Crimes Against Businesses Contribute to Job Losses

Organized retail crime costs retailers billions of dollars. In an era, where retailers are closing stores or going completely out of business, it's logical to assume that organized retail crime is a contributing factor to retailers shutting their doors and people losing their jobs. With the sour economy inspiring more and more theft and fraud, it is becoming more critical than ever before for companies to control their losses in their struggle to remain viable.

When retailers lose money to theft, the end result can be (assuming they don't go bankrupt) that jobs are cut. Payroll is normally the largest and most controllable expense in any business. When businesses start to show negative earnings — like a lot of them are right now — payroll is normally the first place they look to cut when trying to avoid shutting their doors.

In an effort to fight what experts say is a $30 billion a year organized retail crime issue, the National Retail Federation is welcoming legislation being introduced to give them more tools to fight this problem. Yesterday, three bills were introduced in Congress to assist retailers and law enforcement in this effort.

The three bills introduced are "the Combating Organized Retail Crime Act of 2009, sponsored by Senate Majority Whip Richard J. Durbin, D-Ill.; the Organized Retail Crime Act of 2009, sponsored by Representative Brad Ellsworth, D-Ind.; and the E-Fencing Enforcement Act of 2009, sponsored by House Judiciary Committee Crime, Terrorism and Homeland Security Subcommittee Chairman Bobby Scott, D-Va. The measures are similar to legislation first introduced last summer" according to the press release and podcast on this matter by the National Retail Federation.

In case you are unfamiliar with "Organized Retail Crime," it involves organized retail theft activity for profit. Once the merchandise is stolen, it is fenced (sold) to get a cash value out of it. Traditionally, this merchandise was sold at flea markets/dishonest retailers, but more and more often nowadays, retail crime rings are turning to auction sites to unload their stolen goods.

The reason for this is if they sell it on an auction site, they make a lot more money than in the more traditional fencing venues. Experts believe they net 70 percent of the retail value by selling their stolen wares on an auction site versus the 30 percent of retail value they receive in more traditional fencing venues.

Another possible factor contributing the problem is that consumers — who are operating with ever-decreasing personal budgets — are flocking to these sites to stretch their buying dollars. Without knowing it, they might be adding fuel to the fire and unknowingly buying this stolen merchandise.

Even if the retailer can prove that merchandise on an auction site is stolen, it can be extremely difficult for them to get the site to cooperate in going after the criminals selling it. Due to a lot of red-tape imposed by these sites to release information, it requires a lot of time/effort to get the site to cooperate in an investigation. Because of this, the crooks are normally long gone before any effective investigative action is taken.

Another phenomenon called phishing makes the activity even more anonymous/hard to track on auction sites. Phishing is where a person (user) is tricked into giving up their credentials to an account. For years, eBay and PayPal have ranked as some of the most phished brands out there. Criminals use this information to take over an account and commit fraud using someone else's selling account. When investigating auction fraud, time is of the essence, otherwise the trail is often too cold to track. The crooks use one of these accounts for a short period of time and then move on to another phished account to avoid detection.

Organized retail crime is also taking advantage of the identity theft/financial crimes phenomenon and working with the hacking element that has been attacking the financial industry. Counterfeit payment cards (credit/debit), checks and identification are all being used to electronically boost merchandise and walk right out the store with it. In the TJX data breach — which was the largest hack of financial data to date — a group was caught using cloned payment cards to buy $8 million worth gift cards from Walmart. In the more recent data breach at Heartland Payment Systems — which looks like it might surpass TJX in the amount of data stolen — the only arrests made thus far were a group using the stolen data to clone gift cards. Since gift cards are redeemed at retailers, this is yet another example of how the financial hackers and organized retail crime types are working together. To me, this is evidence that organized retail crime is becoming more sophisticated in their theft techniques, which will likely make this problem get even worse than it already is.

The three bills being introduced will force auction sites to cooperate with retailers and law enforcement, define organized criminal activity as a federal offense and establish stricter sentencing guidelines for criminals convicted of organized retail crime. Too frequently, under current laws, criminals involved in this activity are treated like petty thieves and get a slap on this wrist when they are caught. Last, but not least, it will hold auction sites more accountable for the sale of stolen merchandise if it could have been prevented.

Besides fencing, there is a lot of other fraud on auction sites that isn't necessarily tied in to fencing and victimizes auction customers/sellers, more personally. Legitimate e-commerce sellers are frequently ripped off with bogus financial instruments. Buyers are also defrauded in a wide variety of scams on these sites. Like the major retail types, who are behind this legislation, the more ordinary victims are often hung out to dry when they try to get any assistance from the auction sites. There is little doubt (my opinion) that auction sites need to clean up all the fraud that occurs on them. While they do provide value and a fun way to buy things, there have been too many innocent people victimized on them.

While this legislation primarily focuses on fencing, it's a start in the right direction. Perhaps other groups should join in and support this legislation, which if passed, will likely set some needed legal precedents. It will also make it a little harder for the criminally inclined to operate on auction sites.

Supporting this legislation makes a lot of sense for a lot of different reasons. These are not victimless crimes and the consequences are being felt by innocent consumers and businesses.

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NRF Survey shows Organized Retail Crime activity is growing!

According to FBI estimates, Organized Retail Crime (ORC) is a $30 billion a year business. The National Retail Federation's 2008 Organized Crime Survey shows another alarming trend, which is that the amount of e-fencing to sell stolen merchandise on auction sites like eBay and Craigslist has grown 6 percent.

Also mentioned in the survey are shady e-commerce sites being put up on the Internet to fence the proceeeds of ORC.

In case you've never heard the term, Organized Retail Crime, here is a good description of the activity:

Organized retail crime (ORC) refers to groups, gangs and sometimes individuals who are engaged in illegally obtaining retail merchandise through both theft and fraud in substantial quantities as part of a commercial enterprise. These crime rings generally consist of “boosters” who methodically steal merchandise from retail stores and fence operators who convert the product to cash or drugs, as part of the criminal enterprise. Some of the more sophisticated criminals engage in changing the UPC bar codes on merchandise so they ring up differently at checkout, this is commonly called “ticket switching.” Others use stolen or cloned credit cards to obtain merchandise or produce fictitious receipts to return products back to retail outlets.

The report acknowledges that these groups are using cloned credit cards to steal merchandise and or get the necessary receipts to refund the merchandise for cash.

In the wake of the TJX data breach, where up to 94 million personal and financial records were hacked, a group was caught in Florida using data from the breach (cloned cards) to buy a reported $8 million worth of gift cards.

Please note that TJX is hardly the only retailer, or financial services institution that has had personal and financial records hacked from their systems in recent history. Attrition.org does a good job of recording the known breaches on their Data Loss Database - Open Source .

Although not addressed in the current report, I suspect the use of fraudulent checks are used to obtain merchandise and receipts, also.

This could be fueled by another organized crime activity. Portable technology has made the counterfeiting of identification documents another growing trend. Over the past two years or so, I've had the pleasure of being able to speak with Suad Leija and her husband about this organized criminal activity on a semi-regular basis. Suad, the step-daughter of one of the top players in this game was recruited in an intelligence operation and eventually exposed a cartel operating throughout North America to the government. Prosecution of members of the cartel is ongoing in this case and Suad is currently working on a book.

These documents, which are available throughout the United States, can be easily used to support both check and refund fraud by using names that get past the data bases designed to protect retailers from these types of fraudulent activity.

