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Until recently, identity theft seemed to be regarded by police and many financial institutions almost as a victimless crime. Identity theft (the fraudulent use of your name and identifying data by someone else to obtain credit, merchandise, or services) claimed seven million victims in the U.S. last year, according to a recent survey by Privacy & American Business, ten times as high as past estimates. The Federal Trade Commission reported that 9.9 million people were victims in 2002 costing them $5 billion and businesses and financial institutions $8 billion and 27 million victims since 1998. The United States is not alone as Canada , Japan , and the United Kingdom are also reporting wide spreading ID-theft. Overall, more than 33 million Americans, about 1 in 6 adults, say they have had their identities used by someone else sometime since 1990 and the Department of Justice says ID theft is the nation's fastest-growing financial crime. Victims typically lose $800 and spend two years clearing their name. The FTC received 161,619 complaints about identity theft; double that of the previous year. Credit card fraud was the most common form of identity fraud accounting for 42 percent of the complaints followed by phone fraud at 22 percent and bank fraud at 17 percent. On average, thieves collected $10,200 worth of goods, money or services when opening a fraudulent account.

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Identity fraud has become a major element in crimes ranging from international drug trafficking to terrorism; Al Qaeda operatives in Spain used stolen credit and telephone cards and false passports and travel documents to open bank accounts and pay for travel and communication abroad, an FBI agent testified before a congressional subcommittee last year.

Many victims don't learn of the crime for a year or more, only after something goes terribly wrong, because thieves often shield their actions by using a different address when they open new accounts in the victim's name. Typically, federal laws cap monetary losses to consumers, but even in routine cases, it takes victims two years on average to clear their names, according to the Privacy Rights Clearinghouse, a nonprofit advocacy group. The $4.2 billion that businesses will lose this year to the crime, a figure expected to mushroom to more than $8 billion by 2006, they recoup by charging you higher fees and prices. The current cost to business is $18,000 per incident, the FTC says. The largest single source of ID theft is “the corrupt individual on the inside,” says privacy expert Alan Westin, president and publisher of Privacy & American Business.

Identity theft is a problem largely because financial institutions, merchants, credit bureaus, and the government do not adequately safeguard vast databases and other records containing consumers' sensitive information, making it relatively easy for thieves to access these data. Many institutions use Social Security numbers when other identifiers would suffice, fail to notify consumers when security breaches occur, and provide little help or recourse for consumers stuck cleaning up the mess. ID theft usually occurs not because of the carelessness of the individual consumer, but because of the carelessness or vulnerability of the organizations they deal with, including the government.

All that ID thieves really need to open credit or bank accounts under your name or to drain your existing accounts are three pieces of information: your full name, Social Security number, and date of birth. They can get by with less when financial institutions fail to check identifying information. The following are ways in which thieves can get information about you:

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Stealing company data. Millions of identities can be stolen at one time when hackers or insiders
break into company databases or commercial Web sites where credit-card information and other
personal data are stored. Such databases are proliferating; businesses and governments share
everything from marketing lists to property records on the Internet. The federal Gramm-Leach-Bliley Act of 1999, which allows financial institutions to share customer data with affiliated companies, opened the floodgates to the exchange of financial information, some privacy experts say. These databases are often poorly protected.

Visa, MasterCard, and American Express confirmed that an unknown hacker had accessed 8 million credit-card records, including 3.4 million Visa accounts and 2.2 million MasterCard accounts, from a merchant processor, Data Processors International.

Pretexting . E-mail spammers, telemarketers, and even some clerks and salespeople use a false pretense to lure you into revealing personal information. Twice this year, New York City police arrested the same 18-year-old on different versions of this scam. Police say that first, the teenager sent “spoofed” e-mail to AOL account users. Claiming to represent AOL, he requested personal information, including credit-card numbers, to “update” accounts. When AOL users complied, police say he charged more than $10,000 in merchandise. In the other case, police say he used stolen identities to buy $30,000 worth of electronics, which he sold on a spoofed amazon.com Web site.

Dumpster diving. Criminals dig through trash for bills, medical statements, or other papers that can be used to obtain credit or access to your accounts.

Mail theft . Individuals and organized rings steal mail from unlocked mailboxes, trying to find letters containing personal information, preapproved credit offers, and checks.

Account takeover. Thieves use stolen or fake IDs to take over existing bank or credit accounts. They escape detection by forwarding mail to private mailboxes or new addresses. A recent case involved 17 conspirators, including lawyers and an unlicensed real estate agent. They were indicted in Queens County , New York , in connection with a $1 million mortgage fraud ring that victimized individuals whose houses were literally sold or refinanced out from under them. Imposters used fake IDs, including driver's licenses, to pose as the homeowners at staged closings to steal money from mortgage lenders.

Skimming. Thieves use handheld magnetic card readers that can be bought on the Internet or improvised to obtain personal information off the magnetic strip on credit and debit cards. Sometimes the data is transferred to other magnetic strips to make counterfeit credit cards. The culprits have included waiters, gas station attendants, and store clerks paid by organized-crime rings. Some private automatic-teller machines also have been rigged to skim account numbers and PINs.

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Raiding your old computer. According to a recent study, MIT graduate students were able to recover sensitive files from hard drives on one-third to half of the used computers they tested. Last year, 150 million computers were discarded, the study found.

We believe that financial institutions and other businesses should use encryption and better systems to prevent and detect computer hackers and to control access by insiders. Don't use e-mail to send your Social Security number or other personal data. If you must, make sure that you use a secure Internet connection by checking your browser window for a secure-connection icon. We recommend against giving personal information to someone who has called or e-mailed you unsolicited. At least, independently confirm the legitimacy of the request by phoning or e-mailing the company. Systems that monitor an organization's connections to the Internet and that prevent and detect hacking are a must to deter ID thieves and virus attacks.

Shred papers containing personal information and preapproved credit offers before discarding them. Businesses and governments also need to do a better job of disposing of old files. Only California , Georgia , Washington , and Wisconsin have laws requiring businesses to shred files. Homeowners and landlords can help prevent mail theft by replacing regular mailboxes with locked boxes. Businesses and individuals should use hard-drive shredding software or remove and destroy hard drives before discarding a personal computer.

Visa and MasterCard now require merchants and big banks that issue their branded cards to use secure Internet technology. They're using new identity verification and authentication systems for controlling transactions among customers, merchants, and banks. In addition, both now require member banks and merchants to encrypt personal data stored on their servers.

Stricter laws with stiff sentences must be passed. California leads other states and the federal government with its identity-theft laws. More than 20 bills concerning identity theft are pending in Congress. Many consumer-rights, privacy-rights, and law-enforcement advocates say they want to see other states copy the laws, which do the following:

• Require that consumers be notified of security breaches that could compromise their personal data, including Social Security numbers.
• Entitle fraud victims to a free credit report every month for a year after they notify credit-reporting agencies that they have been victims of fraud.
• Require individuals requesting birth or death records to provide proof of identity and to sign a form indicating the reason for the request.
• Allow customers to freeze their credit reports if they have been victims of fraud. This requires credit-reporting agencies to get permission from consumers before disseminating their credit reports to lenders. Also, state law requires credit issuers to honor fraud alerts on files and to deny new credit requests until the consumer is notified.
• Limit the use of Social Security numbers.

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