What Are Bust Out Schemes?

A representative of the FBI explained the concept of bust out schemes in testimony before a committee of Congress. Here's how he described it:

False Identities in "Bust Out" Schemes
We have also seen the use of false identities in so-called "bust-out" schemes. In these schemes, the criminals use credit card terminals obtained by a shell or "front" business to apply charges to fraudulently obtained credit card numbers or accounts opened in false names or the names of innocent victims. The criminals run the cards or numbers through the terminals but do not provide any goods or services. The credit card company credits the account of the front business because they do not know that the goods and services have not been provided to the card holder or that the card holder is not a real person. Before the transaction can be reversed, the funds are moved out of the front business's account.

Card holders who participate in bust-out schemes normally refuse to pay the credit card companies for the bogus purchases. Oftentimes, the card holders will file for bankruptcy to absolve themselves from having to pay their accumulated debt. On their bankruptcy applications, the card holders typically make false statements by lying about the reasons for accumulating such debt, and/or even their true identities.

It is important to note that the credit card "bust out" scheme involves defendants who have stolen social security numbers to create false identities. Using these false identities, the defendants obtain credit cards which they use to commit the bust-out schemes, as described above. Once they bust out a card, they obtain another social security number and false credit card, and start the whole process over.

http://www.house.gov/judiciary/mcnulty062502.htm

In other Congressional testimony, the FBI gives another explanation:
Another method used by these thieves is referred to as the "bust-out" scheme. The "bust-out" scheme occurs when a travel agency sells airline tickets with no intention of paying ARC. Thieves have established travel agencies specifically to facilitate the execution of the "bust-out" scheme. In other cases the proprietor(s) may decide to use the "bust-out" scheme during the course of business. In executing the "bust-out" scheme oftentimes the travel agency sells tickets at substantially reduced rates to individuals and even other travel agencies. According to ARC, the travel agency is required to remit payment for tickets sold on a weekly basis. In one scenario, the travel agency will initially pay ARC with a check drawn on a bank account with non sufficient funds. This tactic serves to extend the amount of time the travel agency is allowed to operate before the account is reconciled. In fact, this usually gives the travel agency additional time to collect more money before the "bust out" scheme is completed and ARC closes the business. Usually, a travel agency will have approximately four to six weeks to operate the "bust out" scheme before the business is closed.

The Crimes of Persuasion web site also talks about such schemes.

First published on BankersOnline.com 11/04/02