Fraud

The latest Australian Payments Clearing Association report [PDF] on Australian payment systems fraud indicates that the overall proportion of fraud in credit card transactions has increased from 33.7¢ per $1000 to 58.8¢ per $1000 since 2009, with $387 million fraudulent credit card transactions in 2014. 77% of that activity was overseas, primarily online.

The total value of fraud on cards  accounts for 0.06 per cent of the amount spent using cards and 0.026 per cent of the total number of card transactions.

In 2014 fraud rates on "card-not-present" transactions (inc online and over-the-phone transactions) increased to around $300 million. The overall value of online transactions using credit and debit cards in 2014 was up by 5 per cent to $657 billion.

The report indicates that card skimming  has declined by 25% since 2009.

Fraudulent use of lost and stolen cards was flat at around $33 million.

The rate of cheque fraud fell from 0.6 cents to 0.5cents in every $1,000 transacted. The overall amount of cheque fraud fell by 9 per cent to $6.5 million, against a 1% increase to $1,229 billion in the total amount transacted on cheques.

The report notes

The payments industry has implemented a range of measures to help prevent card-not-present fraud. These include:

• additional information to verify that the card details are valid and that the person  providing them is the genuine cardholder – such as the 3 or 4 digit code written on the card itself, and the stronger online authentication tools: American Express SafeKey, MasterCard SecureCode or Verified by Visa; 

• fraud detection tools used by merchants,card schemes and financial institutions to identify risky or unusual purchases made with the card; and

• requiring that merchants comply with the Payment Card Industry Data Security Standard (PCI DSS) to strengthen data security and reduce the risk of card details being stolen.

The industry is also undertaking a major structural upgrade to payments technology known as Tokenisation. This technique replaces sensitive information, such as a card number, with a non-sensitive replacement value making it much more difficult for criminals to steal and make use of card details. Tokenisation is expected to have a significant effect on reducing card-not-present fraud once it is widely rolled out. 

Robotisation

'Four Futures of Legal Automation' by Frank Pasquale & Glyn Cashwell in (2015) 63 UCLA Law Review Discourse 26 [PDF] comments

Simple legal jobs (such as document coding) are prime candidates for legal automation. More complex tasks cannot be routinized. So far, the debate on the likely scope and intensity of legal automation has focused on the degree to which legal tasks are simple or complex. Just as important to the legal profession, however, is the degree of regulation or deregulation likely in the future. 

Situations involving conflicting rights, unique fact patterns, and open-ended laws will remain excessively difficult to automate for an extended period of time. Deregulation, however, may effectively strip many persons of their rights, rendering once-hard cases simple. Similarly, disputes that now seem easy, because one party is so clearly in the right, may be rendered hard to automate by new rules that give now-disadvantaged parties new rights. By explaining how each of these reversals could arise, this Essay combines technical and sociological analyses of the future of legal automation. We conclude that the future of artificial intelligence in law is more open ended than most commentators suggest.

The authors go on to argue

Will software substitute for lawyers, or increase their earning power? There will be evidence of each in coming decades: Routine work will continue to be automated, while new opportunities will also emerge. The critical question is which trend will be dominant, and what its effect will be.

Scholars have addressed the automation of legal processes since at least the 1960s. None foresaw all the critical developments of the past two decades and detailed prognostication is still a fool’s errand. Nevertheless, in a time of rapid technological change, scenario analysis can help clarify the possibilities ahead. This Essay describes four possible future climates for the development of legal automation, ranging from a computationally administered “society of control” to a muddling continuation of the status quo.

The future of law and computation is more open ended than most commentators suggest. By mechanically extrapolating present trends in document review into the future, for example, one might expect replacement of lawyers en masse by software. Yet two leading experts on automation say that computerization of legal research will complement the work of many lawyers, rather than substitute for them. They categorize the careers of attorneys as having a “low risk” of computerization, at least compared with employment generally. This is not to say that law practice has reached some steady state of balance between human capital and software. Rather, the agenda for researchers must shift toward direct examination of law’s diverse practice areas and functions. This Essay lays out a research agenda for better-grounded predictions about the future course of automation, in areas ranging from business formation and mergers and acquisitions, to compliance, to discovery and fact investigation, to litigation, legislation, and regulation.