Portable technology is also being used to clone payment cards and some of it is easily found on auction, or shady e-commerce sites set up to sell these devices. As of this writing, I was easily able to find credit card encoders for sale on eBay. A site called HackersHomePage.com provides an array of devices that could be used to steal and produce payment (credit/debit) cards. They also provide tools to make counterfeit checks and even, paper for fake prescriptions. They do have a "disclaimer" stating that none of their products are to be used for illegal purposes, but it is pretty obvious someone could.

There is no doubt that there is a lot of technology that is enabling a lot of criminal activity out there!

NRF's Vice President of Loss Prevention, Joe LaRocca, made what I consider a sage comment on this activity:

“Law enforcement and retailers alike are fed up with organized retail crime rings and are stepping up efforts to stop them in their tracks,” said NRF Vice President of Loss Prevention Joseph LaRocca. “The brazen and unethical behavior of organized retail crime suspects results in possible health risks for consumers, adds unnecessary fees to consumers’ purchases and funds criminal enterprises, including the mob and terrorist organizations around the world.”

When I stated that this activity hurts all of us, the reason is that retailers have to make up the $30 billion they are losing to this activity somewhere. This normally equates to higher prices, or in extreme circumstances (especially in tight economic times) cutting payroll. Simply stated, people might be losing their jobs because of this activity.

So far as health risks, the report sums up the obvious risks rather well:

For example, criminals may not keep stolen merchandise in a temperature-controlled environment, so merchandise like baby formula and over-the-counter medicines can easily spoil. When criminals sell these items online through third party auction sites consumers are left with no way to guarantee they are getting safe and reliable healthy and beauty products.

I decided to see if I could find baby formula on eBay. As you can see - there seems to be a lot of it for sale on the site at discounted prices. At the time I checked 26 pages of it were for sale on the site.

Actual cases in the report that support how organized this activity has become are a $60-$100 million dollar case in Florida involving health, beauty, cosmetic products and over-the-counter medicines. Another case mentioned involved a high ranking member Gambino Crime Family and a sophisticated ticket/UPC switching case and extortion. In this case, a planted employee was making up the labels and providing temporary credit cards to move the merchandise through point-of-sale systems.

Recent initiatives to combat Organized Retail Crime include launching LerpNET, which is a crime database available to both retailers and law enforcement. Also highlighted was legislation against ORC throughout the country to "reduce the rewards and increase the risk" to the groups involved in it. Several States have already passed this legislation and more are considering it.

Full 2008 ORC Survey, here.

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Retailers Honor Sleuths Who Smashed $100 Million Organized Retail Crime Ring

The National Retail Federation is recognizing a couple of individuals, both from law enforcement and within their own ranks, for their contributions in smashing a $100 million organized retail crime ring. These crime fighters are being honored at the NRF Loss Prevention Conference & EXPO in Orlando, Florida.

The two being honored are Detective Ostojic, of the Polk Country Sheriff's Department, and Ron Averette from the loss prevention department at Publix Supermarkets. In June 2007, the two began comparing notes on a group that was stealing large amounts of merchandise. Subsequently, Detective Ostojic was able to tie in cases at other retailers and Averette (along with Ostojic) presented the pattern of activity to the Florida Department of Law Enforcement and Florida State Attorney's Office. This led to a task force being formed under the leadership of Special Agent Telly Sands from the Florida Department of Law Enforcement.The result of the task force's efforts were that 18 people were identified as being involved in the ring and subsequently arrested.

The FBI estimates that organized retail crime costs retailers an estimated $30 billion dollars a year. To date, this is the largest documented case where organized retail crime was identified as being the cause.

These rings use flea markets, Internet auction sites like eBay and Craigslist, rogue e-commerce sites, and even seedy merchants to sell their goods. Some retail loss prevention departments have dedicated personnel to investigate stolen merchandise on auction sites.

In this case, a lot of the stolen merchandise were health and beauty aids. Some of these products have expiration dates, which might lead to health and safety concerns for the end user.

Mark Albright wrote an article about this case in the Saint Petersburg Times, where he mentioned specific brands the group deemed desirable for resale. By doing a search on eBay, I found a wide selection of Gillette razor blades, Prilosec, Crest WhiteStrips, and Oil of Olay available on the site. Please note that I have no way of telling if these items were the result of organized retail crime or obtained legitimately. I do know that large companies generally frown on having their products sold on auction sites and I saw some extremely good prices listed for these products.

According to the article in the Saint Petersburg Times some of the shoplifters (boosters) involved have rap sheets (criminal records) ranging from sex crimes to armed robbery and attempted murder.

A recent survey indicated that retailers are seeing an increase in organized retail crime activity. The cost of this type of crime is eventually added into the cost of the product being stolen, which means we all end up paying for it.

This activity has been known to run smaller businesses bankrupt. Even at larger retail organizations, out of control losses often dictate that operating budgets need to be trimmed. Since payroll is often the largest operating cost in an organization, this leads to reductions in hours and positions to keep a company afloat. Simply stated, activity like this can cost people their jobs.

Legislation has been passed in many states and more is forthcoming to make organized retail crime penalties stiffer.

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Organized retail criminals sell their ill-gotten proceeds in many places

Organized retail crime is becoming a "buzz word" within the retail security industry. Because of this fact, many large retailers employ dedicated specialists to deal with the issue.

Some estimates (RILA) reflect that this could be a $34 billion a year problem.

I've seen a lot of recent stories about merchandise being fenced on auction sites. Although, this is a big problem, stolen goods are fenced in other places, also.

WKYC news (Ohio) is reporting that 19 homes and business were recently raided, illustrating how organized some of this activity can be.

Very interesting video, here.

The Washington Post, did an interesting article about organized retail crime in 2005, here.

It noted that federal law enforcement is getting involved in the prosecution of these cases, because of their impact, and (probably) the fact that they cross state lines, frequently.

RILA (The Retail Industry Leaders Association) proposed changes to Congress to deal with the problem, here.

Of note, they quote the FBI as saying that organized retail crime is funding terrorist organizations.

Another problem (the FBI calls out) is when outdated medicine and items, such as baby formula are repackaged and sold as new.

This could pose significant health risks to those, who purchase these stolen items.

Besides the fact that we all pay for this with our hard earned money (higher prices), our safety is being compromised by these criminals, also.

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Retailers and the FBI band together to fight organized crime

Communication is probably the most effective tool in fighting financial crimes, especially those of the organized sort. Financial crooks (scam artists) thrive on a lack of communication and knowledge.

The retail industry realizes this and in partnership with the FBI is launching a secure tool that businesses and law enforcement can use to communicate criminal activity with each other. A simple, but powerful principle.

Here is the information on this new tool from the NRF site:

In response to an alarming rise in organized retail crime, the National Retail Federation and the Retail Industry Leaders Association, in collaboration with the Federal Bureau of Investigation, have teamed up to launch the Law Enforcement Retail Partnership Network (LERPnet), a secure national database that will allow retailers to share information through its unique web-based design. With LERPnet, retailers and law enforcement will be able to fight back against illegal activity including organized retail crime, burglaries, robberies, counterfeiting, and online auction fraud. The database will launch on April 9, 2007.

Full NRF press release, here.

More information on this tool can be seen by linking, here.

The Washington Post also did a good story covering this.

A lot of other industries and law enforcement agencies should follow this example. Developing better tools to communicate could help resolve the current epidemic, currently being seen in all types of financial crimes.

There is some evidence that the bad guys communicate with each other, regularly (carder forums). The good guys should do no less!

To close, Joe LaRocca, NRF vice president of loss prevention is saying:

“With this system, retailers are banding together with law enforcement to send a clear message to criminals: We will not tolerate your behavior and we will stop you.”

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Bills Introduced to Combat Organized Crime on Auction Sites

While stories of individual people getting scammed on auction sites are legendary, individuals aren't only ones victimized on these sites. Large retailers and brand owners are victimized when their stolen or counterfeit merchandise is sold on these sites, also.

