non-Bank PSPs

C. Contractual Approach to Control Fraud

1. Regulating End Users’ Conduct

2. Regulating Merchants’ and Payment Services Providers’ Conduct

3. Contractual Arrangements for Losses due to Fraud

4. Liability Rule and Fraud

IV. Summary and Reflection

Reference

7 The Future: Payment Fraud in Digital Payment Tokens

I. Introduction

II. Crypto Payment Fraud

A. Counterfeit Digital Payment Tokens

B. Unauthorised Transactions

C. Fraud by Unauthorised Payee

D. Insufficient Funds?

E. Summary

III. Legal Institutions: Evolution for Digital Payment Tokens

A. Potential Criminal Sanctions Against Fraud Regarding Digital Payment Tokens

1. Misuse of Computers

2. Forgery and Counterfeit: Recharacterisation of Digital Payment Tokens

B. Regulation of Payment Service Providers for Digital Payment Tokens

1. Self-Regulation or On-Chain Governance

2. Regulation of Crypto-Wallet Providers

C. Contractual Arrangements and Fraud

IV. Summary and Reflection

Reference

8 Reflection and Conclusion: A Shifting Trend of Anti- Fraud Legal Institutions

Recap of Previous Chapters

I. Reflection I: Trends in the Interactions of Technology With Payment Services and Fraud

II. Reflection II: The Evolution of Legal Institutions Against Payment Fraud

A. From Sanction to Monitoring

B. From Forgery to Computer and Data Misuse

C. Actors of Institutional Change

Epilogue

Index