Black Market Billions: How Organized Retail Crime Funds Global Terrorists (Gal Zentner's Library) (8 page)

Lurking in the Shadows: Stolen Gift Cards Bought Online

Former Colorado State Representative Alice Borodkin, a Denver Democrat, introduced a bill that would make it illegal to sell manufacturer or store coupons and prescription drugs on auction sites. (This occurred after Colorado experienced a loss of approximately $533 million in retail sales in 2008.) This legislation has yet to pass.

Auction sites and fake online stores may help stolen products magically become untraceable cash. They also facilitate the transfer and sale of gift cards to fund terrorist activity. This system is also called “shadow banking,” a term coined by FBI chief Robert Mueller. Instead of moving large amounts of cash (over the $10,000 limit) in duffle bags, which are heavy and can easily be identified, criminals use gift and cash cards to easily slip tens of thousands of dollars through customs. The cards, which look like credit cards, can sidestep banking regulations, which state that cash or “money instruments” such as shared certificates, travelers checks, and money orders must be declared if they are being moved across borders. Carrying $100,000 on a gift or cash card is perfectly legal, and they can be used without fear of documentation, identification, law enforcement suspicion, or seizure.
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By some estimates, the stored value card is a $300 billion-a-year industry and is growing exponentially. At a congressional hearing in March 2010, Mueller said, “Recent money laundering investigations have revealed a trend by criminals to use stored devices, such as prepaid gift cards and reloadable debit cards in order to move criminal proceeds.”
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With money laundering accounting for 2%–5% of the world’s GDP, according to the International Monetary Fund (IMF),
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stored value cards are becoming a larger part of the global money laundering problem. Obtaining them is just a matter of a few mouse clicks.

Auction sites tend to be the first place ORC thieves unload their stolen merchandise, but these sites also sell stored value cards, gift cards, gift receipts, and store credit. Unlike traditional auctions, for the most part they are unregulated.

Easy to Obtain, Easy to Sell

At the National Retail Federation’s annual Loss Prevention conference in Atlanta in June 2010, a group of 60 loss prevention retail executives packed into a frigid conference room to discuss the rising impact that stolen store gift cards and cash cards are having on their businesses. The leader of the discussion was Paul Cogswell, CPP, CFE, and vice president at Stored Value Solutions. He coaxed the executives to talk about their experiences—something they were hesitant to do. When no one spoke, he said, “I know some of you definitely have something to say about this topic. Some of you in this room have approached me outside of these doors. Come on; let’s hear it. We are in a safe space.”
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A tall, tan, youngish-looking man sheepishly raised his hand. All eyes were on him as he began telling his story. “This happens all the time, and I’m always so surprised when I see it,” said the young executive. “People come in wanting to pay for items using their gift cards, and there is nothing on them. Instead of our clerks asking questions or running the number on the back of the card through the system, they just assume it was a mistake on behalf of the cardholder. If a couple checks were put in place, we as retailers would be able to regulate theft more.”
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As with most ORC-related theft, retailers have problems communicating what is taking place in their stores. Their reasons range from embarrassment to store employees not realizing how grave the situation is. When it comes to stored value cards, loss prevention executives, as well as employees, often push aside the issue. The executive
added, “Most of our people manning the cash registers are 18 years old and don’t know any better. And with turnover being so high, it’s hard for us to invest in proper training.”

Purchasing items that aid in criminal activities isn’t a new practice, as in the case of terrorism suspect Faisal Shahzad. He admitted to receiving $4,500 transferred to him from Pakistan through a
hawaladar
(someone who arranges a money transfer). Shahzad’s co-conspirators, Pir and Aftab Khan, according to their attorneys, transferred money back to their home country of Pakistan using stored value cards in amounts of $20,000, $100,000, and $300,000. In addition, Mahmoud Reza Banki, a resident of New York City and a former management consultant with degrees from UC Berkeley and Princeton, was accused of receiving more than $3.4 million from the accounts of companies and individuals in Latvia, Slovenia, Russia, Sweden, Saudi Arabia, Kuwait, the Philippines, and the U.S. With the help of a business partner based in Tehran, he would transfer funds to recipients in Iran by using stored value cards, circumventing government regulations and processing fees.
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In 2009, retailers reported an increase in organized groups returning stolen merchandise and getting store credit in the form of a receipt or gift card and then putting the gift cards on online auction sites to sell. ICE estimates that $30 billion in remittance payments for open system cards goes to Latin America from the U.S. each year. The purchaser can put a certain amount of money on this kind of card, which often is branded with American Express, MasterCard, or Visa and operates like traditional credit or debit cards. Each year, $10 billion goes to Mexico alone to fund narcoterrorism groups.
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Joe LaRocca, senior loss prevention advisor at the National Retail Federation (NRF), notes that auction sites have made strides to try to close the gap in communication between law enforcement and retailers to police web sites. “What we need to do is keep an ear out for the blatant gift card and money card fraud that is going on, because those are open loopholes,” says LaRocca. “Monitoring the amount of
applied value that is going on the cards, as well as monitoring cards that don’t work when they are presented at stores, is one thing. Monitoring these cards being sold on the Internet is another. Disclosure of amounts from the buying and selling on auction sites as well as at the redemption end is crucial.”
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Fake-out: Retailers Fronting as Legitimate Stores

Urban jungles like New York, Chicago, and Los Angeles draw wanderlust tourists from the U.S. and around the globe. They also provide a market for counterfeit and stolen items to be sold through flea markets and pawn shops. In 2009, the city of New York saw demand for street vendor licenses increase by 60% from 2007 to 2009 when the economy started to plummet.
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In New York, nearly 12,000 vendors applied for the coveted 853 merchandising vendor licenses the city provides to nonveterans. In addition, the wait list to get a license exceeded 7,000 in 2009.
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Instead of waiting around to get their legitimate license, vendors took to the streets to sell their merchandise illegally. The makeup of their merchandise landscape varies from pirated DVDs and media to counterfeit high-end perfume and luxury items. Some set up shop at a table or stall on a street, but most carry their merchandise in bags that are easily transportable in case law enforcement comes through.