While we extend and develop extant debates on the degree of automatability of legal tasks, we also acknowledge the sociological and political nature of the discussion. Extralegal developments will be crucial in determining the future balance of computational and human intelligence in the law. No profession is an island, untouched by the trends in power, wealth, influence and status prevailing in the society in which it is embedded. During the New Deal and Great Society, the importance of lawyers rose as they articulated the reach and limits of new social and economic rights. The Affordable Care Act and Dodd-Frank Act could presage a similar rise in the value of lawyers’ services.

There are, however, countervailing social forces. Government employment has declined dramatically during the Obama administration, particularly in state and local offices.Even with their many new powers, regulators are hard- pressed to increase enforcement intensity without added resources. A judiciary often hostile to regulatory action can slow down or stop major initiatives.Most importantly, when neoliberal corporations and individuals become wealthy enough, they are able to shape a climate of opinion that tends toward the marginalization and even trivialization of the type of legal work traditionally considered essential to the fair and efficient working of markets, public programs, and society in general. Some vanguardist technologists even dismiss law as an outdated app ripe to be replaced by a combination of markets, reputational intermediaries, blockchains, and distributed autonomous organizations.

To predict the future of legal automation, we take key considerations internal and external to the legal profession as fundamental variables. Different types of legal work are more or less susceptible to automation. Society can be more or less regulatory and more or less open to procedural protections. A basic schematic emerges ... 

We use this schematic as a tool for thinking and as a way of organizing future scenarios. Abstract trends like automation and regulation can have very concrete consequences, as our description of the numbered scenarios above will demonstrate.

The first scenario, a Vestigial Legal Profession, can be expected in legal practice areas now serving industries that continue to deregulate. For advocates of disruptive innovation like Harvard Business School Professor Clayton Christensen, that is a consummation devoutly to be wished. Christensen’s acolytes in the legal academy tend to see much of law as little more than a transaction cost imposed on job-creating businesses. From their perspective, automation both reflects and reinforces trends toward laissez-faire deregulation. Simple, precise legal rules are easy to automate. As attorneys’ roles are increasingly taken over by machines, their social prestige declines—thus vitiating their ability to propose more complex or expansive regulatory regimes.

But what happens if artificial intelligence and regulation both advance? This scenario portends what French social theorist Gilles Deleuze called a “Society of Control;” namely, a world in which human action is increasingly managed and monitored by machines. As Peter Reinhardt recently observed, at firms like Uber and 99designs, “lines of code directly control real humans.” In government, too, software can effectively make determinations about who will be audited, who will receive benefits, or who will be denied access to a flight. It is possible to imagine whole areas of law relegated to computational implementation. For example, Lawrence Solum has posited (not endorsed) the development of an “Artificially Intelligent Traffic Authority (AITA),” which could “adapt itself to changes in driver behavior and traffic flow.” The system would be designed to “introduce random variations and run controlled experiments to evaluate the effects of various combinations on traffic pattern.” But the system would not be very forgiving of individual experimentation with, say, violating its rules. Rather, as imagined by Solum, “[v]iolations would be detected by an elaborate system of electronic surveillance” and offenders would be “identified and immediately . . . removed from traffic by a system of cranes located at key intersections.”

Solum uses this example to break down the usual distinctions between human and artificial meaning in the law, rather than as a policy proposal for the future of transportation. The scenario is just as useful to flag the inevitable legal and political aspects of automated law enforcement, even in an area as seemingly technical as traffic. Would the cranes posited in Solum’s hypothetical surgically remove protesters, like the Ferguson marchers, who blocked highways? Would anyone with an expired license or tags be plucked away as well—in a vision already half-realized by subprime lenders who stop cars remotely as soon as a payment is late? 

Both the Vestigial Legal Profession and Society of Control scenarios may seem unduly futuristic — and indeed warrant skepticism. As the third scenario — Status Quo — suggests, it is entirely possible that legal automation will move forward far more slowly than many predict or expect. While the legal profession may decline in importance (if not in employment levels), it may not be nearly as susceptible to automation as other fields.

