Since online marketplaces began, retailers of all sizes have suffered from theft and counterfeiting by unscrupulous high-volume sellers (HVSs). While estimates vary, the total amount of counterfeit goods sold each year ranges from $1.7 trillion to $4.5 trillion globally. There is also an equally damaging hit to brand reputation that can occur—52 percent of consumers lost trust in a brand after purchasing a fake good online, while 64 percent lost trust in online marketplaces (OMs).
Counterfeit goods are only a portion of the illicit activity occurring through the HVSs. Every day, news features about organized retail crime, (ORC) groups hit the wires; these groups continue to grow due to the ease of offloading their stolen goods to an OM, who in turn easily sells the goods.
After years of lobbying by major retail brands, Congress signed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM), introduced in the Senate more than two years ago, into law on December 29, 2022, to combat the problem. It took effect on June 27 of this year.
INFORM imposes new requirements on OMs to collect and verify certain information—such as a seller’s bank account, tax identification number, and contact information—within ten days of qualifying to list products to ensure they are legitimate. The law defines an HVS as someone who has sold 200 or more new items totaling more than $5,000 in a twelve-consecutive-month period over the last twenty-four months. HVSs with an aggregate total of $20,000 in annual gross revenue must disclose specific identifying information to consumers. The OM must also provide a reporting mechanism for electronic and telephone reporting of suspicious marketplace activity.
The Federal Trade Commission (FTC) is responsible for enforcing INFORM, and it treats violations of the law as violations of an FTC rule, according to the commission’s website as of June 2023. This means OMs that don’t comply could face FTC law enforcement, resulting in civil penalties of $50,120 per violation. State attorneys general and other officials authorized by the state are empowered to enforce INFORM and bring civil actions against non-complying OMs affecting their residents. Any violations can result in steep civil penalties, with state attorneys’ cases possibly resulting in damages, restitution, or other compensation.
In May of this year, the National Retail Federation (NRF) reported that 87 percent of retailers wanted a federal ORC law. However, during Loss Prevention Magazine’s spring town hall, most retailers remained quiet regarding INFORM. Based on other media reports and information from industry insiders, there seemed to be a widespread “wait- and-see” approach among many retailers. Now that the clock has run out, the question remains: Have retailers implemented strategies to comply with the new law?
Loss Prevention Magazine talked to several major retailers, some of whom preferred to remain anonymous, to understand how they will enforce INFORM’s requirements.
A Five-Year Journey to INFORM
The Home Depot is one major retailer that has been in front of INFORM for years.
They started lobbying locally, statewide, and in Congress for better ORC legislation about five years ago. It was “basic government relations” work, said Scott Glenn, LPC, vice president of asset protection. When an issue was a headwind for them, they would talk to everyone: district attorneys, attorneys general, legislators, and lobbyists.
“We also realized that we needed to get our own leadership to understand the changing nature of our risk and losses in the business,” said Glenn. Once the C-suite was on board, they were given latitude to “go do what you need to do,” he added. That is when they kicked their government relations activities up a notch. With that support, “We really began investing more in the ORC, government relations, and public relations spaces,” he said.
The Home Depot began pushing for changes in local legislation and beating the drum at the state level on “aggregation”—being able to compound ORC cases across counties and states so they could meet felony thresholds. As reported by the NRF, increased felony thresholds let thieves steal more while facing only a misdemeanor charge if caught. Then came the pandemic, during which 88 percent of retailers surveyed by the NRF said their businesses experienced an increase in the overall risk. The uptick in ORC prompted the brand’s senior leadership to get more vocal about its impact on earnings—and set in motion a broader plan to attack the problem.
“We developed a plan to go after the attorney generals at the state level and said, ‘You have to start ORC task forces. You’ve got to fund prosecutors, you’ve got to fund resources, you’ve got to be able to take that aggregation and bring it up to the state level, so you don’t have to worry about intrastate borders,” said Glenn.