“Street vendors who sell counterfeit merchandise do it because it’s the easiest way to turn a profit,” says Ali Issa, a former staff organizer of The Street Vendor Project, which is part of the Urban Justice Center. “Consumers know when they are a buying a pirated item, and that’s why they go to these street and flea market vendors. They want to get a deal without paying for the real thing.”

U.S. Customs and Border Protection estimates that in 2008 the value of counterfeit items seized was worth $275 million in the U.S.
alone. This included footwear, consumer electronics, handbags, leather goods, and apparel. Ninety percent of those goods were sold through illegal street vendors.
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The number dipped slightly (to $260 million) in 2009,
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as imports into the U.S. decreased due to a global recession and limited supply. But the agency expects the numbers to rise again when the economy rebounds. Stolen merchandise is no different. In July 2010, a family-run ORC ring was busted in Kansas City, Missouri. They were hoarding almost $180,000 worth of health and beauty merchandise in a home and selling it at the local flea market, “Super Flea.”
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Contrary to what most industry analysts might think, most consumers are unaware of where their purchases come from. They leave it up to the retailers to regulate sites and off-price venues to ensure the integrity of what they are purchasing, even though this assumption may seem naive. Although Chris from the Congo can tell me everything about handbags—down to the type of rivets Louis Vuitton uses on its signature monogram bag—he can’t tell me where the knockoff manufacturer got such rivets, and he doesn’t care. In fact, he explained to me that if I had $2,500 to spend, I too could create my own small business of selling these handbags with a markup of at least 150%. “As you can see, people make a lot of money,” says Chris. I could see the appeal, especially if I were unemployed without any job prospects.

At the same time, flea market stall owners, pawn shop owners, as well as “mom and pop” stores all take advantage and sell items that are potentially funding terror cells. According to Dr. Read Hayes, director Loss Prevention Research Council and co-director Loss Prevention Research Team at the University of Florida, the most common hot beds of retailers selling counterfeit and stolen beauty, health, apparel, media and electronic items are souvenir shops in beach towns and tourist hot spots, such as Atlantic City, New Jersey; Orlando and Fort Lauderdale, Florida; and Ocean City, Maryland.
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Owners take orders from boosters for items to stock their store shelves or to resell
the items, and then the boosters go out and obtain the goods. The stores purchase the goods for a discounted price. Most of the time, stores purchasing the items have close ties to either the boosters stealing the items or the warehouses storing them. What’s more, Hayes has proof that these merchants sent money that was used to fund bombings in India as well as Indonesia.

Thinking back to his bigger ORC cases, Jack Gee recalls a time prior to 9/11 when he was doing a sting operation in the Fort Lauderdale area. He received information that several small shops were purchasing stolen property; all of the operators happened to be from various countries in the Middle East. The operation involved many months of surveillance where, for instance, one law enforcement official listened in on a conversation spoken in Sudanese. “The men were discussing time zones in the U.S. and purchasing stolen property,” recalls Gee. “But what struck me was, when we did the actual bust, not only did we find that these store owners were engaging in buying stolen merchandise, they were also purchasing ID sets in order to make fake identification cards. Further digging and calls to the FBI indicated that these guys were in fact on a terrorist watch list.”
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Khaled T. Safadi, Ulises Talavera, and Emilio Gonzalez-Neira, three businessmen from the Miami area, were sure their funding of the Hezbollah via stolen Sony PlayStation 2 systems would go unnoticed by the U.S. government. The scheme entailed obtaining Sony PlayStation consoles and digital cameras and exporting them to the tune of $720,000. After three years, the men were finally arrested in February 2010 on charges of illegally exporting electronics to the Galeria Page mall in Ciudad del Este, Paraguay, which funnel profits to the Hezbollah. The Galeria Page mall has been flagged by the U.S. government and listed as a terrorist organization blamed for attacks on Israel, making it illegal to export items to the mall.

“We all have a terrorist task force any time I am doing a sting operation,” says Gee. “Just about half are being watched by the task
force for money laundering, ORC, false ID, or a combination of all three. It’s safe to say there is a huge correlation between ORC and terrorism.”

Protecting Yourself: Know the Signs of E-fencing/ORC

“You know the old adage ‘If it’s too good to be true, it probably is?’ In this case, that should be a mantra the consumer should live by,” says Jack Gee.

“I’ve been in swap shops where merchandise is priced way below market value, and you can pretty much guarantee it’s stolen. The problem is that the everyday consumer looks at this like it’s a good deal, but they are helping to commit a crime. Protect yourself. If a person is not letting you see the product in person, or through pictures, that person is probably not telling you the entire truth about the product.” Gee gives an example of how a victim of e-fencing decided to purchase a dirt bike on eBay. The owner of the bike told the victim that the bike was in a storage facility in New York, and that if he put the money in escrow, he could check it out for himself. The victim put the money in the account but never saw the bike or his money again. Likewise, Gee says to look out for patterns of multiple or bulk items being sold at the same time by one person or a company, because most of the time those items have been stolen. “If a person is trying to sell you 30 packs of razor blades, or 20 packages of nicotine patches, then that should be a red flag, and take extra precaution when dealing with them,” he says. Gee’s last words of advice: Extremely high seller ratings don’t help. “Take extra precaution when dealing with Internet sellers. You never know if it’s their friends that are giving them such high ratings. You can’t always trust that.”
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