By contrast, robust growth in jobs for those with legal training would likely occur under a fourth scenario, called the “Second Great Compression.” Among economists, the Great Compression is the period from roughly 1947 to 1979 when income growth was roughly evenly distributed among quintiles. Since 1979, most income gains have gone to the top quintile, and within that group, the top 1 percent (and within that group, the top 0.1 percent).19 Reversing that trend toward concentration of income would take very high levels of legal regulation of enterprises, and a rebalancing of the relative power of the state and business to favor the enhanced autonomy of the former. Each trend in the Second Great Compression scenario would increase the power (and, likely, the earnings) of attorneys.

By describing these trends in greater detail below, this Essay illuminates the relative plausibility of each scenario. It takes seriously the possibility of both self-fulfilling and self-preventing prophecies. Both Status Quo and Second Great Compression are likely to be more humane scenarios than Vestigial Legal Profession and Society of Control. This work is designed to make it more difficult for key policymakers to accept either of those high-automation scenarios uncritically. And if these substandard scenarios do indeed come to pass, at least the profession was warned in advance.

Innovation Patent Analytics

IP Australia has released a research paper [PDF] on The Economic Impact of Innovation Patents.

The paper - which has influenced ACIP - states

The innovation patent is a second-tier patent with a lower inventive threshold, lower cost and shorter term than a standard patent. The policy objective of the innovation patent is to encourage innovation among Australian Small and Medium sized Enterprises (SMEs) by offering protection for lesser inventions.

The evidence shows that firms who file innovation patents are less likely to participate in the standard patent system afterwards. The great majority of Australian SMEs and private inventors appear to gain little benefit from the system. Three quarters of these applicants file one innovation patent and then never file another innovation or standard patent again.

Only 23 SMEs have become moderate users of the innovation patent system, filing at least 5 innovation patents, with at least one enforceable right, and entering the patent system via an application for an innovation patent. The average SME or private inventor files once and never again (74%) does not receive any enforceable right (83%), and lets their patent expire early because they see its value at less than the $110-$220 cost of renewal (78%).

The evidence shows that innovation patents have some positive effects, but in the one area of impact, firm survival, standard patents are found to have a bigger positive effect, and there is no effect from certifying innovation patents. Firms in the manufacturing sector, who file innovation patents, invested more in R&D than other manufacturing firms, but the same holds for standard patent applicants, both in manufacturing and across broader set of industries. The innovation patent by itself has no correlation with firm sales growth and no impact on market entry rates across industries.

Innovation patents impose a regulatory cost on Australian SMEs and private inventors of over $10 million per year, equating to nearly 95% of the regulatory cost of the system. The maximum private value of the innovation patent system as a whole was calculated to be in the low tens of millions per annum. This private value is expected to be offset by third party uncertainty costs to consumers and other producers, as the majority of innovation patents are not enforceable rights, but this offset could not be quantified. Large firms tend to obtain the majority of this value from their innovation patents, followed by SMEs and private inventors. This highlights that the costs and benefits are not accruing evenly across firms.

The low levels of repeated use by SMEs suggest that the innovation patent is not fulfilling its policy goal of providing an incentive for Australian SMEs to innovate, and the evidence shows a reduced likelihood of patenting after participating in the innovation patent system. Given the low private value of the system, it is likely that the system is a net cost to most of the SMEs that use it, and the system has imposed a regulatory burden of more than $100m since its introduction.

IP Australia concludes -

We investigated whether having innovation patents would encourage R&D and traditional patent applications that would not otherwise have occurred, particularly by SMEs. The evidence suggests that this does not happen.

Private inventors and SMEs do participate in the innovation patent system, but the vast majority, 74% of all applicants between 2001 and 2013, only ever file one innovation patent, and tended to allow their innovation patents to lapse early, rather than pay the renewal fee. This suggests that the vast majority of SMEs found little value in the system, or at least not enough value to use either the innovation or standard patent system again, or indeed pay the renewal fee of $110 to $220. We found evidence that the system discouraged follow-on patenting or innovation if we consider additional patenting a proxy for innovation. If we broaden that group of SMEs and private inventors out, to define a set of light users of the innovation patent system, we find that 86% of SMEs and private inventors only ever file 1-4 innovation patents and never file any standard patents.

