Black Market Billions: How Organized Retail Crime Funds Global Terrorists (Gal Zentner's Library) (13 page)

But over-the-counter drugs for colds and indigestion aren’t the only items in stock at these warehouses. They comprise about 60% of the stock. Many warehouses also include hard-line items, such as electronics, and soft-line items, such as clothing, handbags, perfume, and lingerie. Soft-line items make up 30% of the warehouse, while 10% is allocated to hard-line items.

Keeping Shelves Stocked Through Cargo Theft

As shell warehouses started sprouting up and demand for product increased, the incidence of cargo theft (swiping tractor-trailers filled with goods) also grew. It is estimated that cargo crime in the U.S. results in losses of $10 billion to $25 billion a year.
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It continues to increase as thieves get more sophisticated and flexible and take advantage that U.S. law enforcement rarely shares information across agencies and companies. Similar to boosting stores, thieves work quickly, without discriminating against companies or people. Nothing is off limits.

“They will steal from anyone, anytime, and anywhere,” said Joe Wehrle, co-chairman of the National Cargo Theft Task Force and president of the National Insurance Crime Bureau (NICB), at the National Cargo Theft Summit in 2009. “Cargo theft is also providing the seed money for all kinds of nefarious activities, including funding terrorism. That’s why we need to break down all barriers to win this battle. Americans deserve our best effort.”
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Cargo theft rings (also known as cargo theft gangs) are made up of several low-level boosters and fencers organized into crews that are ethnically based and usually not well educated.
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Part of their strategy is to obtain a lot of items in a short amount of time. In south Florida,
the average age of a crew member is 20. They are usually from Cuba and are unemployed new U.S. citizens. They are recruited by ORC rings to work as part of the group because they have knowledge of how trucking operations operate. Although most of the cargo theft rings are made up of males, female members are used as a diversion to give these groups access to areas they may not be permitted to enter.

In 2009, there were on average 72 cargo theft incidents per month and 859 cargo theft incidents in total, a 12% increase from 2008.
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The majority of these thefts were full truckload thefts, and 36 were warehouse burglaries. Thirteen of the truckload thefts were hijackings. Electronics, including TVs, computers, and cell phones, was the hardest hit industry when it came to cargo theft, increasing from 174 cargo thefts in 2008 to 196 in 2009, representing 23% of all cargo thefts. The second group was food and beverage, making up 20% of all thefts, with home and garden items coming in third at 10%. In addition, the states that had the most cargo theft correlated to where the most ORC happened between 2007 and 2009. California, Florida, and Texas saw the most cargo theft in 2008. Georgia, Illinois, and New Jersey were identified as being at the next tier of risk.
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Coveted Items: Over-the-Counter Drugs

Although electronics (specifically, cell phones, whose average loss value was $2.05 million per incident) were the items most stolen, in terms of value the average pharmaceutical theft was valued at $4 million in 2009.
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In total, there were 46 drug thefts, which were valued at $184 million, up from 35 thefts at $41 million in 2007.
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Of course, the thought of purchasing contraband over-the-counter medicine when you are trying to remedy a cold, cough, stomachache, or heartburn is enough to make me sick. But for those who have chronic illnesses and who depend on medicine such as insulin, Copaxone for multiple
sclerosis, or liquid antibiotics, ending up with contraband medicines can be deadly. This is particularly true of medicines that need to be refrigerated; these are especially affected by cargo theft because the stolen boxes are rarely handled properly. Chuck Forsaith, corporate director of supply chain security for Purdue Pharma Technologies, Inc., acknowledges that although the street value of his company’s drug Oxycontin makes it more of a target for cargo theft, other drugs that need to be handled properly can and will do serious harm to people who need them when mishandled.