In response to this, two bills are being introduced to combat this problem in the halls of Congress.

The reason this has become a growing issue is that criminals can net 70 percent of the value of stolen merchandise on an auction site versus the going 30 percent received on street corners, flea markets and pawn shops. So far as all the knock-off (counterfeit) goods being sold on auction sites, it's hard to put a dollar loss to it, but many believe it's substantial.

According to the International Anticounterfeting Coalition, counterfeiting costs U.S. businesses $200 to $250 billion a year. Counterfeiting and e-fencing pose safety risks to the public-at-large, also. Outdated or merchandise that isn't what it is advertised to be could potentially poison people, or cause bodily harm when it doesn't work like it's supposed to.

Simply stated auction sites, provide an anonymous marketing environment to sell both stolen and counterfeit goods.

“By hiding behind the anonymity of the Internet, they can make more money with less risk of getting caught than selling to a stranger on a street corner who might turn out to be a police officer. This bill would lift that cloak and help law enforcement put on-line criminals where they belong – behind bars,” according to Joe LaRocca, the National Retail Federations Vice President of Loss Prevention.

To address this problem, a federal bill (H.R. 6713, the E-Fencing Enforcement Act of 2008) is being introduced by Representative Bobby Scott, chairman of the House Judiciary Committee’s Subcommittee on Crime, Terrorism and Homeland Security.

The bill will require on-line auction operators to maintain information about high-volume sellers and provide the information to a person with "standing" once a police report is filed. The definition of a person of standing would be a law enforcement officer or a representative from a company, who has an interest in the merchandise being illegally sold on an auction site.

This is the second bill introduced recently to combat organized retail crime, which costs retailers anywhere from $15 to 30 billion a year. On July 15th, H.R. 6491, the Organized Retail Crime Act of 2008, was introduced by Representative Brad Ellsworth, a former county sheriff, along Representative Jim Jordan, as the lead co-sponsor. The bill establishes that unless auction site owners can show specific steps to prove goods being sold were not being obtained by theft or fraud, they could be viewed as "facilitating" the activity. This bill will also require site operators to cooperate with the police and organizations with a stake in stopping the activity. In certain instances, it will also allow merchants to initiate civil actions over stolen merchandise being sold on an auction site.

In the past, auction operators have been criticized for not effectively cooperating with companies and law enforcement when they made an inquiry into suspected criminal activity on their sites. It has also been established that smaller (individual) victims and merchants often receive little to no assistance after being victimized in an Internet auction deal.

E-fencing, phishing, counterfeit goods and the use of fraudulent financial instruments to buy merchandise from unsuspecting customers have all victimized countless people and organizations on auction sites.

Criminals often lure people to do their dirty work, also. Recruits are normally harvested off the Internet, sometimes from job sites, and offered work to reship stolen merchandise and or launder money from fraudulent transactions. Much of this activity involves sending money, or hot merchandise across an International border --making it extremely difficult to track.

A lot of criminal activity is facilitated on auction sites by what is known as phishing. Phishing is where an account owner is tricked into giving up their account details, either via social engineering, or more and more often, after downloading some malicious sofware. The stolen account details are then used to take-over the account and use it for illicit purposes.

In fact, eBay and PayPal accounts are frequently the most phished brands out there.

Phishing, normally facilitated by spam e-mails, is another ever-growing criminal activity on the Internet. Recent studies by the Anti Phishing Working Group show that it is becoming more automated and malicious software (crimeware) used to automatically steal information is becoming more prevalent.

There is little doubt that a lot of the criminal activity on auction sites is sophisticated and reeks of organized crime.

For anyone investigating fraud on an auction site, the only way to effectively do so, is to have access to information quickly and with as little red tape as possible. A lot of these crimes cross over borders quickly and by the time and investigator gets what they need, the trail is often pretty cold.

When auction site owners -- who suffer no financial liability and collect a lot of revenue in fees from this activity -- don't cooperate or move too slowly, it only ensures that criminals will be laughing all the way to the bank.

Even the government has had their stolen inventory sold on eBay and Craigslist. In April, the GAO issued a report that military items, including F-14 components, were being sold on auction sites. In August of last year, a U.S. Attorney was quoted as saying that stamps being stolen from self service vending machines with cloned payment cards were being sold on auction sites. At the time, I ran a simple search query and found some pretty good deals on stamps. As of today, these great deals still exist. Many of them are being sold below cost and the last I checked the Postal Service still offers credit. Why would someone sell stamps below cost?

In my opinion, both of the bills don't only serve the large merchants out there, but have the potential to protect everybody from fraud on auction sites. While both of these bills are being driven by the National Retail Federation, I see a lot of benefits to passing them for everyone concerned with fraud on auction sites.

I highly recommend that these other people, join in with the NRF and the Congressmen involved, and support getting these bills passed.

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SIRAS – Smart technology that protects profit and privacy

Organized retail crime, according to RILA (Retail Industry Leaders Association), is a $34 billion a year problem. A study at the University of Florida conducted by Dr. Richard Hollinger suggests that 9 percent of all refund activity or $16 billion is fraudulent.

At most merchants today, refunds are tracked with personal information. While this was effective 10 years ago, the information in the current databases might not be as accurate as it once was.

Personal and financial information is stolen and sold in a lot of places, most notably over the Internet. A perfect example is the recent compromise of consumer data at TJX stores. This information is turned into fraudulent identification and financial instruments and sold to criminals.

It is likely that criminals can assume multiple identities, using other people’s information to refund merchandise. In fact, payment (credit/debit) card and bad check fraudsters already demonstrate this ability on a daily basis.

With the negative publicity surrounding data breaches and identity theft, honest customers are nervous when asked to surrender their personal details. Recently, privacy groups and Senator Chuck Schumer have been openly critical of current systems, which gather personal information.

A company named SIRAS provides a means to protect an organization’s bottom line and their customer information, also. The way they do it is so simple, it’s brilliant. Instead of tracking personal information, SIRAS tracks the merchandise, itself.

The SIRAS system captures the UPC and serial number of a product at the point-of-sale and creates an electronic receipt. This enables a merchant to determine exactly when and where it was sold AND how it was paid for.

SIRAS can tell when the merchandise was never purchased (stolen), or if it was purchased at another retailer. It also can identify counterfeit merchandise, price switching and altered/counterfeit receipts. Because it ties into a sales transaction, the system could also identify fraudulent forms of payment used to purchase the merchandise, or if the item has been a chargeback issue.

SIRAS makes it pretty hard do a fraudulent refund. Getting series of numbers to match can be extremely difficult, if not almost, impossible.

The data is compiled into customized reporting tools, which can be leveraged to determine risk factors when merchandising products. These tools also have extremely useful applications from an intelligence (analysis) and investigation perspective.

Besides organized retail crime, the largest losses suffered by merchants are caused by internal theft. Fraudulent refunds, “sweetheart returns,” enable dishonest employees to steal cash, or issue credit to payment cards. Like their external counterpart, internal criminals now have to use personal information to prompt a point-of-sale system to issue a refund. Again, this information (which might not be accurate) corrupts a lot of the current databases.

Dishonest employees are going to have a hard time being able to match UPC/serial number to a legitimate sale. This will prevent employees from attempting to commit refund fraud, and should they decide to do so, the custom reporting tools (when used properly) would identify the culprits, with ease.

SIRAS can track and identify retail theft a long way past the refund counter. With its unique ability to track merchandise to a sale, SIRAS can be used to identify merchandise sold in fencing operations (and more likely) via Internet auctions.

