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United States Government Accountability Office:
GAO:
Report to the Ranking Member, Subcommittee on Crime, Terrorism, and
Homeland Security, Committee on the Judiciary, House of
Representatives:
June 2011:
Organized Retail Crime:
Private Sector and Law Enforcement Collaborate to Deter and
Investigate Theft:
GAO-11-675:
GAO Highlights:
Highlights of GAO-11-675, a report to the Ranking Member, Subcommittee
on Crime, Terrorism, and Homeland Security, Committee on the
Judiciary, House of Representatives.
Why GAO Did This Study:
Each year organized groups of professional shoplifters steal or
fraudulently obtain billions of dollars in merchandise to resell in an
activity known as organized retail crime (ORC). These stolen goods can
also be sold on online marketplaces, a practice known as “e-fencing.”
GAO was asked to assess ORC and e-fencing. This report addresses: (1)
types of efforts that select retailers, state and local law
enforcement, and federal agencies are undertaking to combat ORC; (2)
the extent to which tools or mechanisms exist to facilitate
collaboration and information sharing among these ORC stakeholders;
and (3) steps that select online marketplaces have taken to combat ORC
and e-fencing, and additional actions, if any, retailers and law
enforcement think may enhance these efforts. GAO reviewed retail-
industry documentation, such as reports and surveys, and academic
studies related to ORC and efforts to combat it. GAO also interviewed
representatives from four major retail associations and five
individual retailers, selected for their knowledge of and efforts to
combat ORC, as well as eight local law enforcement officials involved
in the development of ORC information sharing networks, and Federal
Bureau of Investigation (FBI) and U.S. Immigration and Customs
Enforcement (ICE) officials. The results are not generalizable, but
provided insights on activities related to ORC. GAO is not making any
recommendations in this report.
What GAO Found:
Retailers collaborate with law enforcement agencies to detect and
deter retail theft and investigate potential ORC cases, and federal
agencies are taking steps to better track their involvement. Stopping
ORC begins with retailers, which have invested in new technologies and
personnel to deter and investigate ORC. These investigations are often
conducted in concert with local law enforcement, which generally must
balance ORC investigative demands with other offenses—including
violent crime. Federal agencies, including FBI and ICE, also work
major ORC cases in conjunction with retailers and local law
enforcement. These agencies do not have dedicated ORC resources, but
both have implemented recent efforts to enhance tracking of ORC cases
within their case management systems, including developing a program
code to better track involvement in ORC cases. Such tracking is
intended, in part, to improve data collection and reporting of case
information and help inform management resource decisions.
Emerging regional networks are facilitating information sharing among
ORC stakeholders including retailers and law enforcement, but
limitations were cited with the existing national database. Officials
from all eight of the local law enforcement entities GAO interviewed
have, with retail partners, established regional networks in recent
years to facilitate information sharing among stakeholders and
identify linkages between connected retail theft cases. A national
database, which was created by the retail community with input
provided by the FBI based on a legislative mandate, also exists to
share ORC information. However, all five retailers GAO interviewed
reported concerns related to the database’s functionality, such as
missing analytics to help retailers or law enforcement identify
trends. In April 2011, the system was acquired by a company with
experience managing large information-sharing databases in several
major industries. According to the owner, when the new system becomes
operational in the summer of 2011, it will include a series of
enhancements intended to address the key concerns identified. It is
too soon to tell to what extent retailers will expend resources to
utilize an enhanced national ORC database.
Leading online marketplaces have taken steps to combat ORC and e-
fencing, but it is unclear if additional federal action would further
deter this practice. eBay, the largest online marketplace, has
recently taken steps to deter e-fencing, but varying business models
and available resources may impact efforts of other online
marketplaces. Efforts by eBay are designed to make it more responsive
to requests for information from both retailers and law enforcement,
both of which usually need seller information to link stolen
merchandise to specific people. Retail and law enforcement
stakeholders GAO interviewed identified two options—both imposing
restrictions on sellers using online marketplaces—they felt could help
combat ORC. However, these options would require legislative changes
to implement, and it is unknown what deterrent effect the options may
have on ORC and e-fencing.
In commenting on a draft copy of this report, DOJ and DHS provided
technical clarifications, which GAO incorporated where appropriate.
View [hyperlink, http://www.gao.gov/products/GAO-11-675] or key
components. For more information, contact Eileen Larence at (202) 512-
8777 or larencee@gao.gov.
[End of section]
Contents:
Letter:
Background:
Retailers and Law Enforcement Collaborate to Investigate Potential ORC
Cases, and Federal Agencies Are Taking Steps to Better Track ORC:
Emerging Regional Networks Are Facilitating Information Sharing among
ORC Stakeholders, but Limitations Exist with National ORC Database:
Leading Online Marketplaces Have Taken Steps to Combat e-Fencing, but
It Is Unclear If Additional Federal Action Is Warranted:
Agency Comments and Our Evaluation:
Appendix I: Comments from the Department of Homeland Security:
Appendix II: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Summary of Select Efforts Employed by Retailers to Combat
Organized Retail Crime:
Table 2: Characteristics of Selected Regional Networks Targeting
Organized Retail Crime:
Figures:
Figure 1: Organized Retail Crime Life Cycle:
Figure 2: Select Technologies to Deter Retail Theft:
Abbreviations:
ARAPA: Albuquerque Retail Assets Protection Association:
BAORCA: Bay Area Organized Retail Crime Association:
CCROC: Cook County Regional Organized Crime Task Force:
CPI: Crime Problem Indicator:
ECPA: Electronic Communications Privacy Act:
EU: European Union:
FBI: Federal Bureau of Investigation:
FORCE: Florida Organized Retail Crime Enforcement Network:
ICE: U.S. Immigration and U.S. Customs Enforcement:
LAAORCA: Los Angeles Area Organized Retail Crime Association:
LERPnet: Law Enforcement and Retail Partnership network:
LPRC: Loss Prevention Research Council:
ORC: organized retail crime:
OTC: over the counter:
SDORCA: San Diego Organized Retail Crime Association:
SEARCH: Seizing Earnings and Assets from Retail Heists:
USSS: U.S. Secret Service:
WSORCA: Washington State Organized Retail Crime Association:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 14, 2011:
The Honorable Robert C. Scott:
Ranking Member:
Subcommittee on Crime, Terrorism, and Homeland Security:
Committee on the Judiciary:
House of Representatives:
Dear Mr. Scott:
Each year organized groups of professional shoplifters steal or
fraudulently obtain billions of dollars in retail merchandise to
resell into the marketplace. This activity, known as organized retail
crime (ORC), is a growing concern for retailers nationwide and the law
enforcement entities responsible for investigating and prosecuting
these offenses. In addition to the direct financial losses to
retailers and reduced state tax revenues, ORC also presents potential
public health and safety concerns. For example, some products commonly
stolen for resale include infant formula, over-the-counter
medications, and other health and beauty items, which may be
potentially expired, repackaged, or improperly stored or handled
before reaching the consumer. In addition to traditional resale
venues, such as flea markets and pawn shops, ORC groups have
increasingly turned to online marketplaces to sell (or "fence") their
stolen goods to a wider audience, a practice known as e-fencing.
[Footnote 1]
ORC routinely spans multiple jurisdictions, and combating this
activity involves coordination among a variety of different
stakeholders including retailers and state, local, and federal law
enforcement, as well as operators of online marketplaces such as eBay
and Amazon. The Federal Bureau of Investigation (FBI) is the primary
federal agency involved in major ORC investigations, but other
agencies including US Immigration and Customs Enforcement (ICE) and
the US Secret Service (USSS) may also play a role as ORC can have a
transnational component or involve money laundering. Given the
potential impact of ORC and the unique challenges posed by e-fencing,
Members of Congress have also introduced bills in recent years that
include provisions intended to help combat these offenses. These
proposals have included, for example, revisions to the U.S. Code
identifying ORC as a federal crime, additional requirements for
operators of online marketplaces to monitor sellers for potential e-
fencing, and authorization of federal resources to investigate and
prosecute ORC activities. In response to your request, this report
addresses the following questions:
* What types of efforts are select retailers, state and local law
enforcement agencies, and federal agencies undertaking to combat
organized retail crime?
* To what extent do tools or mechanisms exist to facilitate
information sharing and collaboration among stakeholders to combat ORC?
* What steps are select online marketplaces taking to combat ORC and e-
fencing, and what additional federal actions, if any, do stakeholders
think may enhance these efforts?
To identify the types of efforts stakeholders (i.e., select retailers,
state and local law enforcement, and federal agencies) are undertaking
to combat ORC, we reviewed retail industry reports, surveys, white
papers, and past testimony from congressional hearings on ORC, as well
as academic studies, related to organized retail crime and retailer
efforts to combat ORC. We also interviewed four major retail
associations--including the National Retail Federation, Retail
Industry Leaders Association, the Food Marketing Institute, and the
National Association of Chain Drug Stores-and five individual
retailers, including Target Corporation, Home Depot, Best Buy,
SuperValu, and Walgreens. We selected these associations and retailers
because they represent different major retail-market segments and
provide insight into ORC-related concerns and loss prevention efforts
across the retail industry. The specific retailers we selected were
identified based on recommendations from the retail associations and
the retailers' level of activity in combating ORC. Because we used
nonprobablility sampling to select the associations and retailers, the
information obtained from these interviews cannot be generalized to
other retailers. However, the information obtained provided valuable
perspectives on ORC and specific examples of efforts underway at five
large national retailers. While this report identifies the prevalence
of common retailer perspectives where appropriate, certain issues or
concerns, such as those related to the theft of specific products, may
not be universally applicable given the unique industry segments of
some individual retailers. We also interviewed academics from the
University of Florida and experts in the field of loss prevention.
These experts were selected based on our review of background
literature related to ORC, as well as referrals from others in the
loss prevention field.
To obtain information on efforts law enforcement stakeholders are
undertaking, we interviewed representatives from 10 state and local
law enforcement agencies in California, Illinois, Florida, Maryland,
New Mexico, and Washington to understand how they work with retailers
and federal law enforcement during ORC investigations. Specifically,
these agencies included eight local law enforcement jurisdictions and
two state agencies. These law enforcement agencies were initially
identified by retailers and retail associations and were selected
based on prior involvement in ORC cases and in organized regional
information-sharing networks designed to share details of ORC
incidents among neighboring jurisdictions. The information obtained
from these interviews cannot be generalized across all local law
enforcement agencies in the United States. However, the interviews
provided perspectives and examples of how select law enforcement
agencies active in ORC investigations conduct their work in
conjunction with other stakeholders. Where applicable, we included
information in the report regarding the prevalence of specific issues
cited by law enforcement officials; however, the roles and experiences
varied among these officials and not all were able to comment on each
of the issues presented.
