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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