In fact, SIRAS has been used to help prove criminal cases, or to obtain search warrants by law enforcement.

The system can also be used to identify counterfeit goods, wherever they might be appear for sale.

Other benefits include being able to better manager warranty programs and in the case of call centers (crucial in e-commerce), it provides their employees with direct access to the original purchase information.

An effective merchandising application, I noted was the ability (via analysis) to identify products that have a high rate of being defect rate, or that aren’t as easy to use, as advertised.

SIRAS has applications that go far beyond fraud at the refund counter.

The system is easily incorporated with patented technology into current point of sale systems and employee training is minimal. Being that it replaces many labor intensive tasks, payroll can be better spent in other areas.

SIRAS applications are beneficial not only to manufacturers and traditional retailers, but the system is equally effective in e-commerce applications.

This technology is already being used by several major retailers and manufacturers. You can view a list of them on their website (listed below).

With privacy becoming a bigger issue all the time, SIRAS provides a smart way to protect assets and not expose customer information. SIRAS makes it harder to commit fraud in a retail environment, while making it easier (customer friendly) to return an item without a paper receipt.

More information about SIRAS and who uses their services can be viewed at:

http://www.siras.com/

CNET's story about the TJX data breach can be viewed, here.

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eBay/Craigslist praised by Congressman for efforts to curb sales of stolen military equipment on their sites (?)

I've written a few things about scams and fencing stolen merchandise on auction sites. Recently, the GAO discovered that items stolen from the military are for sale on eBay and Craigslist.

Even more interesting were the results of narrowly focused hearings (my opinion) on this matter in Washington, which can be seen at the bottom of this post. The reason I believe they were "narrowly focused" is because there is no shortage of fraud, phishing and financial misdeeds on auction sites.

Of course, there is also no shortage of ordinary citizens and businesses that have been taken to the cleaners on an auction site. Stolen government items are only a small part of the overall problem.

From the GAO report:

GAO found numerous defense-related items for sale to the highest bidder on eBay and Craigslist. A review of policies and procedures for these Web sites determined that there are few safeguards to prevent the sale of sensitive and stolen defense-related items using the sites. During the period of investigation, GAO undercover investigators purchased a dozen sensitive items on eBay and Craigslist to demonstrate how easy it was to obtain them. Many of these items were stolen from the U.S. military. According to the Department of Defense (DOD), it considers the sensitive items GAO purchased to be on the U.S. Munitions List, meaning that there are restrictions on their overseas sales. However, if investigators had been members of the general public, there is a risk that they could have illegally resold these items to an international broker or transferred them overseas.

Apparently, body armor, MRE (meals ready to eat), uniforms, night vision goggles, NBC (Nuclear Biological Chemical) equipment and even F-14 components were some of the items purchased on eBay and Craiglist by undercover investigators.

The obvious concern would be terrorists, or other not very friendly people getting their hands on some of this stuff.

Given the organized effort on a lot of auction sites to fence stolen merchandise via some pretty sophisticated methods, it's not surprising that the GAO found military equipment for sale on the sites. Many have speculated that these sites are used as a means of fencing the proceeds of what is known as organized retail crime. Of course, less organized criminals obviously sell their goods on auction sites, also.

Organized retail crime obtains their goods by a variety of methods from common theft to using stolen financial instruments. A lot of stolen financial instruments are used to purchase items on auction sites and e-commerce sites. Of course, they are used in more traditional store settings for the same purpose, also.

On eBay, account credentials and payment accounts (PayPal) are phished all the time, enabling an additional layer of anonymity to the schemes. In fact, over the years, many experts have stated that eBay and PayPal are the two most phished brands out there.

One thing not mentioned in the report is that people don't always get what was advertised on these sites. It isn't inconceivable that a complete fighter jet might be put up for sale, paid for and in the end a toy, or "nothing at all" is received by the buyer.

Trust me, this wouldn't be the first time something like this has happened on an auction site.

A lot of counterfeit (knock-off) merchandise is sold on the sites, advertised as the "real thing," also.

Our leaders in Congress reacted by calling Jim Buckmaster (Craigslist) and Tod Cohen (eBay) in to speak with them on the matter.

Anne Broache (CNet) writes:

By calling Craigslist CEO Jim Buckmaster and eBay government relations chief Tod Cohen to Washington for the hearing, the subcommittee seemed to be preparing to place those executives in the hot seat. But the tone of that questioning was actually quite cordial. At the end of the panel, Tierney even praised the companies for "trying very hard" to keep sensitive military goods off their sites and acknowledged the rules of the road aren't the most clear.

Based on her article, which reports that Buckmaster and Cohen were treated with "kid gloves" during the session, my prediction is that little is going to be done to regulate the sale of stolen goods on auction sites as a result of this.

Meanwhile, everyone running for office is saying they will be the one doing something about the problem of special interests in Washington.

On a closing note, I want to commend the GAO for their efforts to expose a problem. I'm just saying it's a shame that no one listened to what they were saying, very carefully.

HTML version of the GAO report, here.

PDF version, here.

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Is tracking fraudulent refund information effective and could it be putting people at risk of becoming an identity theft victim?

The retail industry loses billions of dollars a year to fraudulent refunds.

Fraudulent refunds occur when retail crooks (shoplifters, bad check writers and credit card fraudsters) bring in stolen merchandise to convert into cash. To protect themselves, merchants have developed refund policies, which require that personal information be maintained in a database to identify retail crooks.

I believe the merchants, who came up with this idea, did so with honorable intentions. But is it possible that these systems are easily defeated and themselves might be attacked (hacked) for information they are storing?

The retail security industry has a new buzz word (organized retail crime). If these crooks are organized, my guess is that they are already using fake identification and other people's identities to return merchandise.

Refund data-bases might be full of information from some of the other data-breaches. Other people's information is used to commit a lot of credit/debit card and check fraud. In the case of fraudulent transactions at retailers - the criminals often refund the merchandise they purchase (with bogus financial instruments) to get what they really want, or cash.

And it wouldn't be very hard for them to get bogus information - personal and financial information is for sale in carder forums and fake identification is getting better and easier to obtain all the time.

Another thing to consider is that besides organized retail criminals, another huge loss factor for retailers happens when insiders (dishonest employees) steal from them. Like the external element, a lot of dishonest employees seek to steal cash, and one of the easiest means to do so is to do fraudulent refunds, themselves.

Given the new refund systems, they will have to come up with an identity to accomplish this. The easiest way to do this is to use a customer already in one of their data-bases, or even make up a name.

TJX (a merchant operating under many different names) recently enabled what a lot of experts believe will be the largest data breach to date. One of the databases compromised was their information on all the people, who had refunded merchandise at their stores.

Unfortunately for TJX and the retail industry - it now appears they were storing financial information that they shouldn't have been.

According to reports, TJX was storing payment card (credit/debit card) information they weren't supposed to be in violation of already established PCI data-protection standards. These standards are established by the payment card industry, themselves.

It seems odd to me that in light of all the data breaches, the industry is being allowed to police themselves. I wonder if an unbiased third-party (with no financial incentive) should be taking a look at the problem?

And even if the merchants bring their data protection standards up-to-par for payment cards - will the data being mined in the refund systems receive similar protection?

Guard My Credit File.org recently published a story about Federated requiring SSNs for refunds (courtesy of a blog post and later conversation with George at Fat Pitch Financials).

Apparently George's wife bought some merchandise off one of their websites with a gift card. She decided to return the jeans (for credit back to her gift-card) and when she went into a Federated store (Macys), she was asked for her driver's license and SSN to complete the transaction.

Please note, she had her gift-card and the receipt for her purchase. George eventually complained loudly enough that a manager relented and allowed the return without a SSN.