Only 1% of the SME and private inventors in the innovation patent system are moderate to heavy users of the system: They entered the patent system by first filing an innovation patent and filed at least 5 applications over the 12 year period, having at least one examined. This is the type of repeat use which would indicate a perception of additional value from each innovation patent. Of the 9,644 SMEs and private inventors that filed innovation patents, only 37 entities fall into this category. With that in mind, it is not surprising that we see no macroeconomic effect from the innovation patent system.

The innovation patent system may or may not have a net benefit in aggregate terms. The private value generated by innovation patents appears to be in low tens of millions of dollars, and this should theoretically accrue mainly to firms that maintain and certify their patents, of which large firms hold the greatest proportion. The regulatory and private cost of the system is equally in the low tens of millions of dollars, but fall mainly on private inventors and SMEs. It is not possible to quantify the third-party costs, but even if they were relatively low costs, the system would not be expected to yield an aggregate net benefit. The distribution of costs and benefits are however skewed against SMEs. We estimate the range of regulatory burden to be between $5.8m and $17.4m per annum. The majority of this, around 95%, fall on SMEs and private inventors, suggesting that since its introduction, the innovation patent system has imposed a regulatory cost on SMEs and private inventors exceeding $100m.

Contrary to evidence in developing countries, the innovation patent system does not appear to have resulted in higher sales growth or more innovation as proxied by patenting in Australia. The innovation patent system does attract R&D spenders, but only in the manufacturing industries, while the standard patent system also attracts firms in the manufacturing industry and it is also is used by a broader range of industries.

We find evidence that innovation patents have some positive effects, but in the one area of impact, firm survival, standard patents are found to have a bigger positive effect, and there is no effect from certifying innovation patents. ACIP (2014: 38-39) noted that while large international companies may obtain private value from the system, it is unlikely that the innovation they are protecting would not have occurred if not for the innovation patent system - i.e. that the innovation patent system did not incentivise the innovation as such, and is therefore imposing a deadweight cost on third parties. The majority of innovation patents are not certified, and so the value of these patents are likely to exist in the uncertainty they create in the marketplace, a key factor in abolishing the system in the Netherlands and Belgium.

ACIP stance on Innovation Patents

The Advisory Council on Intellectual Property (ACIP) has responded to the IP Australia research paper (discussed in the following post) by coming out against innovation patents, a different stance to that in its Review of the Innovation Patent System report last year.

(ACIP's 2013 innovation patents discussion paper was noted here. The ACIP report - in an updated version is here.)

ACIP states -

One of ACIP’s chief considerations in its Review of the Innovation Patent System was how effective the system is in achieving its stated objective of stimulating innovation in Australian small to medium enterprises (SMEs). During the course of the review, ACIP was unable to discover any empirical evidence to enable an assessment of how effectively the system was meeting this objective. Consequently, ACIP did not make a recommendation supporting the retention or abolition of the innovation patent system, but made a number of recommendations aimed at improving its effectiveness.

ACIP presented its final report to the Government in May 2014. Since that time, substantially more information has become available. The Intellectual Property Government Open Data (IPGOD) was published in September 2014 and IP Australia’s Office of the Chief Economist has used this dataset to undertake a comprehensive analysis of the economic impact of the innovation patent system (IP Australia Economic Research Paper 05).

A key finding in this research paper is that Australian SMEs are less likely to use the patent system after filing an innovation patent than a company that has not previously filed an innovation patent. This suggests that innovative activity is not being stimulated among these groups by the innovation patent system.

According to the research paper:

The great majority of Australian SMEs and private inventors appear to gain little benefit from the system… Only 23 SMEs have become moderate users of the innovation patent system … The average SME or private inventor files once and never again (74%), does not receive any enforceable right (83%) and lets their patent expire early because they see its value at less than the $110-$220 cost of renewal (78%). (page 2)

Other evidence in the research paper indicates that the costs and benefits of the innovation patent system do not accrue evenly across the users of the system. While 94% of innovation patent applications are made by private inventors or SMEs and they incur 95% of the regulatory costs of the system, larger firms who are already well served by the standard patent system tend to reap a disproportionate share of the benefits. 

