LA Gangs take a vacation in Hawaii using funny (counterfeit) money

I've read a lot about street gangs, who used to finance themselves by selling drugs, moving into the financial crimes arena. Some say financial crimes are a lot more profitable, and the punishment for getting caught isn't nearly as harsh.

Looks like some of them have gone West (Hawaii) to enjoy a little vacation financed with "funny money."

The HawaiiChannel.com is reporting:

Thousands of dollars worth of counterfeit $100 bills are flowing into Hawaii, most likely from Los Angeles-based gangs, according to Secret Service officials.

For the last week or so, $2,000 to $2,500 a day in counterfeit $100 bills have been passed at retail stores in Waikiki and across the islands, the Secret Service said.

Some high-end Hawaii retailers are taking a hit.

Apparently, the members of the Bloods and Crips involved in this (didn't know they were hanging out together) sometimes buy merchandise and then refund it a short while later. Refund fraud is a common way criminals launder money, or turn it into disposable income.

According to the article, counterfeit (funny) money is also being passed by members of the military coming back from the Middle East.

HawaiiNewsChannel.com article, here. There is a pretty good video on how to detect counterfeit money to the left of the article.

The article confirms what I've seen a lot of in the past couple of years, which is that a lot of the counterfeit money in circulation are five dollar bills washed into hundred bills. Because of this, the counterfeit detection pens, which most merchants use don't work.

The best way to detect them is to hold them up to the light and if the hologram is Abraham Lincoln instead of Benjamin Franklin, it is a counterfeit. The embedded strips will also state that they are five dollar bills, if they are counterfeit.

If you are in the money business, I recommend teaching your employees how to visually inspect money. Counterfeit detection devices are not 100 percent reliable.

The Money Factory (government site) has a lot of good information on how to detect counterfeit money, here.

The United States Secret Service also has a page on their site with a lot of information, here.

Former IRS employee charged with a different type of refund fraud

With the deadline to file our taxes almost upon us, the term refund fraud, normally is associated with filing a fraudulent tax refund. A former IRS employee, Robert Dooley has been charged a different type of refund fraud (retail). The stated losses in this case were $330,000.

Dooley allegedly stole merchandise and refunded it in nine states (he gets around), using his IRS identification to intimidate (my best guess) Home Depot employees.

Many retailers allow returns without a receipt if identification is presented. The practice of maintaining this information in data bases, which might be hacked has been a concern with privacy advocates, recently.

I examined this issue in a recent post on what some retailers are doing to protect themselves without data mining information (SIRAS technology), here.

Refund fraud is estimated to cost retailers $16 billion a year based on a study conducted by Dr. Richard Hollinger at the University of Florida.

In many instances, Dooley received gift cards, which retail crooks often turn into cash, using a variety of methods.

Reuters story on this matter, here.

Their article suggests that Dooley would pick up the merchandise and head directly to the return counter. This is a common way retail criminals perform a fraudulent refund.

This isn't the first time in recent history a civil service type was involved in this activity. A little over a year ago, I did a post on a former Bush advisor doing fraudulent refunds:

Former Bush Advisor Arrested on Shoplifting Allegations

And civil servants aren't the only public figures that have been caught shoplifting.

(Winona Ryder photo courtesy of Wikipedia)

Retailers and the FBI band together to fight organized crime

Communication is probably the most effective tool in fighting financial crimes, especially those of the organized sort. Financial crooks (scam artists) thrive on a lack of communication and knowledge.

The retail industry realizes this and in partnership with the FBI is launching a secure tool that businesses and law enforcement can use to communicate criminal activity with each other. A simple, but powerful principle.

Here is the information on this new tool from the NRF site:

In response to an alarming rise in organized retail crime, the National Retail Federation and the Retail Industry Leaders Association, in collaboration with the Federal Bureau of Investigation, have teamed up to launch the Law Enforcement Retail Partnership Network (LERPnet), a secure national database that will allow retailers to share information through its unique web-based design. With LERPnet, retailers and law enforcement will be able to fight back against illegal activity including organized retail crime, burglaries, robberies, counterfeiting, and online auction fraud. The database will launch on April 9, 2007.