My guess is that criminals are furnishing fake SSNs (which are hard to verify) and only the honest customers are providing real ones.

Story, here.

As I stated earlier, tracking refund data was probably a good idea when it was first conceived, but I wonder how effective it is today? The data itself could be posing risks to anyone honest enough to give their real information, and criminals are likely using other people's information.

Sadly enough, recent data- breaches indicate that this (personal information) probably isn't very well protected. It's also sad that after spending millions of dollars to protect themselves with refund databases, the retailers have a product that might not be very effective and could become a customer trust issue.

There needs to be a better way to protect merchants and their customers from theft. Customers and retailers are both being victimized by what seems to be a growing problem.

Here is another post, I wrote on this same issue:

Are Retail Refunds Violating Customer Privacy

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SIRAS offers guarantee that it will reduce retail crime

The reason SIRAS' product registration and smart return service perked my interest is because it protects people's privacy and is an effective means of reducing losses.

SIRAS tracks an inanimate object (merchandise) instead of a customer's personal information.

Now they are now offering a "guarantee" the technology will add dollars to a organization's bottom line by reducing fraudulent returns.

In their own words from the press release regarding this matter:

Electronic Product Registration, is putting its money where its mouth is with a unique Return On Investment (ROI) Guarantee for any company using SIRAS’s product registration and Smart Return service to manage their product returns and warrantees. The program, designed to eliminate any risk for companies interested in implementing SIRAS’s technology, guarantees that over the course of a year companies will save more money through deflected product returns than it spends in transaction fees.

In case you haven't had to refund any merchandise in a long time, most retailers require you to give them your personal statistics before they approve your return.

This information is all maintained in a database, where it might be exposed to a hacker, or probably more frequently, dishonest employee. Information is worth a lot of money to anyone, who knows where to sell it.

A dishonest Certegy employee recently got caught selling 8.5 million people's information to an undisclosed data-broker. Since the mysterious data-broker still hasn't been identified -- despite being listed as a co-conspirator in court filings -- we really aren't sure where these records went?

Certegy provides check verification services for a lot of merchants.

Personal and financial information is marketed in carder forums (chat rooms) on the Internet. Anonymous payment methods, such as wire transfers, PayPal and eGold add to the problem. They make it relatively easy to buy and sell stolen information.

It also isn't unknown for criminal organizations to plant, or recruit employees to steal information from within an organization.

The press release quotes Peter Junger (SIRAS CEO) as saying, "And in all cases, regardless of ROI, clients retain all of the valuable POS data collected."

This POS data also serves another important purpose. If the merchandise is found in a fencing operation, or on an auction site, it can still be tracked to the point-of-compromise.

This opens up opportunities to recover stolen merchandise and makes it more dangerous for the criminals fencing it.

Mesa Police Department tested these capabilities with SIRAS and FOX News did a story on it, which can be seen, here.

The technology, when deployed properly with a point-of-sale system can also identity fraudulent means of tender used to purchase merchandise.

SIRAS technology can be deployed by a merchant, or at the factory, itself.

They already makes their database available to law enforcement free-of-charge.

With all the identity theft and counterfeit ID available, using SIRAS reduces the possibility that an innocent customer will be wrongfully identified as an "undesirable" in a refund database.

Saying that, who knows how much of the information in these databases is one-hundred percent accurate anymore? With retail crime becoming more and more organized, the possibility exists that it is NOT.

One of the systems targeted in the TJX data-breach was their refund database. The information in this database is probably worth more than simple financial information because it contains the elements necessary to assume a person's identity.

It's relatively easy to shut down a bank account, or credit card number. Once a person's statistics are compromised, they can be at risk of identity theft for a long time.

Data breaches are becoming more expensive. TJX claimed a loss of $118 million in their second quarter earnings. Estimates vary widely on exactly how expensive data-breaches will become, but everyone agrees the cost of them is going up.

SIRAS seems more effective in resolving property crimes because it tracks the property, itself. It also protects customer privacy and protects a merchant from becoming the victim of a data-breach.

I doubt that SIRAS would make this guarantee if they weren't absolutely certain of the results. If they were wrong, I doubt they would be in business very long.

Press release from SIRAS, here.

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How to Legally Buy Hot Merchandise

(Courtesy of PropertyRoom.com)

Auction sites like eBay and Craigslist are frequently criticized for the amount of stolen and counterfeit items being sold on their sites. Even worse, stories about their customers being scammed have become Internet folklore.

Now there is a site that openly advertises that it is selling stolen merchandise. Even better, when you buy hot merchandise off this site, you need not worry about the authorities showing up at your door in the wee hours of the morning with a search warrant. The reason for this is that the site is stocked by over 1500 Police Departments and is run by former law enforcement types.

The site, PropertyRoom.com is an e-version of the more traditional auctions held by Police departments to get rid of unclaimed stolen property. "With distribution and service centers nationwide, PropertyRoom.com specializes in the auction of stolen, seized, found and surplus goods and vehicles. Serving over 1,100 law enforcement agencies nationwide, we offer a fraud-free marketplace with superior customer support." according to the "about us" page on the site.

I decided to surf the site and it contains a wide array of goodies at cheaper prices than what I've seen being fenced (speculative) on other Internet auction sites. For instance, desktop computers being auctioned were being bid at well under $100, laptops were showing bids of $100 to $400 and iPods were being bid anywhere from about $16 to $150. Of course computers aren't the only items available on the site, which hawks all kinds of electronics, watches, jewelry, tools, cameras, cars and a host of other high theft items.

It is well known that criminals like to steal high value items that are easy to transport. They also tend to go after items that are popular and easy to sell (fence). If you are looking for popular items, this site is a good place to buy them at an almost too good to be true price, legally.

PropertyRoom.com also is in the fund raising business and will help charitable organizations raise money. All the costs of putting on the event are covered by PropertyRoom.com. I should also mention that some of the proceeds of the sales on the site help fund law enforcement agencies, who like the rest of us, are dealing with ever-dwindling financial resources.

They also maintain the only nationwide registry available to the general public for recovering lost or stolen goods. This service is completely free. You can register items that were stolen already, or your high value items that might be stolen at a later date. If they receive an item that matches what you have registered — your property will be returned to you. Try doing this at any of the other auction sites!

The Internet has opened new avenues for criminals to fence stolen merchandise. This has made it easier to sell stolen merchandise and there are many who believe that it contributes to the problem. The most recent survey by the National Retail Federation estimates that Organized

Retail Crime is a $30 billion a year issue. Their most most recent Organized Crime Survey showed that e-fencing on traditional auction sites has grown by six percent. In response to this, they are even pushing bills in Congress to force the auction sites to allow more access to law enforcement and retailers, who are attempting to shut down this activity.

Even the government has found some of their stolen merchandise available for sale on eBay and Craigslist.

Please remember this doesn't even take into account the billions of dollars of property stolen from ordinary people. It also doesn't take into account the ordinary people who are scammed on auction sites, either. I wouldn't worry about getting scammed on PropertyRoom.com — I'm pretty sure they cooperate with law enforcement to the fullest extent.

We all know money is tight this Christmas season and there are a lot of people trying to stretch their limited resources. PropertyRoom.com is a place where you can do it and be certain that you are not contributing to a growing problem.

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(Update: TJX data confirmed as used in Florida Case) Is the information being sold in carder forums being used in organized retail crime?

Underground carder forums (selling personal and financial information) are making it too easy to commit financial crimes. Symantec released a report showing that a credit-card number (with verification number) is sold for as little as $1 to $6. Complete information to take over an identity (government ID, social security number, bank account number, date of birth, etc.) costs about $14 to $18.