To identify the roles of the federal government in combating ORC, we
reviewed relevant testimony from the federal agencies in the past four
congressional hearings on ORC and interviewed federal law enforcement
officials. We interviewed senior program officials in the headquarters
offices of FBI, ICE, and USSS involved in overseeing and investigating
ORC cases. These federal agencies were selected because they have
historically been the law enforcement agencies primarily involved in
investigating ORC-related activity. In addition, we interviewed
officials in ICE's Los Angeles field office, one of the locations
where an ORC pilot program is underway. The Los Angeles pilot was
selected because, according to the National Retail Federation, Los
Angeles is an area of substantial ORC activity and local law
enforcement is active in the issue. In addition, we spoke with the
U.S. Attorney's Office for the Northern District of California, San
Jose Branch Office about federal efforts to prosecute ORC cases. The
office was selected, in part, because stakeholders identified that two
ORC cases were actively being prosecuted by that office. Finally, we
interviewed a special agent within the U.S. Department of Agriculture
who has experience with investigations regarding the sale and
distribution of stolen infant formula to obtain views on the scope of
these types of activities and identify potential health and safety
related impacts.
To determine the extent to which tools or mechanisms exist to
facilitate information sharing and collaboration between ORC
stakeholders, we used information obtained from interviews with law
enforcement and retailers, and reviewed regional information-sharing
networks to determine what kind of information was uploaded, how
members joined or were selected, and how incident information was
distributed to members to aid in investigations. We also reviewed
available documentation, such as descriptive summaries and user
agreements, related to the national ORC database--the Law Enforcement
and Retail Partnership network (LERPnet)--and received a demonstration
of the database's search and reporting capabilities. We also held
discussions with the National Retail Federation, retailers, and law
enforcement regarding the development and implementation of this
system, its current utilization, and any potential improvements that
were identified.
To identify the steps that select online marketplaces are taking to
combat e-fencing as an outlet for ORC, we interviewed representatives
from four online marketplaces--eBay, Amazon.com, Overstock.com and
Craigslist. The marketplaces were selected based on our background
research and recommendations from law enforcement and retailer
stakeholders that identified these companies as the larger
marketplaces and potential e-fencing outlets. When available, we
reviewed corporate information, sample reports of suspicious listings,
and select case examples to determine the scope of the online
marketplaces' efforts to combat fraud on their sites. Because we used
nonprobablility sampling to select the online marketplaces, the
information obtained from these interviews cannot be generalized to
other online marketplaces in the United States; however, the
information gathered in the interviews enabled us to describe the
efforts of major online marketplaces in combating e-fencing.
To identify additional federal actions that stakeholders think could
enhance efforts to combat ORC and e-fencing, we conducted interviews
with stakeholders to identify common themes and also reviewed selected
state laws and proposed federal legislation related to ORC. In
addition, we used information from our interview with a U.S.
Department of Agriculture agent to identify any federal concerns
regarding health and safety related to the reselling or redistribution
of infant formula and other health and beauty products. Finally, we
reviewed selected laws that govern "high-volume sellers" on online
marketplaces in other countries to understand additional requirements
that online marketplaces may be subject to overseas to determine the
impact of these laws overseas and the applicability of them
domestically.
We conducted this performance audit from May 2010 to June 2011, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
ORC Definition: Although the term ORC is commonly used among the
retail industry and state and local law enforcement, it remains
difficult to clearly define because it can be comprised of several
underlying crimes and is subject to different interpretations by
retail and law enforcement stakeholders. While there is a federal
definition for "organized retail theft,"[Footnote 2] we use the term
ORC to refer to a broader set of crimes that can affect retail
stakeholders, such as fraud associated with gift cards or product
returns. Specifically, under federal law, organized retail theft means:
(1) the violation of a state prohibition on retail merchandise theft
or shoplifting, if the violation consists of the theft of quantities
of items that would not normally be purchased for personal use or
consumption and for the purpose of reselling the items or for
reentering the items into commerce;
(2) the receipt, possession, concealment, bartering, sale, transport,
or disposal of any property that is known or should be known to have
been taken in violation of paragraph (1); or:
(3) the coordination, organization, or recruitment of persons to
undertake the conduct described in paragraph (1) or (2).
At the federal level, law enforcement agencies, such as the FBI,
prefer to utilize the term organized retail theft to differentiate
between in-store theft and cargo theft, or other fraud related
activities, which are categorized as distinct crimes.[Footnote 3]
However, in addition to shoplifting and traditional retail theft
crimes, non-federal stakeholders routinely include acquisition of
retail merchandise by fraud or other illegal means as a principal
component of ORC. Accordingly, we also included these activities
within our definition of ORC, in addition to the activities
encompassed by the federal definition of organized retail theft.
Despite the definitional variations, however, stakeholders are
consistent in identifying a clear distinction between ORC incidents
and those perpetrated by opportunistic, amateur shoplifters, who tend
to steal merchandise for personal consumption.
ORC Operations ("Boosting"): ORC groups employ a range of methods to
illegally obtain retail merchandise. Most commonly, professional
shoplifters known as "boosters" steal multiple quantities of targeted
items that can be readily sold to "fences," who in turn resell the
goods through legal or illegal channels for financial gain. In some
cases, fences provide itemized sheets to boosters indicating specific
products desired and the amount that will be paid for them. According
to retailers, boosters tend to target products that are small,
concealable, and of relatively high value. Some frequently stolen
products retailers identified include razor blades, diabetic test
strips, infant formula, teeth whitening products, cosmetics, and over-
the-counter medications, such as Prilosec. One common method employed
by boosters is to conceal merchandise in customized bags that have
been modified to help circumvent store security systems. Boosters also
often work in groups, commonly utilizing lookouts, distraction
methods, and, in some cases, sophisticated hand signs to communicate.
Other methods boosters employ include practices such as box stuffing,
return fraud, and ticket switching.[Footnote 4] ORC activity may also
include some level of collusion with store employees, who may
participate in theft themselves or could assist thieves by such
actions as leaving doors unlocked or providing alarm codes or other
security information. According to retailers, boosters routinely
target multiple stores a day, frequently hitting retail stores in
shopping malls or near major highways to increase potential targets
and allowing a quick escape route.
ORC Operations ("Fencing"): Once retail merchandise is acquired,
several different methods are used to fence the products back into the
marketplace. Potential outlets for fencing stolen goods include small
convenience or second hand stores, flea markets, swap meets, pawn
shops, and more recently, online marketplaces. While stolen goods are
commonly sold to individual buyers through these venues, in some
cases, fencing operations may also employ sophisticated measures to
clean and repackage products for resale to witting or unwitting
wholesale distributors. With the growth of the Internet and online
marketplaces, e-fencing in particular has emerged as a major concern
for retailers and law enforcement. According to the most recent
National Retail Federation survey of retailers, 66 percent of surveyed
retailers indicated that they had identified or recovered stolen
merchandise and gift cards that were being fenced online.[Footnote 5]
In contrast to more localized physical fencing operations, e-fencing
is generally much more profitable and allows sellers a global reach.
For example, retailers indicate that e-fencing can often yield 70
percent or more of the retail value of the product versus
approximately 30 percent through traditional fencing venues (see
figure 1). Further, e-fencing eliminates the face-to-face interactions
that occur at physical fencing locations, thereby providing sellers
with a perceived increase in anonymity.
Figure 1: Organized Retail Crime Life Cycle:
[Refer PDF for image: illustration]
Boosting:
Professional shoplifters (”boosters”), steal products from retail
stores.
Fencing:
Items may be sold by the boosters themselves, or through a more
sophisticated fencing operation.
Traditional venues: (flea markets, pawn shops): (30% retail value).
E-fencing (sell through online marketplaces): (70% or more retail
value).
Fraudulent refunds (return product to retail store): (Up to 100% plus
sales tax).
Sources: GAO and NRF.
[End of figure]
ORC Impact: Despite widespread recognition that ORC is a significant
issue, it remains difficult to precisely estimate the financial impact
for many reasons. Numerous press releases and industry reports often
cite an estimate of $15 billion to $30 billion in annual financial
losses attributable to ORC; however, it is unclear how these estimates
were developed and neither the FBI nor industry groups were able to
identify the sources for these figures.[Footnote 6] Even among
individual retailers, it remains difficult to estimate the financial
impact of ORC in their organizations. For example, retailers can often
identify overall inventory losses (shrinkage), but these losses
generally come from a number of different sources apart from ORC,
including internal employee theft and amateur shoplifting, as well as
administrative error or vendor fraud. Since there is rarely a clear
audit trail for the cause of shrinkage, retailers typically develop
estimates based on professional judgment and the results of prior
investigations. Among 100 corporate retail chains that responded to a
2009 retail security survey, an average of 11 ORC cases were reported
per $100 million in sales, with an average loss per incident of about
$6,800.[Footnote 7] However, given that ORC affects each retailer
differently--a furniture retailer is likely to have relatively fewer
incidents of ORC than a drug store--it remains difficult to
extrapolate ORC estimates to the retail industry as a whole from a
limited sample of respondents. In addition to direct losses to
retailers, ORC activity can also impact state tax revenues and incur
additional costs to consumers. Despite the challenge of developing a
reliable estimate of the full economic impact of ORC, researchers and
stakeholders generally agree that ORC is a multi-billion dollar issue
that affects retailers and consumers nationwide.
Stakeholder roles: A variety of different stakeholders are involved in
combating ORC and e-fencing, including retailers, state and local law
enforcement, federal entities, and online marketplaces:
* Retailers: ORC activity has been identified across a variety of
different industry segments and retail outlets of all sizes. Retailers
bear the primary impact of these crimes and invest resources to combat
ORC activity. Representing individual retailers are several industry
groups that are involved in various efforts to communicate ORC-related
information and conduct stakeholder outreach and lobbying efforts on
behalf of its members. Among these groups are the National Retail
Federation, Retail Industry Leaders Association, National Association
of Chain Drug Stores, and the Food Marketing Institute.
* State and local law enforcement: Local law enforcement is routinely
involved in investigating property crimes, including retail theft, but
because ORC cases often span across multiple local jurisdictions,
investigations may also include county-level or state law enforcement
agencies, as applicable. These agencies are generally responsible for
enforcing state laws and are routinely involved in developing evidence
against potential ORC suspects, which may include surveillance or
undercover sales and purchases.
* Federal entities: Although there is currently not a federal statute
that explicitly criminalizes ORC, such behavior may be prosecuted
under a variety of other federal criminal statutes, including, for
example, interstate transportation of stolen property, and laundering
of monetary instruments, among others. Principal federal agencies
involved in ORC investigations include the FBI and ICE, but may also
include the USSS, Postal Service, or Internal Revenue Service if ORC
cases involve mail fraud or credit card fraud, among other crimes in
which these agencies may have jurisdiction to investigate.