Full NRF press release, here.

More information on this tool can be seen by linking, here.

The Washington Post also did a good story covering this.

A lot of other industries and law enforcement agencies should follow this example. Developing better tools to communicate could help resolve the current epidemic, currently being seen in all types of financial crimes.

There is some evidence that the bad guys communicate with each other, regularly (carder forums). The good guys should do no less!

To close, Joe LaRocca, NRF vice president of loss prevention is saying:

“With this system, retailers are banding together with law enforcement to send a clear message to criminals: We will not tolerate your behavior and we will stop you.”

Why Buying Gift Cards on Auction Sites isn't a Good Idea

I recently did a post wondering if sites reselling gift cards would create an additional avenue for dishonest people to commit fraud. After all - gift card fraud - isn't new and eBay limits the sales of them on their sites because of the criminal activity associated with them.

The main reason eBay limited the sales on their site was pressure from the retail industry, or so I've read.

Fraud committed against retailers costs billions, and it's added into the "cost of goods sold," which means we are all paying higher prices because of it. There is a limit to being able to add the price of fraud into the cost of an item (competition) and when this happens, businesses fail.

A lot of people have lost their jobs when retail fraud couldn't be controlled.

In response to my original post, Joe LaRocca, Vice President of Loss Prevention for the National Retail Federation was kind enough to send me some links illustrating how big a problem this has become.

In November, the NRF released information that estimates retailers will lose $3.5 billion during the holiday (Christmas) season - link here.

Many retailers issue gift cards versus cash for refunds (especially when no receipt is present) and fraudsters sell them for cash. Joe provided me with an interesting link on this (story and video clip) from NBC4.com, here.

Refund fraud normally is a result of shoplifting, but when dealing with gift card fraud, we also need to include credit/debit card and check fraud. Retail fraudsters buy gift cards with their "bogus financial instruments" and then sell the cards for cash. Of course - they could be refunding merchandise bought with their bogus instruments - but it's easier (less work) for them to simply buy the "gift cards" and resell (fence) them.

Credit/debit card and check fraud are two activities that directly tie into "identity theft," which victimizes 9 million people a year in the United States, alone.

Besides the "indirect costs" we all pay - a lot of ordinary people become fraud victims after an encounter with a fraudster on an auction site. The Internet Crime Complaint Center cites auction fraud as their number one complaint and it keeps growing every year.

Besides placing yourself at risk - buying gift cards over the Internet - might be supporting the victimization of ordinary people and businesses alike!

Will Gift Card Sites Become a Fraud Problem?

This morning, I read a story in the San Jose Mercury about organized retail theft - which mentioned how shoplifting gangs are stocking up for the Christmas season.

The story quoted Joseph LaRocca, of the National Retail Federation:

"Goods stolen by organized or professional thieves are sometimes sold cheaply at flea markets, on street corners or in impromptu home boutiques, say retail security experts. They can end up as fraudulent returns to stores. And in a high-tech age, they can be "e-fenced'' on online auction sites."

Also mentioned was how gift cards are being bought and stolen with fraudulent checks and credit cards.

Not mentioned in the article is the fact that gift cards are also issued as refunds when someone doesn't have a receipt and that "hackers" have been able to load "blank cards" in the past.

And new "gift-card auction sites" seem to be popping up all over the Internet.

Marshall Loeb of MARKETWATCH recently did a story on these sites, which attributed this new trend to consumers not using up their old cards. While this might be true -- gift card fraud is nothing new -- and I have to wonder how many cards sold on these sites were the result of one fraudulent transaction, or another?

And even the article states that consumers should be wary:

Consumer advocates warn that you should be careful when doing business on these sites. There is virtually no way to avoid fraud completely; a seller could post and sell cards that have no value. Some sites have built in safeguards to prevent this from happening. CardAvenue.com, for example, validates cards listed at more than $100 and will cover up to $100 of a card's value if it proves to be a dud (you have to pay a $10 deductible, though).

After reading this, I had another thought, which was that eBay warns people all the time not to do off-eBay transactions, but they do anyway - and there are many of them who become fraud victims.

