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Organized Retail Theft

In Oliver Twist, Charles Dickens wrote about a group of youths from about 10 to 14 years of age who were formed into a band of professional pickpockets by an older man named Fagin. Fagin befriended these young people by providing them with shelter, food, and drink only to be able to control and direct them in their pocket picking activities to his benefit.

Today, we occasionally discover organized retail theft groups comprised of young people engaged in shoplifting for the benefit of a controlling adult—a modern-day Fagin. This type of organized retail theft (ORT) is just the tip of a very large iceberg threatening the core of our economic enterprise.

Forty years ago, organized retail theft in a different form plagued the East Coast. Gangs of professional adult thieves from various countries in South America in an organized and well-planned scheme were targeting high-end designer clothes from department and specialty stores from Boston to Atlanta. Intelligence on these gangs revealed that representatives from each gang would meet on a Monday morning in Providence, RI, and lay out the routes for the week. The Chileans might head toward New York City, the Peruvians would go to Philadelphia, the Colombians to Baltimore and Washington, and the Ecuadorians to the Carolinas and Atlanta. The following week, a similar meeting would take place and the victim retailers would be reassigned.

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These ethnically organized professional shoplifter rings still exist, although in smaller numbers, and hit stores in all parts of the United States.

From Designer Clothing to Household Goods

Today, there is a rapidly growing and different type of organized retail theft occurring all across North America. The targeted products are everyday household commodities, such as over-the-counter pharmaceuticals (Tylenol, Advil, etc.), analgesics, razor blades, film, batteries, videos, DVDs, CDs, smoking cessation and eye-care products, and infant formula. The list can change quickly, but they are generally the basics that are usually in high demand.

The thieves today are often highly organized former convicted felons who learned of this new way to make a substantial tax-free cash income during conversations with other inmates while strolling through the exercise yards of America’s prisons. These professional thieves, who steal as much as $5,000 of retail product per day, are known as boosters.

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The term booster is used to refer to someone who steals for a living and who is involved in an organized criminal enterprise. They have a buyer for their merchandise who has very clear knowledge that the products that they are purchasing for 10 to 15 cents on the retail dollar are, in fact, obtained illegally. Some boosters use the profits from this enterprise to support families and lifestyles that are not unlike the neighbors on the streets where we live. Some boosters, however, steal to support drug habits or other addictions.

Today, there is a rapidly growing and different type of organized retail theft occurring all across North America. The targeted products are everyday household commodities, such as over-the-counter pharmaceuticals (Tylenol, Advil, etc.), analgesics, razor blades, film, batteries, videos, DVDs, CDs, smoking cessation and eye-care products, and infant formula.

Interviewing a Typical Booster

Several years ago, investigators from Target Corporation interviewed an apprehended, prosecuted, and convicted booster on camera. This individual was not a junkie, but, instead, was very much a “guy next door.” Because his sentencing and probation judge required him to give these interviews, he was very frightened for his own safety. The organization with whom he had been previously affiliated in his career as a booster would likely kill him if they knew he was talking with both his victims and law enforcement as to how, why, and with whom he was plying his trade.

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During the interviews, this man admitted he had made $120,000 to $150,000 cash per year during the previous three years. The organization that purchased the stolen products from him was very specific as to what products they wanted. With his hit list, he would target drug stores, grocery stores, discount stores, and convenience stores from San Francisco to San Diego. He usually “worked” between four and five days a week, never on weekends, and took vacation from Thanksgiving through Christmas. He had been caught occasionally, but no one who had caught, arrested, or prosecuted him knew of the extent of his activities and the organization behind him until his last arrest.

The Organized Retail Theft “Sales Cycle”

Whether the booster is part of a highly organized system, such as the individual interviewed by Target’s national investigation service team, or an independent thief, the path the stolen product takes is generally the same. The booster will steal the items from numerous retailers and then sell the products to a fence. The fence then “markets” the product by offering it for sale from a booth in one of America’s thousands of flea markets or through the world’s largest flea market…Internet auction sites.
The products sold by the fence through these venues are generally near their expiration date or the cartons are slightly damaged. That doesn’t matter to the fence, however, because what he is really doing is advertising that he is in the business and can get product from his boosters.