* Online marketplaces: With the introduction of the Internet, online
marketplaces have emerged as a powerful platform for commerce for both
individuals and businesses alike. However, along with legitimate
transactions, such marketplaces also present ORC groups with an
additional venue to potentially fence their stolen goods. eBay,
founded in 1995, is currently the largest of the domestic Internet
marketplaces. The site receives approximately 8 million new product
listings daily and includes a combination of product auctions and
fixed price sales. Other domestic online marketplaces commonly cited
by stakeholders include Amazon, Overstock, and Craigslist. Each of
these marketplaces has a distinct business model and they vary
considerably regarding the scope of product listings and their level
of involvement in the transaction, which may impact efforts related to
e-fencing.
Retailers and Law Enforcement Collaborate to Investigate Potential ORC
Cases, and Federal Agencies Are Taking Steps to Better Track ORC:
Retailers Employ Technology and Personnel to Deter ORC but Must
Balance Security Efforts with the Need for Consumer Access to Products:
Anyone who has strolled the aisles of a major retailer has encountered
retailers' efforts at loss prevention, from electronic tags on
clothing to a locked case of iPods. These mechanisms are designed to
stop the initial theft, the first step in organized retail crime;
however, the effectiveness of these mechanisms is largely unknown, as
there is little reported research on the extent, type, and results of
any studies that have been conducted to evaluate loss prevention
solutions. Additionally, as retailers deploy these theft-deterring
devices, they must balance the need to secure products with the need
to sell them, as products that are too difficult to access could deter
legitimate customers. For example, a customer who needs to locate a
sales associate to open a case of iPods may get frustrated and leave a
store without making a purchase, resulting in lost revenue for the
retailer. In addition, many of these theft deterrents are familiar to
customers and boosters alike, and despite retailer efforts, determined
thieves often figure out a way to thwart the devices. For example,
foil-lined shopping bags--commonly referred to as "booster bags"--can
easily render certain electronic sensors useless. Even basic elements,
such as a consistent store layout, which can help customers be
familiar with any store in a retail chain, can facilitate retail theft
by allowing boosters to quickly navigate several stores.
Given boosters' ability to overcome retailer deterrents, retailers are
challenged to develop additional deterrents to ORC, and they continue
to experiment with new low-and high-tech solutions. For example, some
retailers use specialized displays that dispense one product at a time
to prevent an ORC crew from wiping out an entire shelf of a product
with a quick sweep of an arm. More high-tech solutions, which one
retailer we interviewed is experimenting with, include the use of
"enhanced public-view monitors"--motion-triggered recording devices,
which begin recording someone as that person reaches into a
merchandise display (see figure 2 for examples of commonly used
mechanisms to help detect and deter ORC activity).
Figure 2: Select Technologies to Deter Retail Theft:
[See PDF for image: 4 photographs]
Locking fixture;
Enhanced public view monitor;
Plastic case securing an individual product;
Electronic article surveillance tag.
Sources: Clockwise from top left: Loss Prevention Research Council,
Loss Prevention Research Council, National Retail Federation, and The
Kroger Co.
[End of figure]
Many retailers are also committed to continued development of new
technologies to prevent shoplifting and ORC through the University of
Florida's Loss Prevention Research Council (LPRC). LPRC conducts at
least 12 research projects per year for the retail industry in an
effort to identify new loss prevention technologies that are to be
cost-effective in deterring crime. The organization was founded by 10
retailers--including Target, Wal-Mart, CVS, and Home Depot--and
retailers currently make up 23 of its 65 dues-paying members. Some
current research projects include test and control experiments looking
at the effectiveness of the enhanced public view monitors previously
described, special protective display fixtures for razor blades, and
in-store warning signage.
In addition to new technologies, retailers rely on personnel to aid in
their loss prevention efforts. Alert sales associates are one tool for
deterring theft, with one ORC expert noting that good customer service
is the most recognized theft deterrent in the retail industry. For
example, criminals prefer stores where there is minimal interaction
with sales associates, allowing them to commit their crimes without
drawing much attention. All five of the retailers we interviewed have
also invested in loss prevention personnel and asset protection teams
designed to investigate theft once it occurs. In general, loss
prevention teams vary in terms of size and sophistication depending on
the reach of the retailer and the availability of financial resources.
These loss prevention personnel can be visible, such as a "receipt
checker" who verifies what was purchased as a customer is walking out
the door, or behind the scenes, where they monitor surveillance
systems inside a store. Retailers and retail chains may also have ORC
investigators offsite who work locally and/or regionally to connect
the dots between a series of simple shoplifting cases, creating large
ORC cases for law enforcement. While there has not been any research
conducted to correlate the impact of a dedicated ORC staff on the
reduction of ORC activity, one expert noted that it stands to reason
that having trained staff would diminish the impact of ORC on a
company. See table 1 for a summary of key efforts employed by
retailers to help combat ORC.
Table 1: Summary of Select Efforts Employed by Retailers to Combat
Organized Retail Crime:
Type of effort: Technology;
Effort description:
* Security tags:
- Electronic article surveillance tags, embedded in or secured to
clothing or other products, emit a signal when leaving a store without
being deactivated by sales clerk;
- "Benefit denial" tags typically utilize ink to ruin a product when
removed improperly;
- Radio-frequency identification tags allow retailers to track
individual items through the supply-chain, including identifying if
they were properly purchased;
* Locking display cases secure merchandise and must be unlocked by a
sales associate to access the product;
* Specialized displays to dispense one product at a time make it more
difficult for a thief to sweep an entire shelf of products;
* Plastic cases around a single product to secure the merchandise must
be removed by sales associate during check out;
* Camera systems:
- Public-view monitors show customers that they are being monitored in
the store, recommended for high-theft aisles;
- Enhanced public-view monitors trigger a recording when someone
reaches for a specific product or enters a specific aisle;
- Closed-circuit television cameras situated throughout a store to
record customers and may or may not be monitored real-time by store
personnel;
* Case management systems used to track cases of ORC, including
suspects and frequently stolen products, within a retail chain.
Type of effort: Personnel;
Effort description:
* Sales associates whose presence can deter a thief;
* Receipt checkers who verify that customers leave only with products
purchased;
* Loss prevention personnel who may apprehend boosters in stores;
* ORC investigators who typically work with law enforcement and other
retailers to link incidents of ORC to build larger cases for
prosecution.
Source: GAO analysis of retailer information.
[End of table]
As the first line of defense against professional shoplifting,
retailers are often the recognized experts in investigating and
identifying organized retail crime. Regular exposure to the crime
makes it easier for them to differentiate between a shoplifter taking
merchandise for personal use and a professional booster. Many retail
investigators also have networks that allow them to understand the
crimes beyond their specific store or retail chain. Through their
dedicated ORC investigators, competing retailers often collaborate on
building ORC cases, as ORC groups typically steal common products and
hit several different stores in one geographic location in an effort
to obtain enough merchandise to fence.
Internal ORC investigators often begin to build cases for law
enforcement, as not all law enforcement may have the training to
understand ORC or the resources to dedicate to investigating it. In an
effort to help increase law enforcement awareness of ORC, the National
Retail Federation sponsors a Joint Organized Retail Crime Task Force,
which focuses on developing standard training and awareness programs
for retail loss prevention professionals and law enforcement officers.
All of the retailers and retail associations we interviewed indicated
that retailers usually build complete cases before presenting them to
law enforcement. Again, part of this is due to retailers' ability to
use their internal networks to identify patterns, but resource
constraints on the part of state and local law enforcement also make
it difficult for local law enforcement to initiate ORC investigations.
Law Enforcement Agencies Collaborate with Retailers to Investigate
ORC, and Federal Agencies Are Taking Steps to Improve ORC Case
Tracking:
State and Local Efforts:
Although retailers play a major role in identifying and developing ORC
cases, criminal investigation of these activities largely falls on
state and local law enforcement, which typically prosecute retail
crimes under state criminal laws. However, four of the eight local law
enforcement agencies we spoke with noted that retail theft--and
property crime in general--is often viewed as a lower priority than
violent crimes. As a result, there are generally limited resources to
combat ORC at the local level and any investigations are often
conducted on a case-by-case basis, weighing competing resource
priorities and the likelihood of successful criminal prosecution.
According to several retail and law enforcement stakeholders we
interviewed, individual detectives responsible for investigating
property crime are often the driving force behind decisions to pursue
potential ORC investigations, sometimes due to prior experience with
retail theft or pawn shop cases. However, five law enforcement
stakeholders noted that there is increasing awareness that ORC is a
serious crime--rather than petty shoplifting--and is often linked to
other types of criminal activity.
Local law enforcement typically becomes aware of potential ORC cases
through retail investigators but law enforcement may also identify
suspicious activity, such as the discovery of large quantities of
retail merchandise, during routine calls or traffic stops. If law
enforcement decides to initiate an ORC investigation, it will
routinely work closely with retailers to develop the case, which may
include conducting additional surveillance or undercover "buybacks,"
and attempting to "flip" lower level boosters to build a case to
higher level entities, as applicable.[Footnote 8] If ORC activity
spans across multiple jurisdictions, the investigation may be worked
in conjunction with other law enforcement entities, potentially to
include county or state level resources. For example, one state law
enforcement official we interviewed noted that investigators may be
able to leverage the resources of specialized units at the county
level dedicated to burglary or economic crimes.[Footnote 9] According
to officials from four of the law enforcement agencies we interviewed,
linking multiple retail theft events across jurisdictions is often
essential to build an ORC case large enough to be considered for
felony prosecution by a district or state attorney's office. For
example, after identifying a similar pattern of thefts occurring
across San Diego County in 2008, a detective with the San Diego police
department helped establish a task force with law enforcement partners
from neighboring jurisdictions to investigate an ORC group suspected
of stealing up to $1 million in merchandise. This group, which was run
by two brothers, included a network of highly sophisticated boosters,
as well as accomplices who would pre-sort sizes and position
merchandise to facilitate theft. The group would routinely target
malls in different parts of the county to reduce the chance of law
enforcement connecting the events. As a result of the joint
investigation, one of the brothers was convicted and 78 individual
theft cases were closed. As discussed later, federal entities may also
play a role if a retail crime case develops substantially in scope or
complexity.