It's amazing what a few "too good to be true deals" will harvest in the way of victims.

Will we see the same thing on these "gift card sites?"

A couple of years ago - eBay limited the number of cards that could be sold by any one seller - as a result of all the fraud and some pressure by corporate victims (retailers).

Now - it seems - that these gift card sites are stepping into to fill the "void" left by eBay's change in policy.

A lot of these sites are too new to have developed a history, but given the history of gift cards being tied into fraud - it's probably a matter of time before we see problems.

I would strongly recommend that buyer's be careful (caveat emptor) and that the "retail industry and law enforcement" keep a "watchful eye" on these sites.

Of course - my guess - is that they already are!

A closing thought is that even if the cards work - if they were a result of a fraud transaction - we all end up paying for it in the end.

Businesses wouldn't stay in business otherwise.

If you are interested in how much gift card fraud there is out there, click on the title of this post.

Are Retail Refunds Violating Customer Privacy?

There is no doubt that fraudulent refunds from shoplifting cost billions. It's a way for criminals who target the retail industry to get cash.

To protect themselves from refund fraud, many retailers maintain the personal information of refunders in databases. With the identity theft crisis in "full bloom," many customers aren't very happy at having to provide personal information when they return a defective product.

Chelsea Emery of Reuters recently wrote:

Receipt in hand, Peter Soltesz expected his trip to Home Depot Inc. to return a $25 faucet part would be quick and uneventful.

But the Rockville, Maryland, consultant went home with the part -- and without his cash -- when the clerk insisted on recording his driver's license data.

"A driver's license is one of those pieces of key, secure information that identifies me," said Soltesz, a computer and telecommunications specialist.

"I'm more than happy to give it to a bank, but a Home Depot, for goodness sake? They can't clean a store, much less protect my information."

Please note that information is compromised at banks, quite frequently, also.

Of course, within the retail industry -- it's known that shoplifters aren't the only culprits in the refund fraud world -- dishonest employees (also) use refunds as way to steal cash. When an employee does a fraudulent refund and takes the cash - the loss transfers to the physical inventory (goods on hand) - and their till will balance. By the time an inventory occurs (once or twice a year), the loss will reflect as missing product, and it's impossible to determine whether it was due to internal, or external theft.

Since the employees have access to these (refund) data bases, my guess is that they use existing customer information, or make it up. Previous surveys within the retail industry have cited employee theft as the number one cause of losses.

The 16 billion dollar loss figure was put together by Dr. Richard Hollinger of the University of Florida and the most recent study reflected an increase in "organized retail crime." With the "identity theft crisis" in full bloom, it's probable that many of the "more organized criminals," have access to multiple identities.

Bad check writers frequent retailers all the time and are known to refund merchandise to get cash. There are databases to prevent check fraud and the way criminals often defeat them is to assume a "good identity." Again, due to the identity theft problem, identities have become cheap and are being marketed in chat rooms and rogue websites on the Internet.

If many of the criminals committing the $16 billion in fraud are circumventing the system - a lot of this data currently maintained probably is flawed.

Sadly enough, consumers like Peter are probably reacting to recent news events.

Recently - although never admitted to - it was alleged that "Office Max" was the point of compromise in a debit-card breach. In the past week, it has also "come to light" that "Dollar Tree" (another retailer) was the point of compromise in another breach.

If financial systems can be "hacked" at retailers, it's conceivable that this data base could be compromised, also.

According to the Privacy Rights Clearinghouse - which has been following this - 91 million people have had their data exposed in the past couple of years. And the list keeps growing.

For their chronology, link here.

Technology makes crime become more sophisticated on a daily basis and the "bad guys" are constantly looking to defeat "security measures." Unless these measures evolve, they can become "not very effective" in a short amount of time.

I'm not sure what the answer is. Retailers have the right to protect their assets, but at what cost and how effective is the process? Another issue is with all the "identities" floating around and "employee abuse," is there a potential for honest people to be tagged as shoplifters?

Sadly enough - as evidenced in the Reuters story - I doubt Peter will be giving Home Depot any business soon. This is going to hurt retailers, also.