The middle buyer, the one who buys in quantity from the fence, sees the products offered for sale by the fence and negotiates the desired items and quantities he will purchase. These “orders” get back to the boosters through the fence, and the boosters then steal the requested items from retailers.

The middle buyer will resell large quantities of products to a separate repackaging operation, or could be the owner of a repackaging operation himself. These repackagers usually operate in a facility that is about 3,000 to 5,000 square feet. Inside are several employees, usually illegal immigrant women, who clean up stolen product. They use cotton swabs with fingernail polish remover, alcohol, or lighter fluid to remove price tickets and EAS tag adhesive residue. They may change expiration dates and lot codes. They then repackage the small items into master cases complete with the brand name of the product stamped on the outside. Sometimes this stolen, repackaged product is co-mingled with illegally diverted or counterfeit product at the repackager. Sometimes the comingling takes place at the next destination, which is the wholesaler.

The wholesaler is often a large, publicly traded company that on the surface appears to be very legitimate. Some of these wholesalers have been sued by product manufacturers and investigated by federal law enforcement, but their battery of lawyers has always managed to keep them in business.

These wholesalers sell their products to retailers. While the wholesalers do legitimately buy product from manufacturers that are overruns or special deals, the legitimate product sometimes finds itself comingled with the illegitimate and counterfeit product that then is purchased by the unsuspecting retailer and placed on the store shelves to be purchased by consumers.

Can you imagine buying a container of pain reliever that at one point in its life cycle may have been concealed in the filthy underwear of a strung-out dope addict?


Efforts to Combat Organized Retail Theft

The Food Marketing Institute (FMI) has taken a leadership role in trying to understand the scope of organized retail theft. Chuck Miller, former vice president of loss prevention services for FMI, was instrumental in the initiatives his association has undertaken.

“FMI produced an educational video on ORT entitled Thieves Market,” Miller explained. “This 13- minute video is used to explain the problem to retailers, law enforcement, and legislators. In fact, Thieves Market were also being used as a training tool at the FBI Academy in Quantico, Virginia, to train law enforcement professionals and FBI special agents to better understand the methods of product theft and distribution in organized retail theft.

A second project was a research program to determine the what, the who, and the where this organized retail theft activity is occurring. Working with FMI on the project was CDO Solutions, a Washington, DC-based solutions provider company and Digital Data Development (DDD), a Las Vegas, NV-based global leader in advanced collusion detection technology.

Miller explained that they collected data from a large number of members of the Food Marketing Institute. And, with help from CDO Solutions and DDD, they accomplished the following objectives:

• Identify the target items boosters are stealing.
• Identify the geographic markets where this theft is occurring.
• Identify boosters who share common addresses, phone numbers, or identification numbers.

“Our ultimate goal in this project is to raise the awareness of the problem and get manufacturers, retailers, and law enforcement to help influence and drive legislative changes if and where appropriate,” said Miller.

Jeff Jonas, former CEO of DDD said that before becoming involved in this project he was personally not aware of the scope or magnitude of organized retail theft. And, until the results of this project were made known, he felt the general public also had no clue as to the immense size of the problem.

John Bliss, former president and CEO of CDO Solutions and currently general counsel and chief privacy officer at Atigeo, explained that the real problems caused by organized retail theft are significant to manufacturers, retailers, and the consuming public.

Retailers are losing an estimated $30 billion just to theft by boosters. This figure doesn’t include the incremental costs incurred by retailer when they unwittingly repurchase the stolen product, not to mention the significant cost of lost sales until the out-of-stocks are discovered and replenished.

