Retail companies and law enforcement called on Congress yesterday to regulate online auctions sites to help curb criminals from selling stolen wares via the Internet during a hearing on Capitol Hill.
Known as e-fencing, criminals use the anonymity of Web sites like e-Bay to hawk goods stolen en masse from retail stores.
"Online marketplaces provide an unregulated environment in which thieves can re-sell stolen property to customers on a national or even international level with few or no questions asked," said Detective David Hill of the Montgomery County, Maryland Police Department.
Better yet, e-fencing is a more lucrative way to resell stolen goods because buyers on the Internet are unaware of where the goods are coming from.
Brad Brekke, vice president of Assets Protection for Target Corporation, said "These unwitting buyers are usuallly willing to pay twice (close to $0.70 on the dollar) that which was previously available to fences in the 'bricks and mortar' world."
E-fencing is just one aspect of a large criminal enterprise called organized retail crime (ORC), which is shoplifting on steroids. ORC is traditionally divided into two groups: fences and boosters. Fences, who direct the criminal enterprise, employ boosters who go into the store with "shopping lists" and steal what's on the list for payment. ORC has become so sophisticated, according to Brekke, that criminals use "just-in-time" inventory control systems where fences accept orders first and then direct their boosters to go out and steal the desired merchandise. When the stolen merchandise is not sold online, fences sell their stolen goods at underground bodegas, pawn shops, and flea markets.
One prominent study put ORC losses incurred by stores at $40 billion a year.
With much of ORC going online, the retail industry wants the federal government to step in and do something.
Karl Langhorst —director of loss prevention for Randall's/Tom Thumb, a Safeway company—wants clear federal legislation specific to ORC. "A federal ORC bill would establish a definition of ORC in statute, help eliminate the state to state jurisdictional cherry picking by thieves, and would be especially helpful in making e-fencing a less attractive option for criminals to sell stolen property.
The federal government, according to Hill, should make online auction sites collect and disclose serial numbers of products for sale on their sites as well as give more in-depth information on sellers so that retailers' loss prevention investigators can turn over prosecutable cases to law enforcement.
Besides, said Brekke, all the retail industry is asking is to bring the same legal approach, requiring seller identification and serial numbers, that regulates state and local pawn shops in the physical world to the Internet. But the nature of the internet, he said, allows fencers to elude state and local laws. "Every local fencing operation with access to the Internet can now operate internationally and beyond the reach of local law enforcement. A federal solution is necessary to protect our communities."
Robert Chesnut, senior vice president of Rules, Trust, and Safety for eBay Inc., the world's largest online auction site, defended his company and said the proper safeguards were already in place to deter the sale of stolen goods. He said eBay works with retailers and law enforcement to nab sellers listing and selling stolen goods.
Moreover, Chestnut said, all new sellers are required to provide a credit card number as well as accept PayPal as a payment option. "[C]riminals don't generally like to provide financial information and use payment systems that make it easy to track them down once their illegal behavior becomes apparent."
But Chestnut also took a swipe at retailers, accusing them of harboring ill will toward those who sell their used goods in a secondary market. "Our sellers are perceived by some as their competition, and one way to attack efficient secondary market competitors that sell goods at low prices is to suggest that there is something shady about those sales, when in reality those sales are completely legitimate."
Chestnut finished by offering his own legislative solution to the problem on e-fencing: "increase the criminal penalties for this conduct."
For more on ORC and how retailers have joined forces to fight it, see our ORC cover story, "To Catch a Thief," in the July 2007 issue of Security Management.