Crime, Punishment & Retailing

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\"RROrganized retail crime is escalating, but can law enforcement cope with a global crime spree and a new class of criminal?

When I was eight years old, me, and two equally nefarious friends, decided to hit the local Woolworth. The objective? The new Duncan yo-yo and two green plastic, spacegun-shaped waterguns.

My guys—not exactly Goodfellas—were supposed to distract the cashier and stock boy, but took a powder when they saw the manager grab me by the shoulder. Half an hour later amid threats of prison, my mother picked me up, smacked me on the head and dragged me home where I faced the dreaded “wait ‘til your father gets home” scenario.

So much for my criminal career!

The Big Piñata

Unfortunately, organized retail crime (ORC) has come a long way. Retailing has become a big piñata and unless there is a concerted, national effort, we stand to lose the battle against ORC the way we are losing the war against drugs.

It’s no longer just a matter of collaring serial shoplifters, senior citizens on a petty crime spree, teenage flash mobs, or the Fagan-inspired Utah couple who recently used their 10-year-old to boost products from a Home Depot.

Since 9/11, and with a global recession as a catalyst, ORC has grown exponentially.

It is a $30 billion industry that also includes cargo theft, truck hijacking, gift and credit card fraud, and illegal merchandise returns. It has morphed into an international criminal conspiracy with deep roots in Central and South America, Eastern Europe and the Middle East—and conventional wisdom has it that some laundered money from boosted merchandise is funding international terrorism.

The question is whether law enforcement, despite some major busts and felony convictions, is really making headway. Boosters are brought in from Central America and ferried around by drivers with lists. They can be in and out of a store in under two minutes, and most times on their way home while local law enforcement is still doing the paperwork.

Just recently, authorities in San Antonio busted five women running a high-end international shoplifting ring that was bringing in stolen goods from as far away as Australia—$500,000 worth of items from places like Victoria’s Secret, Dooney & Bourke and Williams-Sonoma. Most of these felons were out on bond for $5,000 or $10,000 within 24 hours. Think they’ll show up for trial? How can law enforcement do its job when an international criminal conspiracy is treated like a traffic ticket?

Let me say now that I have the greatest respect for law enforcement. I have spoken with detectives assigned to ORC task forces in Chicago, Houston and Florida, former law enforcement officers who work loss prevention for major retailers as well as the FBI, which, I believe, is still one of the most effective crime fighting agencies ever established. Although, I’ve always wondered where J Edgar put a gun when he was in an evening frock. But I suppose that’s irrelevant.

Risk/Reward Ratio

However, retail theft is a high reward, relatively low-risk activity. In many municipalities it’s still a misdemeanor. Sting operations are getting better at pinning felonies on fences. But crooks get smarter too. And it’s attracting a far more dangerous criminal element than three eight-year-olds looking to make a name for themselves in the neighborhood. The last thing you want to do is put employees or customers in the middle of a firefight.

Incredible as it may seem, some people still believe the numbers are overinflated and ORC is not a significant enough problem to lose sleep over. Unfortunately, this includes some law enforcement officials and near-sighted retailers who believe that loss prevention is the first item to go under the budget ax.

But let’s take a further reality check here. According to the National Retail Federation’s 2013 ORC survey, two-thirds of retailers have identified stolen merchandise or gift cards at physical fence locations. Additionally, seven in 10 (72.2%) say they have identified stolen items for sale online.

Casing the Joint

Additionally, 77.8% of companies have experienced gift card or store merchandise credit fraud, an indication that these crimes are becoming more sophisticated. Another 47.9% have been victims of cargo theft in the past year—either enroute from the manufacturer to a distribution center or from the DC to a store. Can you really believe no one’s casing your operation?

In fact, it’s been estimated that an average of two-and-one-half cargo thefts take place every day and the monetary losses are continuing to escalate. Los Angeles, New York, Chicago, Miami, Atlanta and Dallas are among the highest crime metro areas. The LA Basin alone accounts for $400 million in thefts of food, food products, wine, beer, liquor, auto parts and apparel.