Although retail crime is primarily prosecuted under state criminal
laws, the monetary thresholds required for theft to be considered a
felony vary from state to state. For example, in Illinois the felony
threshold is $300[Footnote 10] and in Wisconsin it is $2,500.[Footnote
11] Retail and law enforcement officials we interviewed noted that
professional shoplifters involved in ORC are typically aware of these
thresholds and often steal at levels below these amounts to reduce the
risk of felony prosecution. While two retail stakeholders we spoke
with noted that reducing the felony thresholds may provide a limited
deterrent to ORC, they also recognized that law enforcement already
faces resource constraints with existing retail theft cases. In fact,
some states have increased the thresholds in recent years, potentially
to focus available resources on higher-priority cases. For example, in
Maryland, the state felony threshold has increased twice since 2000,
from $300 to the current level of $1,000.[Footnote 12] In January
2011, California also raised the threshold for grand theft in that
state from $400 to $950.[Footnote 13] However, officials in California
indicated that prosecutors often try to develop a charge of
"conspiracy" or use other criminal statutes, such as those involving
false pretenses, in conjunction with major theft provisions to build a
stronger case. Similarly, officials we spoke with in Maryland noted
that multiple theft incidents may potentially be linked together
through the state's "scheme" statute if substantial evidence exists to
identify an ongoing course of conduct,[Footnote 14] and some other
state laws may allow for aggregation of thefts to meet the threshold.
[Footnote 15]
In recent years, many states have also developed legislation that
specifically targets ORC-related offenses. Examples of provisions
outlined in state legislation include defining retail theft and ORC,
prohibiting certain high-theft items from being sold at flea markets
or similar venues, and establishing felony offenses for multiple
thefts occurring within a specified time frame or for specific
activities, such as box stuffing or possessing items used for
overcoming security devices. Several retail and law enforcement
stakeholders noted that ORC statutes in most states are relatively new
and, according to three law enforcement authorities we spoke with in
states that had ORC laws, there is not yet broad awareness of these
provisions by many detectives or prosecutors. As a result, it is too
soon to tell what the impact of these statutes may be in terms of
providing an additional deterrent to ORC and assisting investigators
and prosecutors in building successful cases.
Federal Efforts:
Although state and local law enforcement are generally responsible for
investigating ORC crimes in conjunction with retailers, federal
agencies may become involved in major ORC cases that involve a
multistate or transnational component. While ORC itself is not a
federal crime, it can be comprised of a variety of underlying crimes
that can fall under the jurisdiction of multiple federal agencies. As
noted previously, the FBI and ICE are the principal federal agencies
addressing a range of ORC-related crimes, including interstate
transportation of stolen property, money laundering, fraud activities,
and aiding and abetting of those crimes, but others may also be
involved depending on the case specifics, including investigators with
the USSS, Postal Service, and the IRS, among others.[Footnote 16]
Consistent with previous testimony, officials from the three federal
agencies we spoke with stated that existing federal authorities and
criminal statutes are generally sufficient to target ORC-related
activities and groups.
Federal entities typically become aware of ongoing ORC investigations
when retail or state and local partners flag these cases for potential
federal involvement, or when participating in other collaborative law
enforcement efforts, such as task forces. Although officials with FBI
and ICE routinely conduct outreach to ORC stakeholders and participate
in loss prevention conferences, combating ORC is not an identified
mission priority for any of the federal agencies we interviewed, and
none has specific resources dedicated to conducting these
investigations. This is, in part, because other types of cases are
often larger or present a more specific threat to homeland security,
such as in the case of terrorism or illegal immigration. In addition,
although ORC stakeholders have cited potential links between ORC and
terrorism, officials from the federal agencies we interviewed were
unable to identify any ORC cases with any specific links to terrorism-
related activities or financing.[Footnote 17] Consequently, decisions
to initiate federal ORC investigations are largely conducted on a case-
by-case basis, weighing the potential scope and financial impact of
the case with other investigative priorities. Retail and law
enforcement stakeholders we interviewed also cited factors inherent to
ORC investigations that they consider when deciding whether an
investigation merits the involvement of federal agencies:
* Federal ORC cases are particularly time and cost intensive, often
taking several years and potentially requiring $100,000 or more of
retail merchandise to use as evidence. An FBI official responsible for
coordinating ORC investigations and a retail stakeholder similarly
noted that major ORC cases routinely require extensive undercover and
buyback operations to successfully build a case up to the highest
levels of an organization.
* Although no specific federal financial threshold exists,
stakeholders we interviewed collectively estimated that the value of
merchandise stolen required for federal agencies to consider an ORC
case ranged from $100,000 to $1 million, depending on the
jurisdiction. Officials with FBI and ICE also estimated $100,000 as a
likely starting point to pursue federal prosecution, but stated they
may review cases with a smaller dollar value of merchandise stolen if
it appears that the cases may increase in size or can be connected to
other crimes.
FBI: The FBI largely identifies and conducts ORC-related
investigations through seven major theft task forces operated in
conjunction with other federal, state, and local law enforcement
officers. Within the FBI, a total of approximately 55 agents are
involved in investigating major theft violations nationwide, some of
which are assigned full-time to the 7 major theft task forces located
in Chicago, Memphis, New York, El Paso (2), and Miami (2).[Footnote
18] Agents within these task forces are responsible for working all
categories of major theft, which include cargo, vehicle, art, gem and
jewelry, and organized retail theft. According to the major theft
program coordinator at headquarters, FBI field units in other regions
may also initiate an ORC investigation if retailers or local law
enforcement present a case to these units or if another federal agency
refers a case to them.[Footnote 19] This official noted that retailers
are generally best suited to identify patterns of stolen merchandise,
begin theft investigations, and potentially build ORC cases to the
point that they may warrant involvement by federal agencies. He stated
that the FBI generally determines to initiate a retail crime
investigation on a case-by-case basis and the decision may be affected
by competing threats and other resource priorities. While he is not
aware of the FBI turning down any ORC cases that retailers presented,
he further stated that cargo theft and vehicle theft likely represent
the greatest proportion of cases and the biggest financial impact
within the unit.[Footnote 20]
According to FBI officials, the primary nexus for bureau involvement
with ORC cases relates to the criminal statute prohibiting the
interstate transportation of stolen property, a statute that generally
applies to stolen goods having a value of $5,000 or more.[Footnote 21]
The FBI major theft coordinator noted, however, that the FBI could
potentially initiate an ORC case through an investigation of a related
criminal activity, including fraud. In this case, a different FBI
component may have the lead for the investigation, such as the "white-
collar crime" unit. According to the FBI, as of February 2011, the FBI
had 531 open cases of interstate transportation of stolen property
across the different theft categories. However, officials were unable
to identify how many of those cases involve ORC because, until
recently, they did not track cases by individual theft categories. As
a result, it is unclear to what extent the FBI is using resources to
investigate ORC or how the numbers of these cases compare to other
major theft categories. Such information would generally be useful to
help identify the potential scope of ORC and would provide management
with enhanced data with which to make potential resource allocation
decisions.
According to the FBI, it recently launched a bureau-wide program that
is likely to increase the information available regarding ongoing
investigations, including those related to ORC. As of February 2011,
the FBI initiated a program across the bureau that is intended to
enhance the level of detail of case-related information and improve
data collection and reporting efforts. Specifically, personnel are
required to use a collection of Crime Problem Indicator (CPI) codes
when entering data into the FBI's case management system.[Footnote 22]
The CPI codes include a combination of mission-oriented threat
priorities, as well as case-specific keywords and activity types.
[Footnote 23] For example, ORC-related CPI codes include "organized
retail theft" and "infant formula." According to FBI officials, CPI
codes are intended to provide information to unit heads about the
threats and crimes being investigated by their agents. If implemented
as envisioned, this effort could allow the FBI to mine the case
management system for all cases involving ORC. According to the unit
chief responsible for overseeing the project, the FBI has put into
place a collection of electronic controls, business rules, and
operational guidance to help ensure that the codes entered are
consistent, accurate, and complete. This official stated that the FBI
routinely reviews all ongoing cases every 90 days; therefore, as of
May 2011, all ongoing cases would include at least one CPI code.
Information from this project generally may be useful to help identify
FBI investigative priorities and provide management with additional
data on resource utilization--a practice consistent with internal
control standards.[Footnote 24] Further, information regarding ongoing
ORC cases may serve to better inform ORC stakeholders and Members of
Congress of the potential scope and impact of ORC relative to other
major theft crimes, which may include identifying whether any
additional federal involvement may be warranted. Given that ORC-
related cases routinely involve multiple federal crimes and could be
investigated by different FBI units, this effort may also be important
to help ensure that the major theft program coordinator, or other
applicable official, remains fully apprised of ORC investigations
being conducted bureau-wide. As the program was only recently
implemented and cases are still in the process of being reviewed and
updated, it remains too early to tell if these efforts will result in
the potential improvements identified.
ICE: ICE has also become increasingly involved in ORC investigations,
most commonly when cases include issues related to money laundering,
export of stolen goods, or involve crimes committed by suspects
residing in the United States unlawfully. ICE is the principal
investigative agency within the Department of Homeland Security and
its agents have investigative authorities under Title 8, 18, and 31 of
the U.S. Code, which allow them to pursue many different criminal
violations that ORC groups routinely commit. According to a senior
headquarters official involved in coordinating ORC-related cases, ICE
does not dedicate specific resources to investigate ORC cases as they
are not an agency mission priority, but it is not uncommon for state
and local law enforcement or retailers to contact ICE for assistance
in developing cases that involve complex financial or international
components. According to ICE, potential ORC cases may be identified
through its Cornerstone Outreach Initiative, which is a partnership
with the private sector intended to systematically identify and close
down vulnerabilities in financial systems through which criminals
launder their illicit proceeds. Investigators in one field location
also stated that ICE often "backs in" to an ORC case. That is,
investigators may be working on an alien-smuggling case and discover
that the immigrants are being brought into the country to commit
crimes, such as boosting merchandise for an ORC ring. These agents
further noted that although a case involves an international
component, it may be infeasible for ICE to dedicate investigative
resources unless the case is of sufficient scope to merit the
attention of a U.S. Attorney's Office.[Footnote 25] Moreover, given
that ICE agents assist in conducting ORC investigations as a
collateral duty, their ability to allocate resources may be further
affected by other priorities, such as current activities targeting
illegal immigration and Mexican drug cartels along the Southwest
Border.
Since 2009, ICE has been involved in several initiatives intended to
further evaluate its role and enhance efforts related to combating
ORC. The ORC Pilot Program, the first of these initiatives, was
launched in July 2009, in four cities with known ORC activity:
Houston, Los Angeles, Miami, and New York. The program focused on four
program areas: (1) development of a database with retail industry
contacts; (2) development of a threat assessment to help determine the
extent of ORC crimes in which ICE has jurisdiction; (3) enhancing
efforts to explore how ORC groups are exploiting vulnerabilities in
the banking system to launder profits; and (4) development of a
tracking system to assess ICE involvement in ORC cases. In March 2010,
ICE extended the program for one year and expanded it to include
coordination with the ICE National Cyber Crimes Center, which targets
various schemes perpetrated on the Internet, including fraud, money
laundering, and selling of credit card or other financial information.