Here is an example of how this stolen information might be used by criminals. I happened to run across a good example of this in the News-Press (Southwest Florida):

Six people suspected of using stolen credit cards to purchase an estimated $8 million in WAL-MART and Sam’s Club gift cards were arrested in by Gainesville Police in a four-month ongoing investigation, according to a report released Monday by the Florida Department of Law Enforcement.

The bogus credit-cards were being used to purchase high-end electronic merchandise and gift cards.

News-Press story, here.

*Update (3/23/07): An article from InfoWorld is stating that the data used in this scheme is part of the TJX data breach. InfoWorld story, here. It still isn't clear how the culprits obtained the information, or how they, had the information made into counterfeit instruments.

Symantec's report covers all the different methods information is being stolen. One of the more common methods is referred to as phishing. This normally happens when a person clicks on a link from a spam e-mail sending them to a fake site (requesting personal information).

Note that sometimes the fake sites only ask for your personal and financial details (referred to as social-engineering), but more and more, computers are infected with malware when someone is tricked into clicking on a link they shouldn't have.

Malware records people's personal details (automatically) and sends them back to the scammers.

Symantec's press release on their report, here.

If you are wondering why the retail crooks were buying gift cards. Here is a previous post, I did on that subject:

Why Buying Gift Cards on Auction Sites isn't a Good Idea

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Is Target's payment card and new refund procedure stopping retail criminal activity?

Will stricter return policies drive Target's customers, elsewhere? Some are saying their new return policy (which will require a receipt for cash returns of $20 or more) -- isn't very customer friendly --and might do just that. Some are also questioning, whether another policy (how they verify plastic transactions) is enabling fraud to occur within their four walls.

So far as the new refund policy, Target's response is that this will affect a very small amount of its customers. Chris Serres, Star Tribune, Minneapolis - St. Paul gives Target's rationale for this:

Target officials said the new limits affect fewer than 5 percent of its customers. Shoppers who have bought products with credit cards, debit cards or checks can still return them without receipts, without having to worry about the new limits.

"While we expect the changes to ... impact a very small number of guests, our goal is to minimize losses regardless of amount," said Amy von Walter, a Target spokeswoman.

Law enforcement officials have a different take on this:

Target's practice of not checking the IDs of credit card holders has made it a target for more sophisticated fraudsters, said Brandon Deshler, an officer with the Edina Police Department and a detective with the Minnesota Financial Crimes Task Force, a state law enforcement agency. "There is a real inconsistency here," he said.

Sophisticated fraudsters are becoming the norm with data breaches, carder forums, and do it yourself (DIY) crime kits being marketed via the Internet.

I keep reading about how identity theft is tied into methamphetamine use, but in reality, it might also be tied into heroin use, or any other narcotic that people get addicted to. Addicts often turn to retail crime to support their habits, also.

Before the Internet made sophisticated fraud pretty easy to accomplish, addicts did a lot of shoplifting (boosting) to support their habits.

As time went on, retailers got smarter. They started locking up high value (shrink) merchandise and tightened up their return policies. To get past this, many retail criminals use fraudulent payment devices, which are pretty easy to obtain.

Organized criminals now make their "cut" selling the information and devices to less sophisticated crooks, who do all the dirty work for them. Deals are made on the Internet with a click of a mouse, and these devices are (normally) shipped from foreign sources, where it is hard to identify the criminals behind it.

Fraudulent devices are ordered in chat rooms, paid for by wire transfer or PayPal, and shipped to these (questionably) sophisticated criminals UPS, or Fedex, worldwide. Sometimes, they are shipped in bulk to one location and then redistributed. This is another method used to make tracking these devices to their original source, difficult.

Because of the growing availability, retail criminals are using fraudulent payment devices to obtain and then refund merchandise.

If customers using credit cards, debit cards and checks are still allowed to return them without receipts, I'm guessing a lot of refund fraud will still occur.

I wondered how customers, using payment devices (checks, credit cards, debit cards) could get a refund without a receipt? Just to make sure, I called my local Target and told them I lost my receipt from a credit card purchase. I was told to bring my credit card in and they could look up the information.

In light of the many recent data breaches, such as TJX -- where at least 45 million customers were compromised -- this thought scared me. Even if their systems are completely safe (not sure if any really are), does this mean that a dishonest employee could access my information? Employee dishonesty has long been (and still is) a major problem at most businesses.

The best thought out security can be beat by one person with access to it!

One of the systems compromised at TJX was their refund authorization system. Not allowing easy access, or even maintaining personal and financial information is the recommended way to prevent data theft.

Besides that, I often wonder how accurate the data is in some of these refund systems. These days, crooks use a lot of other people's information.

Since Target relies on electronic authorization systems (they don't even require their staff to check ID) on credit/debit card transactions, the law enforcement official quoted above might have a very valid concern.

But this isn't the only time, I read about this concern in the past week.

An article came out from Washington about an enraged identity theft victim, who after realizing no one was doing anything with her case, decided to beat the pavement (investigate), herself. Working with a reporter, she did her own check of retailers and here is what happened at Target (as reported on KOMOTV.com):

We did the same thing at Target. This time, we included wine in our purchase thinking some stores require an ID check when buying alcohol. At no point during our checkout did the Target clerk even ask to see the credit card. The clerk never asked for an identification check.

In a statement, Target says it does not require its clerks to handle or inspected credit cards.

Instead the store relies on an electronic authorization system where the customer swipes their own credit card through a reader."Electronic authorization is faster and more accurate than relying on visual inspection of verification of written signatures," says Brie Heath of Target.

Even with these systems, where a customer swipes their own card, a lot of retailers require that the clerk check identification AND inspect the card on signature transactions. In fact, a lot of pos (point-of-sale) systems prompt the customer and the clerk to do so.

Counterfeiting payment cards has become so easy to do that it's now done in garages with hardware that can (unfortunately) be bought over the Internet. Granted, identification can also being counterfeited, but at least visual inspection is going to making it a little harder to commit payment (debit/credit) card fraud.

The truth is that electronic verification systems read data, and in the case of debit and credit card data, it's being transferred (counterfeited) all the time.

Many might ask why Target would rely on an electronic system with so much fraud going on out there? One reason might be that when a card is "swiped" (electronically authorized), it is pretty hard for the bank to charge it back to Target.

When this happens, I'm guessing that Target isn't the one taking the loss, the bank does.

Chargebacks are becoming a huge issue, and many merchants (especially e-commerce merchants) are saying they are unfair to them, also. These merchants claim the rules favor the banks, who are passing off the costs of fraud to them. With the recent TJX data breach, and the realization of how expensive information theft has become, we can expect to see more controversy on this issue.

It's sad that businesses seem to be spending more time going after each other than the criminals behind the activity (my emphasis).

We also need to consider the considerable grief, victims go through in this process. Victims can be held liable for losses, have their credit ruined, and are even charged with crimes they didn't commit. Some of these victims are undoubtedly past, present, or future customers.

It's pretty easy for me to understand law enforcement officials and identity theft victims might be a little frustrated with Target's policies.

There is no doubt that the amount of refund and payment device fraud is growing. Businesses do have the right to protect themselves, but passing the financial loss to another business, and ultimately (all of us) does little to stop the problem. In fact, it might be one of the reasons this type of fraud is growing.

It would be unfair to single out Target on these issues. Other retailers need to be looking at them, also. Retailers are sold expensive security technology and too often (my emphasis) find that someone has figured out a way to exploit it.

Systems get defeated by human beings all the time. The best defense against this are other human beings. Removing human interface from the equation makes it easier to commit fraud (my emphasis).