Meanwhile, states are losing billions in tax revenues and consumers end up paying for it all in higher prices. As I mentioned earlier, the uglier side is that stolen goods are being fenced for clean cash, which is then being used to fund international terrorists like Al-Qaeda, Hezbollah, Hamas and the IRA along with drug cartels in Central and South America.

ORC Shopping Lists

Basically, a thief will take anything that’s not nailed down. But organized gangs focus on high margin, easily fenced goods like infant formula, razor blades, teeth whitening products, and any kind of allergy and pain relief medications that are usually on thieves’ shopping lists—and they do have shopping lists. And of course, in department stores thieves love to shop for designer clothing, jeans and handbags.

An additional problem, particularly for baby formula and drugs, is that products are sometimes compromised due to improper shipping and storage conditions, or sold past their expiration dates and ending up in the hands of the unsuspecting public, according to the FBI. The lesson here is that sometimes a bargain isn’t such a bargain.

I’ve often wondered when walking down Canal Street in New York, famous for hawkers with all manner of “designer” goods, about how many of the Prada, Gucci and Louis Vuitton bags being thrust at me are counterfeit or stolen. I’m pretty sure the $40 Rolex was a fake even though the guy selling it swore he was a Nigerian prince.


Thanks to the Internet, most stolen goods are ending up at online auctions like eBay, which has been very active in working with investigators. But other outlets include flea markets and overseas markets that ask fewer questions about origin. My personal favorite is when goods are sold back to unwitting retailers by unscrupulous wholesalers and distributors. Serves you right if the FBI or Homeland Security comes knocking on your office door.

Under the circumstances, I think law enforcement has done a yeoman’s job of at least containing this problem—if you think $30 billion is containing it. In fact, nearly half of retailers in the NRF survey said that law enforcement has an improved understanding of the issue. I’ve spoken with highly dedicated law enforcement officials in places like LA, Houston and North Carolina over the past year whose work isn’t always appreciated within their own departments—something that’s reflected in their budgets.

What’s the solution? First, senior retail management has to wake up and smell the crime wave. Some retailers have teams of loss prevention personnel and ex-lawmen fighting the good fight and trying to do so in conjunction with state and federal authorities. But most still see LP as expendable and think they can protect their operations by putting on some additional part-time security during the holidays.

A New Gangster Squad

Second–and this should probably be first—I believe we need an investigative agency dedicated to organized retail crimes with strong ties to Interpol, state and local law enforcement, subpoena power and a budget that will enable the group to establish a national database of crimes and criminals and to carry out surveillance activities. I know I shouldn’t use the S-word (surveillance) these days but you can’t always depend on transgender whistleblowers.

The problem is also that ORT, or Organized Retail Theft as the FBI calls it, is an investigatory patchwork with no one agency responsible. ORT violates Title 18, section 2314 of the U.S. Code, Interstate Transportation of Stolen Property. It doesn’t cover cybercrime, credit card, fraud, cargo theft, hijacking or counterfeiting. Things have a tendency to slip between the bureaucratic cracks. The bureau itself has five separate task forces that investigate major theft that includes not just ORT, but cargo, jewelry art theft—the latter of which are a little sexier then a few pair of panties.

Then there’s the 2006 Violence Against Women Act, which included a mandate that the FBI and private industry develop a database to house information about ORT. That was the birth of LerpNet—Law Enforcement Retail Partnership Network. But Eric Ives, unit chief of the international organized crime task forces at the FBI and one of its most devoted ORT investigators, told me that the database was too unmanageable and costly for the industry to handle. It’s since been sold to a private company.

At this point, I’m not sure that even major associations like NRF are involved in tracking the database. But Ives made it clear that the FBI is not.

I believe we need a new agency to combat this immense threat, one with its own director and be independent of the FBI, CIA, NSA, Treasury and Homeland Security and accountable only to the Attorney General. And for God’s sake let’s keep politics out of it.

If not, you’re going to have gangs of eight-year-olds running amok.



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