The Home Depot eventually helped gain bipartisan congressional support for combatting ORC. Then, the media started covering the topic more aggressively, which made more retailers comfortable talking about the issue and its impact on their businesses, said Glenn. In 2020, the brand joined forces with the Buy Safe America Coalition, a diverse group of retailers, consumer groups, wholesaler distributors, and manufacturers, that lobbied Congress to pass INFORM to protect consumers and communities from the sale of counterfeit and stolen goods. Other major retailers in the coalition include Lowe’s, Walgreens, CVS Health, and Ulta Beauty.
The Home Depot’s Three-Step Prep
As INFORM comes into effect, The Home Depot has its asset protection, government relations, and legal teams involved in a collaborative, cross- functional effort to comply. The group meets weekly. It has focused on three core areas:
- Knowing their exposure: Understanding which products appear on the Internet and on which platforms.
- Engaging in peer-to-peer communication: This involves talking to online resellers and asking marketplaces what they are doing and how they are preparing. Are they following INFORM to the letter of the law? Do they know their sellers? How will they shut them down?
- Going after uncooperative sellers: When they encounter online sellers who will not play ball after they tell them what they expect, The Home Depot is preparing cases for the attorneys general to make examples of them. Glenn said they have at least a dozen cases ready if the OMs do not meet their obligations.
“We already know the answer to [where our problem is], and I think we’re in a better spot than others,” said Mike Combs, director of asset protection, organized retail crime, and central investigations team at The Home Depot. “When this comes into play, let’s assume people comply; we will be able to see that. It will be pretty easy to see who is in compliance.”
In the final weeks before INFORM went into effect, the retailer was working hard on ensuring its case management system, ThinkLP, would manage this type of case load, said Combs. A lot of the success will depend on how the OMs are complying and handling the cases, which The Home Depot will be able to monitor through manual and systematic tactics. So far, the retailer has solid relationships with eBay, OfferUp, and Amazon, whom Combs says have all been proactive. He said other marketplaces that are slower to act might think it is not in their best interests until after INFORM comes into effect.
“But I think this will be a game changer,” Combs said. “This will force them to follow some basic rules that we all agree on.”
Another major retailer that requested anonymity said it is also focused on setting up mechanisms and logistics for increased “controlled sales” to potential investigative targets. It has added analytical support to an already “very robust” activity monitoring system and will leverage new reporting mechanisms. The retailer plans to do a mix of reporting HVSs and letting them continue their activity to close investigations.
“We currently have very productive relationships with the online marketplaces and will leverage reporting mechanisms as needed,” said the source.
A second anonymous major retail brand source shared it is “not completely dialed in here as it relates to the INFORM Act” but plans to be engaged.
Three other major retailers contacted for this story either did not reply or declined our requests for comment.
Why Some Retailers and OMs Might Be Slower to Act—Or Comply
Combs said some of the perceived radio silence from retailers surrounding INFORM might be because more prominent brands with OMs—such as Target and Walmart—have to determine how to comply on both fronts. The Home Depot does not have an OM but does use liquidators. It does not resell other brands’ products. Glenn specified that most major marketplaces have the proper controls, but some might not cooperate with INFORM. Combs pointed out that privacy concerns exist around giving up some bad actors on specific platforms. He added the marketplaces they have had the most trouble cooperating with are not sharing information.
“The other ones that don’t help you out say, ‘Show me a subpoena,’” said Combs. “By the time you have a subpoena in an organized retail crime case, it is too late because they may have moved on. The fact that people can hide out on the internet and sell stuff under a fake name, you don’t usually know who they are until you take some of their ORC group or family members down and people start talking.”
Combs’ team is putting together a playbook for managing the influx of ORC cases that could emerge after INFORM goes into effect. The Home Depot plans to take some of the “bottom-feeders” on the internet, as Combs puts it, and send through some cases to the reporting mechanism INFORM requires OMs to implement. Glenn anticipates scenarios in which the OMs comply with the law, but nefarious sellers still find a way to get products into places like pawnshops. The Home Depot will not pursue all these cases under INFORM on a federal level, and instead will work with district attorneys to prosecute some bad actors. Thus far, Combs is unaware of any additional FTC or Homeland Security Investigations (HSI) support beyond what existed pre-INFORM.