According to program officials, at the completion of the ORC Pilot
Program in March 2011, ICE made progress in all key areas identified.
For example, ICE affirmed that many ORC cases have an international
nexus and can be investigated by ICE special agents, and ICE continues
to identify a collection of red-flag indicators of suspicious banking
activity related to ORC. In regard to developing a tracking system,
ICE created a program code for ORC within its case management system,
which is intended to allow headquarters to track case statistics,
facilitate identification of potential trends between ORC cases, and
help inform resource decisions. During the pilot program, 83 criminal
cases were associated with ORC, resulting in 38 criminal arrests, 29
indictments, and 14 convictions. While 14 of these cases were
investigated at the pilot program locations, the remaining cases were
investigated at 23 additional domestic and international offices in
which ICE special agents are located.[Footnote 26] According to ICE
officials, these cases have led to the seizure of nearly $4.9 million
in cash, property, and money instruments.
In February 2011, ICE announced the expansion of the ORC Pilot Program
into an ongoing national initiative known as SEARCH (Seizing Earnings
and Assets from Retail Heists). As part of this announcement, all
field units were advised to begin using the ORC program code for all
criminal investigations opened under the SEARCH Initiative. Similar to
the FBI, ICE supervisors also conduct a quarterly case review, which
is intended, in part, to ensure that all applicable program codes are
entered. According to ICE officials, the SEARCH initiative will build
upon the partnerships with private industry developed as part of the
ORC Pilot Program and operates on the assumption that federal anti-
money laundering statutes may be among the best mechanisms to target
individuals involved in ORC activity. According to ICE, by following
the money trail, investigators can often build a case to high levels
of a criminal organization. For example, ICE agents were involved in
one case in which illicit proceeds from the sale of stolen video games
on eBay was tied to an investigation of criminal organizations
involved in running the Vietnam underground economy, which included
trade in stolen U.S. identities and financial information. In April
2011, ICE indicated that 48 additional cases involving components of
ORC had been initiated since the launch of the SEARCH Initiative.
Emerging Regional Networks Are Facilitating Information Sharing among
ORC Stakeholders, but Limitations Exist with National ORC Database:
Emerging Regional Networks Helping Retail and Law Enforcement Partners
Share ORC Information and Build Potential Cases:
Given the importance of identifying ORC activity and developing
potential cases across multiple jurisdictions, law enforcement
entities and retail partners have established regional networks in
recent years to facilitate information sharing among stakeholders and
potentially identify linkages between connected theft cases. As
previously discussed, ORC groups commonly target malls and retail
stores across metropolitan areas or even along highway corridors
spanning multiple states. As a result of these patterns, a high degree
of coordination is required to share suspect information in a timely
manner and facilitate the aggregation of multiple thefts into a larger
case. A law enforcement official in Florida pointed out that ORC
generally requires greater coordination with other state and local law
enforcement entities than crimes such as robbery or burglary, which
tend to be more localized. To help meet the demand for effective
information sharing, a collection of regional networks has emerged in
various locales across the country. While each functions
independently, these networks commonly identify points of contact and
help facilitate identification of ORC suspects and potential linkages
between theft incidents. Involvement by federal entities in these
regional networks is generally limited as the networks are primarily
targeted to retail investigators and state and local law enforcement.
However, the networks provide a mechanism with which potential ORC
cases can be identified and developed to the point where stakeholders
may present them to the attention of federal agencies.
While the specific format and available tools varied between the eight
regional networks we studied, they share a number of common elements.
For example, all eight of the ORC networks include a contact database
of participating retail investigators and law enforcement members, as
well as some type of mechanism to vet individuals requesting
membership. The primary outputs for all of these eight networks are
informational alerts to participating members when ORC or related
theft activity occurs within the region. These alerts commonly include
such data as suspect information, incident location, and merchandise
targeted. The alerts are intended to be issued in a timely manner
after the initial incident so that retailers and law enforcement may
be able to detect or deter further theft activity or take additional
actions if suspects are identified in another location. As table 2
indicates, the ORC networks we identified range from relatively basic
technology platforms, such as Google Groups, to stand-alone websites
that incorporate more advanced tools, such as maps indicating
locations of recent theft incidents, customizable alerts, and keyword
searching to identify incidents matching selected criteria. As an
additional component, members of six of the regional networks also
hold periodic meetings or annual conferences to discuss ORC-related
trends and activities.
Table 2: Characteristics of Selected Regional Networks Targeting
Organized Retail Crime:
Organized retail crime network: Albuquerque Retail Assets Protection
Association (ARAPA);
Key characteristics:
* Initiated in 2008 - approximately 374 members;
* Site includes member directory, incident reporting forms and
customizable incident alerts, and incident mapping and searching tools;
* Approximately 30 theft incident alerts issued per week;
* Association includes monthly member meetings.
Organized retail crime network: Los Angeles Area Organized Retail
Crime Association (LAAORCA);
Key characteristics:
* Initiated in late 2009 - approximately 500 members;
* Site shares same technology platform and capabilities as ARAPA -
approximately two theft incident alerts issued per day;
* Dedicated individual available to field inquiries and provide ORC
expertise. Another individual monitors alerts to identify potential
connections to other crimes;
* Association includes member meetings every 6 weeks.
Organized retail crime network: Bay Area Organized Retail Crime
Association (BAORCA);
Key characteristics:
* Initiated in May 2010 - approximately 378 members;
* Site shares the same technology platform and capabilities as ARAPA
and LAAORCA;
* Approximately 8-10 theft incident alerts issued per week;
* Member meetings occur every 3-4 months and often include case
presentations.
Organized retail crime network: San Diego Organized Retail Crime
Association (SDORCA);
Key characteristics:
* Initiated in October 2010 - approximately 180 members;
* Includes member database and standardized incident report form;
* Approximately five theft incident alerts issued per week;
* Individual at San Diego Police Department vets members and responds
to requests.
Organized retail crime network: Cook County Regional Organized Crime
Task Force (CCROC);
Key characteristics:
* Initiated in December 2010 - approximately 500 members;
* Site shares same technology platform and capabilities as other
networks (ARAPA, LAAORCA, BAORCA), as well as advanced analytical
tools, such as identified linkages between suspects;
* Ad-hoc meetings occur as needed to discuss ongoing investigations
and an annual symposium is to be held in 2011;
* Individual within Cook County State Attorney's Office vets members
and responds to requests.
Organized retail crime network: Florida Organized Retail Crime
Enforcement Network (FORCE);
Key characteristics:
* Utilizes Google Groups as central repository of member contacts and
for email distribution of incident alerts;
* Approximately 800 members;
* Network includes monthly meetings of approximately 20-30 members and
a larger annual meeting.
Organized retail crime network: Metropolitan Area Law Enforcement/Loss
Prevention Retail Crimes Networking Group (Pennsylvania, Maryland,
D.C., Virginia);
Key characteristics:
* Established between 2004/2005 - approximately 200 members;
* Consists of email distribution list to submit alerts, suspect
information, and other theft incident information;
* Detective within Montgomery County Police Department (Maryland) vets
all new members and all alerts before distribution to members.
Organized retail crime network: Washington State Organized Retail
Crime Association (WSORCA);
Key characteristics:
* Scheduled implementation in May 2011 - ongoing vetting of
participating retail and law enforcement members throughout Washington
and Oregon;
* Site shares same technology platform and capabilities as other
networks (ARAPA, LAAORCA, BAORCA).
Source: GAO analysis of information from local law enforcement
agencies.
[End of table]
All of the law enforcement stakeholders we interviewed recognized the
regional networks as an important tool to consolidate ORC stakeholder
contacts and share information among members in a timely manner.
According to three law enforcement officials we spoke with, these
types of regional networks can be particularly helpful because--
through the theft incident alerts--investigators may identify suspects
who are wanted for other potential crimes. As a result, these networks
may help ensure that multiple cases involving the same individuals are
linked together to better leverage resources and avoid duplication. In
Albuquerque, for example, a law enforcement official stated that
hundreds of cases have been linked through the information-sharing
network in that region since its inception in 2008, including one
involving a retail-theft ring connected to over $400,000 in stolen
merchandise.
To date, individual law enforcement agencies have taken the lead to
develop these regional networks but retailers have played a major
support role and, in some cases, have served as the primary funding
sources for site development and maintenance. While some regional
networks have taken advantage of free technology platforms such as
Google Groups, more developed networks have entailed dedicated funding
and contractor support. For example, the Los Angeles Police Department
fully funded the initial development of the LAAORCA system, which was
among the regional networks that we reviewed with more advanced
capabilities. However, this project included participation from major
retailers, as well as the National Retail Federation. Although the Los
Angeles Police Department provides the majority of funding for ongoing
operation of the network, a non-profit entity was established to
receive financial support from members to help fund ongoing meetings
and conferences. More importantly, it appears that other law
enforcement agencies may be able to build upon the success and
investment of the regional networks already established. For example,
a law enforcement official responsible for establishing the BAORCA
system in Northern California noted that he worked with the same
contractor that developed the networks in Albuquerque and Los Angeles,
and was able to utilize the same technology platform for minimal
development cost. According to this official, the BAORCA network was
developed and implemented for less than $2,000 plus additional annual
operating and maintenance costs of approximately $1,500. Initial and
ongoing costs have been fully supported by four member retailers. The
Cook County State Attorney's office was similarly able to utilize
existing technology platforms to develop its Web site, for which
initial funding was provided by Target. These examples illustrate the
potential to leverage resource investments and an opportunity to
develop partnerships between law enforcement agencies and retail
stakeholders to help sustain these regional networks in the longer
term.
LERPnet Provides a Mechanism to Share Data Nationally, but
Stakeholders Report That Use of the Database by Retailers and Law
Enforcement Has Been Limited:
As part of the Violence Against Women and Department of Justice
Reauthorization Act of 2005, the Attorney General and the FBI were
required to establish a task force to provide expertise to the retail
community for the establishment of a national database, to be housed
and maintained in the private sector and to track and identify where
organized retail theft crimes occur.[Footnote 27] According to the
legislation, the national database was to allow federal, state, and
local law enforcement officials, as well as authorized retail
companies, to transmit information into the database and review
information that was submitted electronically. According to the
statement of the amendment's sponsor, the database was, among other
things, intended to help provide federal law enforcement with
information illustrating the interstate nature of organized retail
theft crimes.[Footnote 28] While funds were authorized in the act for
activities related to federal efforts to combat organized retail theft
and for working with the private sector to establish and use the
database, no money was ever appropriated under this section. Despite
the lack of federal funding, a working group was established--
comprised of the FBI and three major retail associations--to move
forward with the development of the database. One retail association,
NRF, ultimately took ownership of the project and provided the sole
funding for the creation of what became known as the Law Enforcement
Retail Partnership Network (LERPnet). LERPnet became operational for
retailers in 2007 and was linked to Law Enforcement Online (LEO.gov)
in January 2010, which provided access to all federal, state, and
local law enforcement officers.