ACIP goes on to comment that

the private gains from innovation patents are likely to be offset by the uncertainty costs to consumers and producers. In view of the newly available evidence, ACIP considers that, taking into account the overall costs and benefits of the system, it is likely to result in a net cost to society.

ACIP has given these findings careful consideration. In light of the information made available by the IPGOD dataset and the analysis presented in this research paper, ACIP is now able to make an assessment of the innovation patent system’s effectiveness in stimulating innovation among SMEs. ACIP considers it likely that the innovation patent is not achieving this objective and the Government should therefore consider abolishing the system.

Elective Affinity

Elective race? Ethnicity? Other affinity?

With current controversy over identification of Rachel Dolezal I'm reminded of the explanation by Archie Leach (who reinvented himself as Cary Grant) -

I pretended to be somebody I wanted to be and I finally became that person. Or he became me. Or we met at some point.

There's a long history of people reidentifying themselves for idealistic, commercial or other reasons.

Archibald Belaney (1888-1938), exposed in Lovat Dickson's Wilderness Man: The Strange Story of Grey Owl (Macmillan, 1974) and Armand Ruffo's less persuasive Grey Owl: the mystery of Archie Belaney (Coteau, 1996), successfully posed as Ojiibwa sage Grey Owl and produced three bestsellers about life as a leading member of the First Nations.

Contemporary Buffalo Child Long Lance (1890-1932), star of the 1930 film The Silent Enemy and author of the 1928 autobiography Long Lance, claimed to be a crack aviator, a war hero (appointed to West Point and awarded the Croix de Guerre) and sparring partner of Jack Dempsey.

Sadly he was not a "full-blooded Blackfeet Indian" who had been raised in a tipee and hunted buffalo from horseback. His name was not Buffalo Child Long Lance; he was African-American rather than a member of the US or Canadian First Nations and his father was a janitor rather than a chief.

His career is discussed in Chief Buffalo Child Long Lance: The Glorious Impostor (Red Deer Press, 1999) by Donald Smith and Slippery Characters: Ethnic Impersonators and American Identities (University of North Carolina Press, 2000) by Laura Browder.

The Education of Little Tree, a supposed memoir by 'Native American' Forrest Carter was revealed to be by Asa Earl Carter, an Alabama Klansman and a George Wallace speechwriter for George Wallace and member of the Ku Klux Klan.

More recently high profile historian Ward Churchill has featured in claims - accurate or otherwise - that he was not an American Indian, with the American Indian Movement Grand Governing Council for example saying he

has fraudulently represented himself as an Indian, and a member of the American Indian Movement and has been masquerading as an Indian for years behind his dark glasses and beaded headband.

Belaney's peer Karl May (1842-1912) - who had earlier been imprisoned for impersonating German secret service agents and policemen - gained fame for 'wild west' genre novellas, presented as autobiographical although he didn't venture west to the English channel. Adoption of a false persona didn't inhibit sales, which were above 50 million copies after 1912.

He was rivalled by Lev Nussimbaum (1905-1942), aka Essad Bey, whose stranger than fiction life was explored by Tom Reiss in The Orientalist: Solving the Mystery of a Strange & Dangerous Life (Random House, 2005).

'Louis de Rougemont' (1847-1921), aka Louis Grin, gained fame for journalism about his travels - which apparently did not extend much beyond the Reading Room of the British Museum. He was exposed after enthusing over the marvellous "flight of the wombat", implausible given that wombats are burrowing creatures with the aerodynamic qualities of a bag of cement.

He was more successful than Jean Christoph de Lancourt de Brenil, supposed companion of Jack London, master of 25 languages, war hero, equestrian, aviator and long distance walker.

Rougement biographies include Ron Howard's The Fabulist: The Incredible Story of Louis de Rougemont ( Random House, 2006).

Memoirist Nasdijj, author of The Blood Runs Like a River Through My Dreams (Ballantine, 2003) and Geronimo's Bones: A Memoir of My Brother and Me (Ballantine, 2004), has been attacked over claims that he is a Navajo Indian and for inventing key elements of his autobiography. That is unsurprising if he is, as alleged, white erotica author Timothy Patrick Barrus.