“We will compress the universe a little bit,” said Glenn. “There just won’t be as many places for them to go and freely sell this product. And if they do, the online marketplace has the responsibility to shut them down. Hopefully, they do. It doesn’t mean we’re not sharing information, and we’re not still going after them to prosecute them on a state level or local level. It just means they will no longer be prosecuted under INFORM by the state attorney general.”
Combs added that when marketplaces alert them early to this activity, they can have a full-fledged investigation and quickly take care of things. Sometimes, the OM might need extra time to shut down a seller because they need more instances to help prosecute the case.
How Other Retailers Can Prepare
The Home Depot admits it is at an advantage because it has the financial resources to comply with INFORM. Smaller brands can still make their voices heard when adopting the processes required by the new law. All retailers must buy from suppliers and be held accountable for supply chain standards and online marketplace transactions. Whatever a retailer of any size does to come into compliance with INFORM, Glenn recommends against resisting.
“To me, if they don’t have the teams, if they don’t have the lobbying, if they don’t have the government relations folks, and all that stuff, their voice is still just as important,” he said. “I think all of us being on the same page and saying the same thing through [the Retail Industry Leaders Association], through NRF, and being part of that piece of it is the way to make their voices heard.”
As reported in a May 29 LPM article by the Retail Industry Leaders Association (RILA), the group supports enacting a federal ORC task force. This would bring together “federal law enforcement, including the Department of Homeland Security, Department of Justice, Federal Bureau of Investigations, and United States Postal Service, together to help disrupt and prosecute criminal rings targeting retail stores.”
RILA also plans to continue partnering with state attorneys general and local district attorneys to establish state ORC task forces and educate law enforcement on ways to identify and prosecute criminal actors.
“We strongly believe that marrying the transparency of INFORM with a more coordinated effort at the state and local level to investigate and prosecute organized theft rings is vital to addressing this problem in communities across the country,” said Lisa LaBruno, RILA senior executive vice president of retail operations, in the article.
What About Consumer Education?
The Home Depot said it has yet to focus on educating its customers about INFORM but has included awareness around buyer beware in its marketing. For instance, if a product seems too good to be true, it is likely counterfeit. OMs will still have their work cut out for them to shut down nefarious HVSs who might have other IDs or accounts or quickly set up additional ones.
The anonymous retailer said it is not concerned about HVSs moving their activity elsewhere once a report gets made because “high-volume sellers don’t operate that way.”
“They will most likely continue to try and appear legitimate with fraudulent invoices, co‑mingling products, and shell companies,” said the source. “Mid-to lower-level sellers are more likely to move around and change seller names and IP addresses.”
However, Combs has yet to encounter HVSs that produce fake invoices in an attempt to appear legitimate.
As with any new law, Combs expects a period of testing and learning to establish what is working and what is not when it comes to INFORM.
“No matter what plans we have in place, I’ve been trying to preach to the leadership team, ‘Be ready to adapt,’” Combs said. “Something’s not going to happen the way you think, or there will be a tweak. We are going to need to adapt based on compliance, or with what happens with how they enforce (INFORM).”
5 Tips for Complying with INFORM
- Become familiar with the law’s requirements: Read the bill’s full text on Congress’s website. Review it with all necessary parties at your business, including your legal counsel.
- Be aware of what fellow retailers are doing: Keep abreast of what other retailers are doing to prepare or talk to industry colleagues about their plans. Engage in ORCA meetings.
- Join forces with your fellow retailers: As Combs mentioned, there is strength in numbers. Smaller retailers can add their voices to the mix and echo more prominent brands’ words.
- Talk to your trade associations: The NRF and RILA all have knowledge of INFORM and can share insights on how they expect the law to be adopted and enforced.
- Have dialogues with OMs: Even if some are initially uncooperative, starting the discussion is necessary to ensure you protect your business and customers.
Lauren Fritsky is a seasoned journalist and content marketer whose work has appeared on CNN, AOL, USA TODAY, Huffington Post, Travel+Leisure, Entrepreneur, Adweek, and many other websites. She’s spent the last eleven years writing about IT, adtech, martech, retail, and e-commerce for global companies. Lauren earned a bachelor’s degree in English from La Salle University in Philadelphia. Contact her at Lauren.fritsky@gmail.com.