“If something like Copaxone or certain antibiotics are heated above a certain temperature, when injected they could potentially cause lethal damage,” explains Forsaith. “Drugs like these need to be handled very carefully by everyone in the supply chain, and the last thing cargo thieves are thinking is to keep these drugs safe during transport.”
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On March 16, 2010, Eli Lilly & Co. experienced one of the largest pharmaceutical cargo thefts in history. The well-planned scheme resulted in the loss of $75 million worth of drugs, including antidepressants such as Cymbalta and the antipsychotic Zyprexa. The theft was orchestrated by thieves who cut a hole in a warehouse roof and lifted the merchandise through it. Pharmaceutical companies are widely known for diligently protecting their supply chain, compared to other industries, because when a cargo theft happens, it not only affects their bottom line (Eli Lilly had $21.8 billion in sales in 2009) but also becomes a matter of public health.
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The level of sophistication at which these thieves operate is the stuff that spy movies are made of. Most cargo thieves start out as truck or bus drivers or as common thieves in their homeland countries and are then recruited to be cargo thieves in the United States. According to Jared Palmer, Cuban crime syndicates actively recruit new members in Cuba who have the proper background or training to commit these crimes and then smuggle them into the U.S. by way of Florida. Thieves get jobs working at warehouses or as truck drivers for the
warehouses around the country. They steal and ship merchandise back to warehouses and ports near Miami, where the merchandise is loaded into container boxes. These boxes are shipped to countries such as Paraguay, Venezuela, Colombia, Brazil, Argentina, and the Dominican Republic and then are sold through black market distribution channels.
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The Cuban crime rings aren’t the only ones who have adopted this model. Organizations such as the MS-13 in El Salvador, which recruit boosters, also recruit potential cargo thieves.

Profile of a Cargo Thief

Julio Gomez, 32, a former truck driver for B. Rosen and Sons meat company, didn’t realize part of his meat delivery (which included beef and pork) was being stolen from the back of his truck until it was too late.
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While sitting at a stoplight, Gomez heard a faint noise coming from the back of his truck. He disregarded it until he caught a glimpse in his rearview mirror of three young men carrying away three boxes of meat. The men vanished in less than a minute, taking almost $1,000 in prime-grade beef—meat that is usually sold to fine hotels and restaurants in the New York area. “My stomach was in knots when I pulled in [to the market] and saw the lock had been smashed and the doors completely unlocked,” said Gomez in an interview in the Hunts Point Meat Market in the Bronx. “It seemed like they were moving at the speed of light. I didn’t even see them coming.”

Gomez may have been transporting meat at the time, but the methodology cargo thieves use across the board is the same. The amount of research, observation, and coordination that cargo thieves engage in is unprecedented. First, the thieves must figure out where the merchandise is being bought, sold, and shipped to outside the U.S. The Internet is an indispensable tool for such thieves. They search for information on industrial parks and the locations of warehouses and distribution facilities. After they have identified a couple of shipment facilities, they spend weeks conducting surveillance on the property.
They case the building and take notes on everything from when and where shipments come in, to where they are coming from, to who is driving the trucks, to when breaks are taken, to when the cargo is left unattended. The thieves set up surveillance spots around the perimeter of the facility. When the moment is right, they steal the cargo by breaking into the truck when it is left unattended and manipulate the ignition and drive off with the cargo, or they attach their own truck to a stolen trailer and drive out of the shipping site. All of this is done within five to six minutes. In some instances, thieves case rest stops or fueling stations on interstate highways and pay off truck drivers to give up their haul.
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Thieves know that stolen trucks or cargo may have GPS tracking devices. Therefore, they engage in a “dump,” leaving the truck in an industrial park or on the side of the interstate, watching to see if law enforcement arrives to look for it. If no one comes to retrieve it, they move it to a warehouse. There they go through the merchandise and “clean” the product by stripping it from its old packaging. They relabel it or, in some cases, change or create fake documentation so that customs can move out the cargo boxes more efficiently. The “cleaning” process also ensures that product can never be tracked to its originating retailer.