Despite initial support, none of the five retailers we interviewed
found LERPnet to be a useful system for sharing information and
identifying trends related to ORC. Two retailers told us they
discontinued their membership in LERPnet because it did not provide a
sufficient return on investment.[Footnote 29] A major retailer, which
continues to support LERPnet, further indicated that its internal data
along with regional information-sharing networks have generally been
more useful than LERPnet in investigating ORC. While all five
indicated that they believed in the goal of LERPnet as a way to share
information, some felt it lacked sophisticated analytics to help
retailers identify trends and standardized data entry (each retailer
chooses what information to enter). Retail stakeholders indicated
analytical tools to help identify national-level ORC trends and
patterns would be useful, helping to connect suspect information.
Local law enforcement officials we interviewed also indicated that
LERPnet was not widely used to facilitate their investigative efforts.
Specifically, officials from eight of the local law enforcement
agencies stated that they rely primarily on regional information-
sharing networks as their cases are typically regional in nature.
According to these officials, the regional networks are most relevant
to local law enforcement because they are specifically targeted to the
investigative area and bordering jurisdictions and provide real-time
updates.
In April 2011, LERPnet was acquired by ISO Crime Analytics, a data-
management company with experience running large information-sharing
databases for the retail, insurance, and banking industries. LERPnet
2.0, as it is being called, is intended to address some of the
criticisms leveled at the original LERPnet when it becomes operational
sometime in the summer of 2011. For example, the system is to have
link analysis tools to help identify potential patterns of criminal
activity and enhanced notification mechanisms for retailers.
Additionally, ISO Crime Analytics is planning to hire a full-time data
analyst to supplement the automatic tools. Working with a retail
advisory board of 15 to 18 members, ISO Crime Analytics is to address
standardization of data entry, including providing uniform definitions
to aid in consistent reporting of incidents. The company is also
working to simplify data entry of theft incidents, in part, by further
enabling direct uploads from retailers' existing case management
systems. While the CEO of ISO Crime Analytics acknowledged that it
will take time for the alerts to be "real-time," the goal is to get
incident information uploaded into the system as quickly as possible
to enhance alerts available to retailers and law enforcement that want
to receive them. LERPnet 2.0 will be capable of linking to other crime
databases such as the National Crime Information Center, but the
specific databases are to be decided by the retail advisory board,
which the company said was to be formed in June 2011.
ISO Crime Analytics indicated that the system is first and foremost a
retail tool, since retailers are the entities most responsible for
identifying stolen product, inputting incident details into LERPnet,
and using that data to make links with other retailers and build
potential ORC cases. An FBI official responsible for coordinating ORC
investigations similarly stated that retailers are best suited to use
LERPnet to help identify patterns of ORC activity, make links between
stolen merchandise and goods being sold online, and identify major
cases that may merit federal involvement. For example, one retail
investigator noted that certain brands or products may be store-
specific, making individual retailers the most appropriate stakeholder
to identify which of those products could be potentially fenced
online. The FBI official further indicated that the value of LERPnet
is in making it easier for retailers to aggregate cases--thus
demonstrating a bigger impact with a federal nexus--and that the
agency typically relies on retailers to bring them ORC cases because
of the FBI's limited resources and other threat priorities. He noted
that once an ORC case is presented to the FBI for potential
involvement, agents would be able to use the FBI's internal case
management system to identify if any other cases involving the same
criminal suspects or organizations were open nationwide, potentially
linking ORC to other crimes. ISO Crime Analytics hopes that the new
system will also eventually be of use to local law enforcement. For
example, a company official noted that law enforcement may benefit
from retailer alerts for areas within their jurisdiction or could
potentially match stolen goods discovered to reported thefts. Since
LERPnet 2.0 has yet to become operational, it is unclear how widely it
will be used by law enforcement.
Leading Online Marketplaces Have Taken Steps to Combat e-Fencing, but
It Is Unclear If Additional Federal Action Is Warranted:
eBay, the Largest Online Marketplace, Has Recently Taken Steps to
Deter e-Fencing, but Varying Business Models and Available Resources
Impact Efforts of Other Online Marketplaces:
eBay:
Recently eBay, the largest online marketplace, has begun a series of
efforts designed to prevent the sale of stolen merchandise on its
site. The site maintains a "prohibited items" list designed to prevent
the sale of items subject to federal regulations--including firearms,
alcohol, and tobacco products--and other items unlicensed for sale,
including stolen property. However, eBay's recent efforts have been
designed to make it more responsive to requests for information from
both retailers and law enforcement, both of which usually need seller
information from eBay to link stolen merchandise to specific people.
Prior to its recent efforts, eBay provided seller information to
retailers and law enforcement when it was legally required to do so
through a subpoena, or other appropriate legal process.[Footnote 30]
In early 2008, eBay began to change its approach to the issue of ORC,
recently developing a series of initiatives designed to more easily
provide information to retailers and law enforcement alike.
For retailers, eBay developed the PROACT program, providing a way for
retailers to quickly submit and receive information on eBay sellers
they suspect of selling stolen merchandise. The program currently has
300 members. All retailers can submit a request for information on a
seller to eBay, and as of January 2011, eBay had received 2,340
requests for information.[Footnote 31] eBay's PROACT investigators can
provide information requested, such as name, address, and seller
history.[Footnote 32] eBay PROACT investigators may also help
retailers with their investigations by providing them with an
undercover account, which may be used to purchase merchandise they
suspect is stolen to help build a case, linking confirmed fraudulent
sellers--"bad actors," in eBay terms--to other users or accounts, and
taking action on user accounts, such as suspending them or pursuing
criminal action against them in concert with retailers and law
enforcement.
eBay also provides retailers with:
* eStop: On every product page, eBay has placed a "Report Item" link,
providing a mechanism to report a listing violation, including stolen
property. eBay has indicated eStop has been used three times since it
was implemented in early 2010. However, eStop requires retailers who
want a listing removed to affirm that the specific listing is stolen.
Often, they cannot make this affirmation without additional
information about the seller from eBay, which is one of the reasons
why eBay believes the tool has been used infrequently.
* Exception reporting: For PROACT member retailers, eBay is to create
customized "exception reporting" for those who request it. eBay will
work with these retailers to build reports on products frequently
stolen from their stores. As of May 2011, eBay has created these
reports for nine retailers. The reports provide retailers with
information showing the top suspicious sellers of high-risk items
based on quantities, price points, and high-theft areas. One retailer
we interviewed uses these reports to identify sellers that warrant
additional investigation--internally and within eBay--to determine if
the products that are being sold have been stolen from their stores.
eBay has also created tools to aid in providing law enforcement with
access to information. eBay's Law Enforcement Portal allows state,
local, and federal law enforcement to request information from eBay on
users suspected of selling stolen merchandise. The company allows all
vetted LE agencies to use the Portal to investigate possible illegal
activity on the site, including the sale of stolen goods, and eBay
reviews all requests to ensure they comply with eBay's privacy policy.
According to eBay officials, it approves about 99 percent of requests,
responding within 48 hours with the name, address, Internet Protocol
(IP) and email addresses, any additional contact information, shipping
information, listing and sales data, and user history over the last 2
years.[Footnote 33] In 2010, eBay received 603 requests through the
portal. eBay also built the Law Enforcement eRequest System to allow
law enforcement to submit requests for information and court orders
electronically. Since inception in November 2010, 1,601 requests or
court orders have been submitted by law enforcement in North America.
Additionally, all law enforcement can access eBay information through
LeadsOnline, an online, property-crimes database. eBay provides access
to listing and sales data through LeadsOnline automatically, providing
law enforcement with another investigative tool. Through the database,
law enforcement users of the system can get basic seller information
from the past 3 months. In 2010, 2,090 law enforcement agencies
conducted 12,990 eBay related searches on LeadsOnline. For more
detailed information, law enforcement agencies are to contact eBay
directly.
In addition to its retail and law enforcement efforts, eBay has also
implemented and improved a series of procedures designed to verify
seller information, proactively flag suspicious listings, and further
protect buyers. These efforts are independent of retailer or law
enforcement requests. These efforts include:
* Enhanced seller vetting: Starting in October 2010, eBay verifies
users' names, addresses, and phone numbers, and restricts new seller
activity until the seller builds a good business record on eBay.
[Footnote 34]
* Filters: eBay utilizes thousands of rule-based filters that search
for suspicious listings. Filter variables can be seller based
(financial, user information, feedback), item based (category,
pricing, keywords), or risk based (internal losses, risk models).
* Exception reporting: eBay runs 17 monthly exception reports on over
100 categories of commonly stolen products such as gift cards, health
and beauty aids, and infant formula. These reports are designed to
identify sellers who may have a high volume of sales in several retail
high-theft categories for further review or monitoring by eBay. From
January 2010 through March 2011, eBay has proactively reviewed 490
sellers, 237 of which were deemed "bad actors," compared with 2,870
requests received from retailers and law enforcement, 220 of which
were deemed "bad actors."
* Payment holds: Through PayPal, eBay has instituted a 21-day hold on
funds to new accounts so that proceeds from the sale of merchandise
are not available until the hold expires. eBay believes this is an
effective deterrent to the listing of stolen merchandise online as
thieves generally look for a quick way to convert merchandise into
money.
* Seller messaging: To remind sellers of eBay's rules related to
certain products, such as infant formula, eBay provides specific
messaging if a seller is trying to list the product. For example,
sellers of infant formula are reminded that they must include the
expiration date of the formula in the listing and that it is against
eBay's policies to sell expired infant formula. These efforts are
intended to protect consumers from purchasing potentially expired
products but may also provide an additional deterrent to those
knowingly selling expired products.
