An extensive and well-organized phone-card piracy scam that came to light this week in Germany has proven a multimillion dollar lesson in the perils of hiding sensitive data rather than encrypting it, a German computer security group said.
"What I think people can learn from this is how expensive 'security by obscurity' can be", said Andy Mueller-Maguhn, spokesman for the Chaos Computer Club.
Earlier this week, the German weekly newsmagazine Focus reported that scam artists from the Netherlands had flooded Germany with millions of illegally recharged telephone debit cards. The cards, designed for Deutsche Telekom payphones, use a simple EEPROM chip, developed by Siemens Corp., that deducts value from the card as minutes are used up.
Ordinarily, once the credit balance reaches zero, the cards are thrown away or given to collectors. But the Dutch pirates found a way to bypass the simple security and recharge the cards without leaving any physical evidence of tampering. The pirates bought up thousands of spent cards in bulk from collectors, recharged them, and resold them cheaply to tobacco shops and other retail outlets across Germany.
The magazine said that the German association of tobacconist wholesalers assesses the losses at DM60 million, or US$34 million dollars.
With revenues last year of close to US$38 billion, Deutsche Telekom AG is Europe's largest telco and the third largest carrier worldwide.
But according to Mueller-Maguhn and other card experts, the Dutch piracy operation is only the latest, albeit the most widespread, scam against Deutsche Telekom, which has encountered security problems with its cards since they were introduced in the 1980s.
A spokesperson for Deutsche Telekom handling the card piracy issue did not return Wired News phone calls. It is not known if the pirates are in custody or still at large.
According to Marcus Kuhn, a smart-card physical security expert at Cambridge University in the United Kingdom, the first generation of phone cards did not include any encryption, and were easily modified.
"Anyone who observed, with a logic analyzer, the data traffic between a card and a public phone could fully understand the protocol and implement it on a simple microcontroller plus very little auxiliary logic", said Kuhn.
Kuhn and Mueller-Maguhn said the flawed card was replaced in March 1995 with the current model, which contains another Siemens chip, the SLE4433 -- commonly known as the "Eurochip". Though the Eurochip does contain some simple cryptography, the pirates soon heard about a bug hidden in the hardware that could allow the stored value to be reset.
"[The Eurochip] has a bug in the chipmask, allowing [a cracker] to reload almost all the bits using an normally unused counter", said Mueller-Maguhn.
Kuhn said that he examined the flawed Eurochip under a microscope about six months ago, and saw what he described as "a typical lowest-cost cryptoalgorithm".
Siemens declined to speak with Wired News for this story, other than to release a brief statement.
"Siemens has devoted considerable resources to the development of leading-edge chip card technology, as well as to cutting chip development cycle time in an ongoing effort to identify possible security issues in next-generation technology", the statement said.
Mueller-Maguhn and other sources made it clear that the Dutch pirates were not technically adept crackers or hackers. Rather, he said, they were con men who likely bought the know-how, or hired the person who discovered the bug, and then bought spent phone cards from collectors to reload them in the Netherlands.
"Codebreaking is not an adequate description for this kind of attack, as it relies on simple electrical engineering errors in the chip layout and not on cryptoanalysis", said Kuhn.
"These people weren't hackers, they did it solely for the money", added Andreas Bogk, another member of the Chaos Computer Club.
In the meantime, there is little Deutsche Telekom can do to stop the scam, because cracked cards are indistinguishable from the real thing, and the costs of tracking the pirate cards are prohibitive. Siemens and Deutsche Telekom are reportedly working on a new version of the Eurochip, called Eurochip2.
But Mueller-Maguhn said that he isn't holding his breath that the companies will get it right on the third time.
"Deutsche Telekom doesn't seem to learn about this in the chip-card business", he said. "They used [security by obscurity] in the first technique, then changed to security by obscurity in the second technique and now [will likely] do it the third time", Mueller-Maguhn said.
"We'll have fun engineering the bugs in the Eurochip 2", he added.