“Manufacturers experience brand and market share erosion when three feet of product shelf space has been wiped out by a booster and the consumer seeks a substitute from the competition,” added Bliss. “In addition, the manufacturer loses control of the distribution of the product.”

Bliss cited Coca-Cola’s diversion incident in Europe in 1999 that ultimately impacted shareholder value in that company and caused its CEO to resign. Bliss believes the best way to attack organized retail theft is through a holistic, integrated approach by manufacturers, retailers, and law enforcement.

Legislation Necessary to Focus on ORT

We must continue to draft and enact legislation that will differentiate organized retail theft from common shoplifting, so that the penalties for organized retail theft crimes are far more meaningful than they are today. We simply have to change the risk and reward ratio to even the playing field to benefit the victims and penalize the criminals. Currently, federal laws need to do more to really address the crimes of counterfeiting and organized retail theft. Legislation needs to be enacted that will make it easier for prosecutors and for the business community to pursue both criminal and civil remedies against organized retail theft.

It is imperative that a strong understanding and partnership be developed between corporate security and loss prevention teams and law enforcement to deliberately and surgically attack this growing problem. Having our retail stores continuously victimized by ORT creates unsafe situations for both employees and customers, in addition to the negative impact on the economy.

The problem of organized retail theft isn’t limited to the United States. Other countries are also experiencing its impact. Canada, for example, is seeking tougher penalties for the sale of stolen goods in flea markets. Numerous search-and seizure incidences from Vancouver east to Halifax have taken place, resulting in recovery of millions of dollars worth of stolen product from flea markets, repackagers, and wholesalers.

Joint Law Enforcement Operations

In one incident, the New York state Office of the Attorney General issued a press release describing the dismantling of a huge organized retail theft ring that they believed caused $35 million of loss from stores in just eleven counties in upstate New York.

“The individuals involved in this ring set out to plunder upstate stores on a daily basis,” former New York State Attorney General Eliot Spitzer said. “The extent of this crime and the frequency with which it occurred is shocking.”

Members of this ring targeted specific items that are easy to resell, including Walt Disney videos, Gillette razor blades, Duracell and Eveready batteries, compact discs, video games, calculators, printer cartridges, Tylenol, Advil, film and disposable cameras, electric shavers, tools, and small electronics. Among the stores targeted by this ring were national retail chains such as J.C. Penney, Sears, Wal- Mart, Kmart, CVS/pharmacy, Staples, and Office Max.

Elsewhere in the Atlanta area Operation American Dream culminated in 41 federal arrests, 45 local arrests, the seizure of approximately $450,000 plus five luxury vehicles, and the recovery of approximately $1.6 million in stolen retail merchandise. Operation American Dream was a joint federal, Georgia state, and Atlanta police department investigation that took several years, thousands of manhours, and millions of taxpayer dollars to conclude. The Atlanta-based U.S. Attorney stated that this organized theft ring was responsible for tens of millions of dollars of loss from numerous stores around Atlanta, including Target, Wal- Mart, Kmart, Publix, and Kroger. Coconspirators in Baltimore, New York, and Pakistan were also arrested in this operation.

Ongoing Efforts to Combat Organized Retail Theft

Organized retail theft rings have been discovered and broken up in most states across America in the past five years. Yet, the problem continues. Some states are just now beginning to acknowledge the existence of ORT criminal activity and are taking steps to impact it. The attorney general of the State of Massachusetts formed an organized theft task force consisting of retail organizations and law enforcement agencies in that state to address education and legislative action to influence this serious issue.

The Kansas State House Judiciary Committee heard testimony from Wal-Mart investigators stating that “there has been an increase in organized retail theft by traveling boosters who have become more sophisticated and aware of the types of crimes that can be committed at this misdemeanor level. A large number of these individuals are involved in the use of illegal drugs. Retail theft provides a low-risk and high-reward method to support their drug habits.”

There is an old saying that you can’t kill a snake unless you cut off its head. In the case of organized retail theft, until the illicit wholesalers are dismantled, the problem will continue.

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