Retailers and law enforcement alike indicated that eBay's recent
efforts have been effective at facilitating information sharing during
ORC investigations. Three of the 5 retailers and 6 of the 10 state and
local law enforcement agencies we interviewed are members of their
respective eBay programs, as are members of FBI and ICE. Several
indicated that the company is timely and effective in providing
requested user information, and both groups commented that eBay's
commitment to information sharing is a significant change from a more
contentious relationship previously. eBay's recent efforts to increase
its cooperation with retailers and law enforcement have been voluntary
on the part of the company. Several retailers, and eBay itself,
credited its Senior Director of Global Asset Protection--an individual
with a retail loss prevention background--with developing the more
open environment at eBay. Two retailers we interviewed--one PROACT
member and one non-member--as well as two retail associations, cited
specific concerns about eBay's maintaining its long-term corporate
commitment to the PROACT program. In response, eBay officials
reiterated the company's long-term commitment to PROACT, noting that
the program maintains buy-in from senior corporate officers and is
part of a larger effort to enhance working relationships with
retailers.[Footnote 35]
Other online marketplaces:
While eBay is the domestic online marketplace most commonly cited by
stakeholders, other online marketplaces, such as Amazon.com,
Overstock.com, and Craigslist, could also be potential outlets for
stolen merchandise. Like eBay, these marketplaces forbid the sale of
certain goods on their sites and, to varying degrees, undertake some
review of listings. However, these other marketplaces operate
differently and some do not have the resources nor conduct the volume
of transactions as eBay, which could make it difficult to implement
the kinds of initiatives that eBay has started. For example,
Amazon.com and Overstock.com are primarily online retailers, directly
selling goods to consumers. In addition to selling directly, these
sites offer a way for other merchants, individuals or small
"storefronts" to sell to their customers. This sales stream accounts
for approximately 30 percent of units sold on Amazon.com in 2010 and
about .5 percent of Overstock.com's overall business. Even though
these third-party sales are not their primary business, both Amazon
and Overstock have taken steps to ensure the integrity of their sites.
All sellers on Amazon must first register with the site, providing
name, address, and an active credit-card number. In addition, sellers
must provide a telephone number to finalize registration, which is
only complete when a personal identification number is entered during
a call to the given number. In certain product categories--such as
clothing and accessories, electronics, and watches--Amazon limits the
addition of new sellers and closely monitors their performance to
ensure products are delivered in a timely manner and in the condition
described. According to Amazon, the company guarantees the condition
of the item and its timely delivery when customers purchase products
through third-party sellers on its site. Amazon also monitors the
rates of customer complaints, claims, disputed credit-card
transactions and other metrics in an effort to ensure that sellers are
maintaining a high standard of fulfillment and customer service.
Sellers who fail to meet performance requirements are blocked from
selling. In addition, Amazon has security processes in place to flag
suspicious activity, which may include changes in seller activity.
Furthermore, like eBay, all new sellers on Amazon are subject to
payment holds. Amazon disburses seller funds every 14 days.
Like Amazon, Overstock requires registration from all buyers and
sellers, and verifies registration details through a credit card
verification process, affirming that the registrant reported
information matches credit-card-billing information. In addition, the
company officials stated that staff manually reviews listings, going
through every listing category daily looking for fraudulent auctions.
When Overstock flags suspicious listings, it is to request proof of
ownership of the offered goods from the seller. As with Amazon and
eBay, Overstock also places limits on the amount of product being sold
by new sellers until they have established a favorable seller rating.
Both Amazon and Overstock indicated that they are willing to work with
merchants and law enforcement partners as needed to address potential
e-fencing activities, and they have done so in the past.
Law enforcement from four local agencies, three retailers, and one
retail association also indicated that some criminals are using
Craigslist to sell stolen merchandise, and some of them would like to
see increased information sharing from the site. However, Craigslist
provides an online classifieds service which functions similarly to
the classifieds sections of newspapers. As such, Craigslist provides a
service through which sellers of goods can meet potential buyers, but-
-as with newspaper classifieds--Craigslist has no involvement in any
actual transaction. Craigslist does not charge for listings in its
"for sale" categories, nor does it make any money from a completed
transaction, should one occur.[Footnote 36] Since buyers and sellers
deal with each other directly, company representatives noted that
there is no way for Craigslist staff to know whether any transaction--
lawful or unlawful--has even occurred. Additionally, Craigslist does
not require registration to use its site and does not collect personal
information, such as name or address, about the seller who posts an
item for sale. According to the company, its 32-member staff could not
reasonably vet sellers, as it receives approximately 1 million free
"for sale" listings each day. Given the overall volume of listings,
Craigslist representatives indicated that they feel illegitimate use
of the site is rare. However, the company does provide a flagging
feature on every ad, so that Craigslist users can flag ads that appear
problematic. Ads receiving a sufficient number of flags are
automatically removed. Craigslist also captures some electronic
information, such as IP address and email address, which Craigslist
provides to law enforcement when served with appropriate legal
process, such as a subpoena.[Footnote 37]
Each of the four internet marketplaces that we reviewed, including
eBay, prohibits a range of specified products from their sites. Some
of these prohibitions are due to federal regulations, such as those
related to the sale of firearms, alcohol and tobacco products, or
other items unlicensed for sale in the United States. However, other
voluntary product restrictions may be identified in each site's
internal policy guidelines, and the development and implementation of
these policies is generally at the discretion of the individual
marketplaces. While all of the online marketplaces that we reviewed
utilize a combination of mechanisms to identify policy breaches,
including technology filters, it is unclear to what extent other
existing or emerging marketplaces will also implement such efforts,
potentially leaving them vulnerable to being used for e-fencing.
Stakeholders Identified Additional Federal Actions Intended to Deter e-
Fencing and Mitigate Potential Health and Safety Concerns but
Potential Impacts Are Unknown:
Seller Contact Information:
Retail and law enforcement stakeholders we interviewed identified two
options that could help combat ORC, but both would require legislative
action to implement and the potential impact remains unknown. The
first, proposed by two retailers and representatives from three retail
associations we spoke with, would require that identified high-volume
sellers on online marketplaces list a verified name and address,
viewable to potential buyers.[Footnote 38] According to one retailer,
this initiative would be intended to provide an additional deterrent
to e-fencing by reducing the perception by sellers of anonymity during
online transactions. Determination of high-volume sellers could be
based on sales volume or the number of completed transactions in a
specified time period. However, officials from online marketplaces we
interviewed identified several potential concerns with such a
requirement and it is not known to what extent it would deter those
engaged in e-fencing activities.
Specifically, officials from eBay stated that providing potential
buyers with seller contact information may undermine its business
model by allowing buyers to circumvent the site and contact sellers
directly. Similarly, Amazon officials noted that making this
information public is currently prohibited by the company's terms and
conditions and emphasized their desire to avoid any potential efforts
by customers to circumvent Amazon and pursue direct sales from
merchants. Further, eBay company officials noted that providing public
access to seller information may also present a potential safety risk
as specific merchandise, its estimated value, and its location would
be available to potential criminals, a safety concern that Amazon
officials echoed. Finally, eBay officials voiced concern that
providing full contact information, particularly an email address, may
present an increased risk to sellers of identity theft due to the
greater potential for "phishing" scams.[Footnote 39] These concerns
would likely also apply to other online marketplaces with similar
business models that cater largely to individual sellers. In addition,
as discussed previously, eBay already conducts a number of actions to
validate sellers on its site and collects a great deal more seller
information than such a requirement would provide, information that
the company makes available to retailers and law enforcement as
requested.
In accordance with e-commerce legislation in the European Union (EU),
designated business sellers operating on a range of e-commerce sites,
including eBay-operated sites in that region, are obligated to list
full contact information, which is to include name, physical address,
and an e-mail address.[Footnote 40] However, according to eBay
officials, business seller laws do not contain a consistent legal
definition of what constitutes a business and the legal obligation for
properly identifying themselves as either a business or a consumer
lies exclusively with the seller. eBay provides its sellers a means
for this designation on its marketplace sites and informs them of
their statutory duties, but generally does not make this determination
and has no reporting requirements to EU or national agencies regarding
sellers' compliance. However, eBay officials indicated that above a
very high threshold of sales, eBay may require sellers to register as
a business (subject to a right of appeal) on some of its European
sites. eBay officials further noted that applicable business seller
laws instituted in some EU countries were developed as one component
of a broad consumer protection framework present in the EU and were
not connected to the issue of e-fencing. According to eBay officials,
as it is unlikely that sellers engaging in e-fencing would self-
identify as a business, the requirement would not likely be effective
as a means to compel criminals to provide their contact information.
eBay officials in the EU also reiterated that buyers in that region
often contact sellers directly in an attempt to circumvent eBay seller
fees--a practice they noted that puts buyers at increased risk of loss
and other fraudulent activity. Further, eBay officials noted at least
one verified case in which a seller was attacked in their home when
selling high-value luxury goods as a business seller on eBay in the
EU. Given the concerns identified, it is unclear if instituting such a
requirement in the United States would serve as an effective mechanism
to deter ORC groups from using the internet to fence stolen goods and
not result in unintended negative consequences. Further, given that
law enforcement agencies can already request seller contact
information from online marketplaces through other means, including
through eBay's Law Enforcement Portal or through legal process, such
as a subpoena, these agencies' ability to investigate potential e-
fencing activities would not be affected by such a requirement.
Selected Product Restrictions:
Given the potential health and safety concerns related to ORC cited by
three major retail associations and three law enforcement
stakeholders, the second option for legislative action they identified
relates to the potential restriction of selected products from online
marketplaces or other identified fencing locations, such as flea
markets. These restrictions would likely target the most common
products of concern identified by stakeholders, including infant
formula, over-the-counter (OTC) medications, and other applicable
health and beauty products. However, it is not currently known if the
second-hand sale of these goods has actually resulted in a public
health problem. For example, an investigator with the U.S. Department
of Agriculture stated that although there are routinely major cases
involving the sale and redistribution of stolen infant formula, he was
not aware of specific health impacts resulting from these products.
Further, any potential ban on the sale of specific products would also
impact the legitimate sellers conducting business in online
marketplaces or other venues.
Four of the ten law enforcement officials we interviewed indicated
that OTC medications and other health and beauty products are commonly
fenced via swap meets and flea markets, as well as through privately
owned convenience stores and online marketplaces.[Footnote 41] As a
result, there is limited assurance that these products were lawfully
acquired and are stored and handled according to the manufacturer's
recommendations. Two of the four retail associations we interviewed
noted that their members routinely work directly with manufacturers of
these products, which provides the retailers with increased assurance
that products are stored and handled properly and that they would be
informed in a timely manner in the event of a recall. At least one
state has already passed legislation restricting a targeted list of
high-theft health and beauty products from being sold at flea markets
and similar public venues without proof of ownership.[Footnote 42]
If additional sales restrictions for these venues were implemented at
the federal level, a range of potential actions could be considered,
including a complete restriction on the sale of specified products
through select sales channels, or requirements to provide additional
information in product listings in online marketplaces, such as the
manufacturing lot number and any applicable expiration dates. Such
information may provide additional assurance to buyers and allow them
to determine if any of the products may be subject to recall.[Footnote
43] For example, eBay has instituted a requirement that sellers
clearly list the expiration dates for all infant formula within the
product description. Yet, lacking any identifiable public health
impacts to date, it is unclear whether or not any such actions to
restrict specified healthy and beauty products are warranted.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOJ and DHS for official review
and comment. DOJ did not provide comments and DHS written comments are
contained in appendix I. We also provided selected excerpts of the
draft report to eBay, Amazon, Overstock, and Craigslist to obtain
their views and verify the accuracy of the information provided. We
incorporated their technical comments into the report, as appropriate.