Star Tribune article, here.

KOMOTV.com article about the identity theft victim doing her own investigation, here.

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When will we realize how serious the problem of counterfeit devices has become?

On March 6th, Queens District Attorney, Richard Brown announced a series of indictments against a major counterfeiting ring. Although based in New York City, the group was operating nationwide. The ring was obtained skimmed card information from hackers in China. Subsequent news reports have stated that skimmed information was obtained from hackers in the Ukraine, also.

From the press release:

Queens District Attorney Richard A. Brown, joined by Police Commissioner Raymond W. Kelly, today announced that a forged credit card and identity theft ring based in Queens County and with roots in the Far East has been successfully dismantled following the indictment this week of thirty-eight individuals. The ring was allegedly responsible for stealing the personal credit information of scores of American consumers and costing these individuals, financial institutions and retail businesses more than $1 million in losses over the past year.

Counterfeit identification documents to match the counterfeit financial devices were being produced, also.

DA Brown explains why this is of greater concern than mere financial crime:

Many of the defendants charged today are accused of going on nationwide shopping sprees, purchasing tens of thousands of dollars worth of high-end electronics, handbags and jewelry with forged credit cards that contained the account information of unsuspecting consumers. Particularly disturbing is the fact that, in a number of cases, the defendants are charged with using bogus documents to purchase airline tickets and then using those documents as identification to board commercial aircraft. In the hands of terrorists such documents could have easily undermined the efforts of homeland security and other law enforcement officials intent on keeping our borders and citizens safe.

Given that the scope of this crime potentially crosses three continents, it probably demonstrates different organized crime groups are working together. The potential these items might be sold to people with twisted political and or religious motives isn't too far a stretch.

It has been reported that Al Qaeda training manuals teach their minions to use credit card fraud as a means of financing their activities.

I doubt if most of these criminals could care less, who they are selling them to. Even if they did, the full intent of the purchaser might not be readily apparent.

Suad Leija -- who has been providing information on a major counterfeiting cartel to the government -- says that this was the reason she turned on her family members running the cartel.

This latest example shows that despite a lot of focus on security to prevent terrorist attacks, counterfeit documents are a clear threat to all of us.

Prior to Suad turning against her family, her husband says he tried to get the cartel to let the government use their database as a tool to identify potential terrorists, who might have already crossed our border.

I'm sad to report that the database was never accessed and that the criminal case against the cartel is facing some serious challenges at the present time.

This series of indictments also shows how the Internet is being used to fence a lot of stolen merchandise. Normally, we hear about it happening on auction sites, such as eBay or Craigslist; however in this instance this group had an e-commerce website of their own. This website, Easttrades.com, is still up and running at the time I am writing this.

I decided to run the domain through "Whois" and it’s registered right here in the United States.

Maybe it’s just me, but it appears that we need to take the counterfeiting problem a little more seriously. They appear to be easy to produce and are available to too many people.

They are a gateway for criminals, or worse to commit all sorts of illegal activity. I would love to ask the political candidates running in the current election what they think about this problem.

Unfortunately, my guess is that no one is going to ask them and that this is an issue they would rather not talk about.

Queens District Attorney press release on this, here.

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Why it's become TOO easy for restaurant workers to skim payment cards

We seem to be seeing a record amount of credit/debit (payment) card fraud recently. The latest is a $3 million scheme -- where restaurant servers were recruited to steal their customer's financial information -- using portable skimming devices, which seem to be easily purchased over the Internet.

Samuel Maull of the Associated Press is reporting:

Thirteen people were indicted Friday on charges stemming from their roles in the credit card fraud, prosecutors said.

The credit card account information was stolen from customers who visited restaurants in Manhattan's Chinatown and other parts of the New York metropolitan area, as well eateries in Florida, New Hampshire, New Jersey and Connecticut.

Full AP story, courtesy of the Washington Post, here.

The Manhattan DA's site has a lot more information on this case, which reveals most of the defendants appear to have worked in Asian restaurants, were extremely organized and traveled the country buying high-end electronics.

The DA press release shows how they were turning the stolen merchandise into cash, which is the goal of most of these criminals:

THOMAS JUNG, JOON HEE KIM, JUN SHOJI, RICHARD LEE, JENG SEAK LEE, PHIL ANG, ALEX KIM and others in small groups to areas within and outside of New York State to purchase high-end electronics merchandise – such as laptop computers, Sony Play Stations, GPS navigation systems, high-end digital cameras and IPods.

PAO provided each shopper with 20 to 40 counterfeit credit cards with the expectation that each “shopper” would make fraudulent purchases in an amount that averaged $1,000 per counterfeit card. If a “shopper” was provided with 30 counterfeit credit cards, the “shopper” was expected to make $30,000 in fraudulent purchases. PAO made the travel arrangements for the “shoppers,” which included airline flights, car rentals, and hotel rooms for shopping trips in New York, New Jersey, Connecticut, Illinois, California, Oregon, Washington, Ohio,
Pennsylvania, and North Carolina.

The “shoppers,” who were paid approximately 15% of the retail value of the merchandise they bought, delivered the merchandise to PAO, who then sold the stolen goods to defendant JOHN DOE. In turn, DOE sold the goods to electronics and computer stores in Queens.

You can read the full press release, here.

Unfortunately, this problem is enabled by portable devices, which are too easy to obtain. A website, I found recently (called Hackers Homepage) seems to openly sell everything a wannabe card skimmer would need to do this. They even sell the high-quality card blanks - with the ability to place holograms on them - right over the Internet!

Of note, this site (which I hope is under surveillance) also sells more sophisticated skimming devices designed to be placed on point of sale systems, and advertises other devices and publications that would appear to enable a lot of different financial crimes.

A lot of this stuff can also be purchased on auction sites (like eBay) as demonstrated, here.

Perhaps, if we want to see a decrease in this activity, we need to enact laws that will control some of the technology, which makes it TOO easy for anyone to do.

This along with DIY (do it yourself) auction fraud and phishing kits, also being sold over the Internet, make it too easy for ANY criminal to commit pretty sophisticated crimes.

Throw in carder forums, which sell all the information being stolen, and there is no wonder why this has become a rapidly growing PROBLEM.

The bottom line is that easily purchased technology is making the problem worse, and the problem is spreading so rapidly, law enforcement has a hard time keeping up with it.

This IS NOT a victimless crime, just ask any of the people having their information stolen, or one of the businesses that have lost money from it. Of course, when businesses lose money, they have to raise prices, which means we are all paying for it.

To watch a pretty telling video on YouTube about how restaurant workers skim payment cards, link here.

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SIRAS PI - tracking theft to the source

Graphic demonstration of anti-theft technology courtesy of SIRAS.com.

Criminals, who steal goods, whether with bogus financial instruments, or by more physical means might be in for a little surprise if the merchandise is protected by SIRAS PI.

Last week, SIRAS made this announcement in a press release:

SIRAS.com, the pioneer in Point-Of-Sale Electronic Product Registration used by leading manufacturers and retailers, has announced the nationwide launch of SIRAS P.I., a groundbreaking initiative to aid law enforcement officials in determining whether products they recover are, in fact, stolen, and if so, from where. Piloted by the Mesa, Arizona Police Department, SIRAS’s P.I. (Product Information) Database has already proven to be effective in helping law enforcement officials identify stolen items, report suspicious items, and apprehend and convict thieves. The database will be available, free of charge, to police and law enforcement agencies nationwide.

The way SIRAS works is simple, but effective. It tracks a product by recording the UPC (Universal Product Code) and the product serial number. SIRAS has the capability to determine where merchandise was stolen, whether from a merchant, manufacturer, or individual.