The critically acclaimed Love and Consequences (Penguin, 2008), supposedly a memoir by Margaret Jones about "growing up in South-Central Los Angeles as a half-white, half-Native American foster child who ran drugs for gang-bangers", was revealed to be a fabrication by Margaret Seltzer.

Jones apparently didn't have a Native American parent, didn't run drugs for gang members and wasn't an underprivileged foster child. Instead she grew up in upmarket Sherman Oaks and graduated from an elite private Episcopal day school. Critics noted that she also appeared to have made up a foundation that she claimed was helping "to reduce gang violence and mentor urban teens".

As I've noted elsewhere in this blog, some people seem to have shifted their identities on the basis of commercial opportunities rather than ideology

Joseph 'Yellow Kid' Weil (1877-1975) successfully posed as a major investor from Chicago, borrowing executive offices in several banks. His victims were then invited to the bank to meet that institution's CEO, duly being impressed by the surroundings and handing over large amounts of cash. Weil's ghosted memoir Con Man: A Master Swindler's Own Story (Broadway, 2004) features an afterword by Saul Bellow.

Competitor 'Count' Victor Lustig (1890-1947), described in The Man Who Sold the Eiffel Tower (Doubleday, 1961) by Floyd Miller, forged French government stationery and invited six scrap metal dealers to a confidential meeting at the Hotel Crillon, where he introduced himself as the Deputy Director-General of the Ministry of Posts & Telegraphs and sought bids for the Eiffel Tower. One dealer provided several hundred thousand francs payment in advance, along with the customary bribe. Lustig was caught when he sought extra sweeteners.

The 'Eiffel Tower' exploit has attracted more attention than scams in the 1890s that saw fraudsters extract several hundred thousand dollars from US millionaires by selling Trajan's Column, the Arch of Constantine, the Colosseum. Tower of London and the Parthenon.

Swiss hotel pageboy Gottfried Kopp for example reinvented himself as Austrian aristocrat Godfrey von Kopp to 'sell' the Arch of Constantine to US restaurant magnate John R Thompson for US$0.5 million. The US millionaire paid a US$100,000 deposit before sailing back to New York. Unsurprisingly the Arch never arrived. Kopp went on to 'sell' Trajan's Column to Charles Yerkes for US$250,000.

Stanley Clifford Weyman (1890-1960) impersonated public officials, including the US Secretary of State, the US consul to Morocco, a military attaché from Serbia, a US Navy lieutenant, the US consul general for Romania and a company doctor in Peru, where he threw lavish parties until his credit ran out.

Contemporary Serge Stavisky (1886-1934), like Madame Therese, decided that it was simpler to start his own bank, claiming authorisation from the French government and a wealth that was in fact based on ponzi-style marketing of bonds. His career is examined in Stavisky: A Confidence Man in the Republic of Virtue (Cornell University Press, 2002) by Paul Jankowski.

Cassie Chadwick (1857-1907) pretended to be the illegitimate daughter of steel tycoon Andrew Carnegie, something that resulted in banks competing to lend her money - a total of US$10 million over eight years. Her scam was reinforced when she forged securities in Garnegie's name. She takes centre stage in John Crosbie's The Incredible Mrs Chadwick: The Most Notorious Woman of Her Age (McGraw-Hill, 1975).

Pennsylvania farmer George Byron (1824-1882) refashioned himself as Major George Gordon de Luna Byron and claimed to be the child of the poet and Countess de Luna, supposedly secretly married in 1809. Byron added 14 years to his age and went into business forging letters and other documents by his putative father, Shelley, Keats and other figures.

In 1849 the New York Evening Mirror sniffed that

We turned from him with the natural disgust we feel for humbugs in general, and literary humbugs in particular.

Byron's action for defamation was unsuccessful and he decamped to the UK before reappearing, unabashed, with a self-awarded commission in the US army. He is described in Theodore Ehrsam's Major Byron: The Incredible Career of a Literary Forger (Boesen, 1951) and James Soderholm's Fantasy, Forgery and the Byron Legend (University Press of Kentucky 1995).