“Shell Stores”: A Conduit for Organized Retail Crime

Cross-border trade is facilitated by a slew of fake retailers and web sites selling the contraband products. The Coalition Against Organized Retail Crime has identified Florida, California, New York, Texas, and Michigan as the five states that have the most ORC activity. This is true because of their close proximity to U.S. borders and their large amount of tourism. Many fences who run illegitimate warehouses in the middle of the country also own or are affiliated with stores geared toward tourists who want batteries, electronics,
discounted clothing items, and, in some cases, household appliances. The fastest way to identify these stores, according to Jerry Biggs, is that these retailers often have the words “sample sale” or “liquidation” in their names.

“Most of these fences target mom-and-pop stores in tourist towns, especially during peak season, when merchandise turns over quickly. With a quick turnaround time, a national recession, and an offer of merchandise well below what most legitimate warehouses are offering, this became a perfect storm for fences to make a killing on selling stolen goods,” Biggs explained to me.

Ties between shell warehouses and the retailers purchasing from the shells allow the supply chain to work like clockwork. Stolen merchandise hits the shell warehouse, is “cleaned” within hours via an assembly line of people, and is back out on the street in a matter of days. Speed and agility are crucial if fences and shell warehouses want to make money. The faster the fences can get the merchandise out to the retailers, the more money they make, despite merchandise being spoiled, tainted, and harmed through the careless method of transporting the goods.

Where these fences sell items is crucial to how they are bought overseas and then resold. According to Joe LaRocca, National Retail Federation (NRF) asset protection advisor, products such as infant formula are sometimes cut with a high-grade white powder made of ground-up plastic and flour to create more product to sell. “What’s most disturbing about this scenario,” says LaRocca, “is that infants are ingesting this excuse for nutritious formula to help a young body grow when it’s clearly not nutritional and could potentially cause brain and nerve damage, harming a baby’s ability to see properly or hear properly. [Parents who] are trying to save money are potentially and unknowingly doing long-term harm to their children. The whole scenario is very upsetting.”
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Shell Stores Move Online

Setting up shop online is also one of the most common ways fences at the warehouses get stolen merchandise into the hands of unsuspecting consumers. In 2009, the Coalition on Organized Retail Crime estimated that this process, also known as e-fencing, is a $42 million business, up from more than $5 billion in pre-recession 2007.
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Web sites are easy to set up, relatively inexpensive to run, and can leave the seller virtually anonymous. In addition, the Internet allows criminals to easily convert stolen goods into cash. According to a study done by the NRF, 5% of products stolen in 2009 were sold on the Internet, equaling an estimated $610 million of stolen merchandise in 2009 alone. While most of the goods stolen and sold are personal items—razors, beauty products, and diabetes test strips—luxury items are also stolen and sold. More than 68% of interviewed retailers have found stolen goods on a web site.
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Auction sites, such as eBay and Craigslist, offer added anonymity because sellers of merchandise can use fake names and screen handles and can ship from P.O. boxes, essentially making them untraceable.

In 2009, the FBI picked up Ahmet M. Keskes, 38, in Illinois for selling stolen merchandise ranging from golf clubs made by TaylorMade, Ping, and Callaway to electronic dog collars, Victoria’s Secret perfume, and car headlights. According to FBI files, Keskes made more than $2 million in sales through online auctions and his registered web site. Even though Keskes was running his business out of a corporate office in Streamwood, Illinois, he sent merchandise through a P.O. box established under a fake name. It wasn’t until an FBI informant went undercover and bought items from Keskes that he was charged with mail fraud—a felony that could carry a maximum sentence of 20 years. But he was not brought up on charges of selling stolen goods.
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“The problem is twofold,” explains Jerry Biggs. “The first problem has to do with what constitutes a felony. In some states it’s stealing just about anything. For example, in Indiana such a crime is a felony. But in states like Florida or California, only stealing merchandise totaling more than $1,000 is a felony. Secondly, the law doesn’t cover people who are purchasing stolen items and selling them through legal outlets—that is, the ‘gray market.’ It’s incredibly difficult to track. We know where the merchandise is coming from. We can try to track it internally, but once it leaves the store it’s virtually impossible to tell where it is going.”