Earlier this year, SIRAS did some testing that revealed a substantial reduction in TV and MP3 player losses on products, where their technology was being used.

If deployed properly at the merchant level -- it could also determine how an item was purchased, and whether or not -- the method of payment used was legitimate. In theory, a merchant could also use the technology to impact credit card chargeback and fraud check losses.

I say "deployed properly" and "in theory" because the information to accomplish this (sales data) belongs to the company using SIRAS technology. Because of this, the capability to track sales information would have to be implemented inside the company. At most larger companies, this information is already tracked and analyzed to prevent and detect dishonest activity.

For years, most high-theft (shrink) merchandise has been secured so a thief can't merely pick it up from a shelf. When high-theft merchandise that was secured is stolen, it's normally because of one of two reasons. It was purchased with a bogus financial instrument, or an insider was involved in the theft.

Other reasons for secured merchandise being stolen might be a theft, directly from the manufacturer, or a theft during the shipping (transport) process. In these instances, if the merchandise was registered at the manufacturer, SIRAS can identify the point of compromise, also.

Technology has made it a lot easier for criminals to obtain and use fraudulent forms of payment. Information being compromised (data breaches) and anonymous places to communicate like Internet chat rooms, have given a lot of common criminals access to bogus financial instruments.

Along with the increased availability of fraudulent forms of payment, obtaining counterfeit identification documents has become fairly easy, and the identity used on them normally belongs to someone else. This has made it easy for a lot of retail criminals to operate as someone else.

Because of these new trends, current systems that record personal information to prevent fraud are becoming less effective than they use to be. I often wonder (no one probably really knows) how much of the information contained in them is incorrect.

In the recent data breach at TJX, one of the systems compromised was their refund database. Stories have circulated recently about the wrong people being pegged as frequent refunders, or bad check writers after their identities were stolen.

Neither one of these situations fosters good will, or trust with customers. Besides that, data breaches are becoming costly. The last I heard TJX has spent approximately $256 million dealing with the breach. With pending litigation, the cost is liable to keep going up.

With SIRAS, using personal information isn't necessary to determine, whether or not, a return is legitimate. SIRAS already has proven to be highly effective in reducing refund fraud without asking for one item of personal information.

An example of how some of the TJX data was used in a retail theft scenario can be seen, here.

Given that criminals that steal merchandise want to turn it into money, two methods are normally used. They either refund it somewhere, or fence it. Auction sites provide an easy and when combined with account-takeover activity (anonymous) venue for criminals to fence merchandise.

In the auction world, seller accounts are taken over all the time. This normally occurs when seller accounts are compromised by a phenomenon known as phishing. Phishing occurs when a person is tricked into giving up their access information after receiving a spam e-mail.

Compromised seller accounts are sold on the Internet the same way financial information is, and there is a trend in DIY (do-it-yourself) phishing kits being sold that enable non-technical criminals to get into the game.

eBay and PayPal are two of the most heavily phished brands. Once these accounts are compromised (taken over), they are used by criminals to fence merchandise and launder the monetary proceeds of their illicit sales.

Another growing trend related to phishing is when malware, also sometimes known as crimeware is used to steal information. The difference here is information is stolen from systems automatically (normally by keylogging software) and social engineering (trickery) is no longer necessary to get people to give up information.

Malware is often picked up by a computer system by clicking on a spam e-mail link, or by visiting a website designed to inject the software on a system. PC World recently did one of the many stories floating around about malware being sold on the Internet in the form of DIY kits.

In the story they wrote:

The global market for criminal malware now operates like a supermarket, complete with special offers and volume discounts, a security company has discovered.

Here again, this capability enables not very technically inclined criminals to get into the game. This has become a growing problem and I expect it to get worse before it gets better.

With the availability of all this personal and financial information, being sold on an economy of scale, current fraud protection systems are routinely being compromised by a lot of criminals.

There is an old saying in the investigations world, which is if you want to solve a crime, the easiest way is to follow the money.

SIRAS takes this one step further by tracking both the merchandise and can track the money ( if programmed to do so by the user). When you do this, the odds are far greater that the true culprit will be identified. They are normally associated with either the money, and or the merchandise.

Since the technology records both physical and UPC information, the database can determine exactly where the merchandise was compromised (stolen). Given that many merchants use digital video systems -- which are capable of storing video footage for a long time, it's also possible to obtain video evidence of the original transaction -- when sales information has been programmed to tie into the technology.

SIRAS has been used by select manufacturers and merchants for several years now -- however a new initiative, SIRAS PI, which was tested with Mesa PD -- makes the database available to law enforcement agencies free of charge.

Law enforcement can access the database either via the Internet, or by telephone. They can also add items to the database when they are reported stolen. If someone later tries to refund the merchandise at a participating retailer, the transaction can be automatically flagged.

Although a lot of fencing now occurs on the Internet, the technology is equally as effective in investigating more traditional property crimes, also. The bottom line is once merchandise is discovered, it can be tracked by SIRAS, if the item has been registered.

Recently, Chris Hansen (MSNBC), did a story about iPod theft. When Apple was approached about tracking the merchandise using Apple's registration database, they decided not to cooperate with MSNBC.

Undaunted by this, MSNBC purchased a bunch of iPods and engineered the registration disc to send them the information when the iPod was registered. They then left the iPods (new in the box) unattended, let them get stolen and tracked them to the crooks once the iPod was registered.

Chris Hansen made an excellent point on how databases can track stolen merchandise -- but in this instance, brand new iPods had to be left in public places to be stolen -- then registered to make the point.

If Apple used SIRAS technology to protect their merchandise -- it would have already been traceable, even if it was stolen from an individual -- who didn't provide the thief with the registration disc. It also would eliminate privacy concerns, which might be why Apple didn't want to cooperate with the MSNBC investigation?

When registering any product, a lot of personal information is normally asked for.

In any event, most criminals of the smarter variety aren't going to provide their personal information in the registration process. Most of them shy away from doing things, which might get them caught.

It would be interesting to have MSNBC, or another investigative news source do the same story with merchandise protected by SIRAS. The story might expose more than people, who stole because of an almost "too good to be true" opportunity was provided to them.

MSNBC iJacking story, here.

This brings up another potential benefit to this technology. Expensive portable electronics and other expensive toys like mountain bikes are stolen from the people who buy them (customers) all the time. Using SIRAS technology might even be a selling point that instills customer trust in the product they are purchasing.

This technology has prevention/investigation applications for corporations, law enforcement agencies and individuals, alike. It also doesn't require using people's personal information, which isn't as effective as it used to be, and is becoming more unpopular all the time.

In my opinion, this technology has the ability to make it a lot harder to get away with stealing merchandise and converting it into money.

Of course, the more it is used, the more effective it will become. Databases have a tendency to do this, or become more useful as they contain more information.

There are a lot of anti-theft/fraud technologies that claim to prevent theft/fraud. Very few of them also claim to be able to go after and hold the criminals committing the fraud/theft personally accountable.

The last I heard, most criminals still fear getting caught!

If you would like more information on the organized trade in counterfeit identification documents, the story of Suad Leija can be seen, here.

Suad's story has been covered extensively in the media, including by Lou Dobbs. Currently, she is writing a book and I keep in touch with her occasionally.

More information about bogus financial instruments can be seen, here and here.

A chronology of data breaches is compiled by the Privacy Rights Clearinghouse, here.

The best source on phishing is the Anti-Phishing Working Group and if you are interested in learning even more about phishing and want to see some totally fake banking sites, Artists Against 419 is another good place to visit.

Last, but not least, if you are interested in learning more about SIRAS PI, you can do so by visiting their site, here.

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