We are sending copies of this report to the Attorney General, the
Secretary of Homeland Security, and other interested parties. In
addition, this report will be available at no charge on GAO's Web site
at [hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report or wish
to discuss the matter further, please contact me at (202) 512-8777, or
larencee@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report are listed in appendix II.
Sincerely yours,
Signed by:
Eileen Regen Larence:
Director, Homeland Security and Justice Issues:
[End of section]
Appendix I: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington. DC 20525:
May 31, 2011:
Eileen R. Larence:
Director, Homeland Security and Justice:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: Draft Report GA0-11-675, "Organized Retail Crime: Private Sector
and Law Enforcement Collaborate to Deter and Investigate Theft"
Dear Ms. Larence:
Thank you for the opportunity to review and comment on this draft
report. The U.S. Department of Homeland Security appreciates the U.S.
Government Accountability Office's work in planning and conducting its
review and issuing this report.
The Department is pleased to note the report's positive acknowledgment
that U.S. Immigration and Customs Enforcement (ICE) is one of the
principal federal agencies addressing a range of
Organized Retail Crime (ORC)-related crimes. In addition to
participating with other law enforcement agencies in developing cases
that involve complex financial or international components, ICE has
been involved in several initiatives intended to further evaluate its
role and enhance efforts related to combating ORC. For example, last
year ICE expanded its efforts to include coordination with the ICE
National Cyber Crime Center, which targets various schemes perpetrated
on the Internet, including fraud, money laundering, and selling of
credit card or other financial information. Although combating ORC is
not an ICE mission priority, ICE will continue to support these types
of investigations on a case-by-case basis, as appropriate.
Once again, thank you for the opportunity to review and comment on
this draft report. Technical comments on the draft report have been
provided under separate cover. We look forward to working with you on
future Homeland Security issues.
Sincerely,
Signed by:
Jim H. Crumpacker:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Eileen R. Larence, (202) 512-8777, or larencee@gao.gov:
Acknowledgments:
In addition to the contact named above, Kirk Kiester, Assistant
Director, and Ryan Lambert, Analyst-in-Charge, managed this
assignment. Erin Henderson, Jessica Orr, and Janet Temko made
significant contributions to the report.
[End of section]
Footnotes:
[1] A "fence" is an individual or organization that knowingly
purchases stolen or illegally obtained goods for the purpose of
reintroducing those goods back into commerce.
[2] Pub. L. No. 109-162, § 1105, 119 Stat. 2960, 3093 (2006). The
definition is for purposes of establishing a DOJ/FBI task force to
combat organized retail theft and the Law Enforcement and Retail
Partnership network (LERPnet), a national database, to be housed and
maintained in the private sector, to track and identify where
organized retail theft type crimes occur.
[3] For statistical purposes, the FBI defines cargo theft as the
criminal taking of any cargo including, but not limited to, goods,
chattels, money, or baggage that constitutes, in whole or in part, a
commercial shipment of freight moving in commerce, from any pipeline
system, railroad car, motortruck, or other vehicle, or from any tank
or storage facility, station house, platform, or depot, or from any
vessel or wharf, or from any aircraft, air terminal, airport, aircraft
terminal or air navigation facility, or from any intermodal container,
intermodal chassis, trailer, container freight station, warehouse,
freight distribution facility, or freight consolidation facility.
[4] Box stuffing is the replacing of the contents of one large box
with multiple smaller, high-value products. Return fraud occurs when
an offender returns an item that was not lawfully acquired to a retail
store to obtain cash. Ticket switching occurs when an offender affixes
a fraudulent barcode over another so that it rings up at the register
at a reduced price.
[5] National Retail Federation, Organized Retail Crime Survey (2010).
[6] Among the potential sources for these estimates are testimonies by
senior FBI officials in 2005. The first, delivered in February by FBI
Director Robert Mueller, identified annual property losses from cargo,
high-tech, and retail theft at an estimated $30 billion. In March
2005, another senior FBI official cited an estimate of $15 billion to
$30 billion for organized retail theft losses alone. In 2006, the FBI
also estimated financial losses from cargo theft to be $15 billion to
$30 billion.
[7] Richard C. Hollinger and Amanda Adams, 2009 National Retail
Security Survey Final Report, (University of Florida: 2010).
[8] In relation to ORC investigations, undercover "buybacks" generally
involve the purchasing of retail merchandise--that is suspected of
being stolen--from criminal suspects in order to build evidence of
criminal activity. "Flipping" occurs when a criminal suspect chooses
to cooperate with law enforcement, such as serving as an informant,
generally in exchange for a reduction in criminal charges against them.
[9] We did not determine the extent to which counties or states had
such specialized units since this was beyond the scope of our review.
[10] 720 Ill. Comp. Stat. 5/16A-10.
[11] Wis. Stat. § 943.20.
[12] Md. Code Ann., Crim. Law § 7-104.
[13] Cal. Penal Code § 487.
[14] Md. Code Ann., Crim. Law § 7-103 allows theft committed as part
of one scheme or continuing course of conduct to be considered as one
crime and the value of the property aggregated for determining whether
the theft is a felony or a misdemeanor.
[15] See, e.g., Fla. Stat. § 812.012; 720 Ill. Comp. Stat. 5/16A-10.
[16] Aiding and abetting consists of assisting or facilitating the
commission of a crime, or promoting its accomplishment.
[17] Federal agencies and retail associations cite several high-
profile cases in which financial profits from ORC groups were
transferred to countries known to support terrorism; however, no
direct ties between members of these groups and terrorist
organizations have been established.
[18] The Special Agent-in-Charge at a field unit is largely
responsible for identifying the specific threats and resource
priorities for their area of responsibility, which may include
allocating FBI personnel to major theft task forces.
[19] It was noted that the major theft program has been reduced in
size (through attrition) since 2007 and is now merged with the Violent
Crimes Unit.
[20] Industry experts estimate the total losses attributable to cargo
theft are as much as $30 billion per year; however, cargo theft was
only recently available as a separate reportable category in the
Uniform Crime Report and many companies don't report cargo crimes. In
2009, the FBI estimated that nearly $5.2 billion was lost to motor
vehicle theft.
[21] 18 U.S.C. § 2314
[22] CPI codes have existed within the FBI for approximately 10 years
but utilization was not obligatory across all divisions until the
implementation of this program.
[23] About 1,000 different CPI codes currently exist related to
various case-related details, including 24 major threat priorities (as
established by FBI management), criminal activities, and individual
roles (e.g. financier). Up to 20 different CPI codes can be entered
into the case management system.
[24] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[25] ICE officials noted that specific financial thresholds vary but
can range from $100,000 to $1,000,000 depending on each U.S.
Attorney's Office.
[26] Office locations in which at least four individual ORC cases were
investigated during this period include Chicago, Dallas, Detroit,
Houston (pilot), Los Angeles (pilot), Miami (pilot), Philadelphia, San
Francisco, Seattle, St. Paul, and Washington, D.C.
[27] Pub. L. No. 109-162, § 1105, 119 Stat. 2960, 3092 (2006).
[28] H.R. Rep. No. 109-233, at 97, 624-25 (2005) (statement of Rep.
Goodlatte).
[29] Annual dues are based on a company's annual sales.
[30] eBay stated that the company has always maintained ways for law
enforcement to obtain information through requests on department
letterhead, court orders and LeadsOnline, which is described later.
[31] The disclosure of personal user information to retailers and law
enforcement is covered in eBay's privacy policy, which indicates that
relevant information may be disclosed in response to a verified
request related to a criminal investigation or alleged illegal
activity.
[32] eBay will not provide PayPal information, as eBay noted that
banking information requires a subpoena from law enforcement. PayPal,
which was acquired by eBay in 2002, allows consumers to make or accept
payments online without directly exchanging financial information.
[33] An IP address provides information on the specific name and
location of a computer.
[34] eBay officials also noted that the company has a program in place
to ensure that buyers are protected in the event that they do not
receive an item purchased or the item is not as described.
[35] In responding to a draft copy of this report, eBay officials also
noted that the company has formed several partnerships intended to
help combat ORC, including those with NRF, FMI, the Jewelry Security
Alliance, and the National Association for Shoplifting Prevention.
Examples of specific efforts conducted through these partnerships
include the establishment of a working group with retail stakeholders
to address ORC issues and a campaign to provide community resources
for shoplifting prevention education and information.
[36] Craigslist offers local classifieds and forums with listings on,
among other things, items for sale, jobs, housing personals, and local
events. Listing on Craigslist is free, except for job postings in 19
cities, brokered apartment rentals in New York, and therapeutic
services throughout sites in the United States.
[37] Craigslist indicated that applicable law, including the
Electronic Communications Privacy Act (ECPA), does not allow it to
provide information about a specific listing to government authorities
without a subpoena, except in rare exigent circumstances. ECPA
regulates the disclosure of electronic communications and subscriber
information by electronic communication service providers and remote
computing service providers. Among other things, ECPA generally
requires that law enforcement obtain appropriate legal process, such
as a search warrant or subpoena, in order to obtain subscriber
information--such as a name or IP address--from a provider. 18 U.S.C.
§ 2703.
[38] Two bills proposed in the 111TH Congress included such a
requirement--S. 470 and H.R. 1173--which respectively defined high
volume sellers as those that engaged in (1) discrete transactions
totaling an aggregate value of $12,000 or more during a 12-month
period; or (2) 200 or more transactions with an aggregate total of
$5,000 or more; or as a seller on an online marketplace who in the
past 12 months has made or offered to make discrete transactions
aggregating at least $12,000.
[39] "Phishing" is a fraudulent practice intended to induce
individuals to reveal personal information, such as usernames,
passwords, or credit card details by falsely purporting to be a
trustworthy entity in an electronic communication.
[40] Directive 2000/31/EC of the European Parliament and of the
Council of 8 June 2000 on certain legal aspects of information society
services, in particular electronic commerce, in the Internal Market
(Directive on electronic commerce). Among other things, the law
requires contact information to be provided by "information society
services," which includes, for example, online information services
(such as online newspapers), online selling of products and services
(books, financial services and travel services), online advertising,
professional services (lawyers, doctors, estate agents), entertainment
services and basic intermediary services (access to the Internet and
transmission and hosting of information).
[41] This issue was not discussed in all of the interviews conducted
with law enforcement officials, and based on the individual roles and
experiences of these officials, some could not comment specifically on
the scope or impact of this activity.
[42] Colo. Rev. Stat. § 18-13-114.5 places restrictions on the
following items: baby food, cosmetics, medical devices, drugs, infant
formula, batteries, and razor blades.
[43] OTC medications and other products subject to recalls are listed
on an FDA website at [hyperlink,
http://www.fda.gov/Safety/Recalls/default.htm] and are typically
identified by the product lot number.
[End of section]
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