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Image: Zellman blog
As money laundering becomes more talked about and better known, various related aspects are also moving into the spotlight. One of these is organised retail crime (ORC), possibly better known by the illegal action it defines, rather than by the term itself.
The Washington Organized Retail Crime Association (WAORCA) defines it as “the theft/fraud activity conducted with the intent to convert illegally obtained merchandise, cargo, cash, or cash equivalent into financial gain when the following elements are present:
- multiple occurrences, and/or
- multiple jurisdictions, and/or
- multiple stores, and
- perpetrated by two or more persons or an individual acting in dual roles (booster and fencer)”.
A simpler version describes ORC as professional shoplifting or cargo theft, involving retail crime rings and other organised crime occurring in retail environments – these are known as organised theft groups (OTGs). “One person acting alone is not considered an example of organised retail crime. These criminals move from store to store and even city to city. Working in teams, some create distractions while others steal everything from infant formula to DVDs. Often, they are stocking up on specified items at the request of the organised crime leader.”
ORC activities have evolved tremendously in recent years. No longer merely street gangs operating in isolation for their own profit, ORC has gained a foothold in e-commerce and cryptocurrency.
More than just shoplifting
A new white paper, published by the US-based Association of Certified Anti-Money Laundering Specialists (ACAMS) and Homeland Security Investigations, describes ORC as “low-risk, high-reward business line for transnational criminal organisations’ portfolios”.
The report, titled Detecting and Reporting the Illicit Financial Flows Tied to Organized Theft Groups and Organized Retail Crime, highlights red flags, discusses the illicit financial flows ties to ORC, provides case studies, and gives guidance on how to boost anti-financial crime programmes, report suspicious activity, and identify which information is useful to law enforcement.
The report is at pains to dispel the popular notion of ORC being equivalent to shoplifting. “Public perception of this billion-dollar criminal activity is to write it off as a bunch of shoplifters and view it as a problem for retailers to solve themselves.”
Common shoplifting is indeed a familiar scenario, but ORC is markedly different from individuals who steal merchandise they merely want or need, but do not intend to pay for or cannot afford, like a mother who needs baby formula, or even a drug addict wanting to feed their habit. It is also a level above the isolated smash-and-grab incidents that are often reported in the news – these are committed by opportunistic individuals or local gangs looking for a quick gain.
ORC, on the other hand, is a well-oiled international machine dedicated to reaping high profits from the theft and disposal of high-value items.
Not a victimless crime
Like corruption, ORC is not a victimless crime.
Sometimes the operation is brutal and messy, such as smash-and-grab store theft, truck hijackings, or armed robbery, and sometimes it is highly sophisticated. Criminals have even found ways to switch bar codes on merchandise, says WAORCA, so they ring up for much less at the till – this is known as ticket switching. Others use stolen or cloned credit cards to buy goods, or produce fictitious receipts to return products back to retail stores.
Another example involves gift card crime of various forms. Thieves may use stolen credit cards to buy legitimate gift cards, which they will sell, completely anonymously, on online auctions sites such as eBay. Or they may buy gift cards of low value, illegally reprogramme them to reflect a higher value, and sell the cards.
It’s not hard to see the attraction for ORC syndicates – disposal of the goods can be accomplished with relative anonymity, and all in all the thefts are lucrative and bring high rewards for criminals, while proving detrimental to business as well as the economy.
Furthermore, they pose both societal and health risks to the community – think what might happen if a stolen shipment of baby formula or a pharmaceutical product is released to the market, via a wholesaler, after storage under incorrect conditions or with an intentionally altered expiry date. Or the possible casualties in a truck hijacking.
An analysis by Arrive Alive of the truck hijacking scenario agrees that this is a fast-expanding problem with international scope. “When truck hijackings first appeared as an issue in South Africa, as far back as 2000, it was almost always about the product,” the organisation said. “Where the product was sold into a pre-defined market in South Africa, more and more syndicates are starting to appear with apparent international links and interests.”
Boosters and fencers and more
ORC enterprises have a well-defined hierarchy, and the report explains this in detail. The boosters are on the bottom tier – they are the ones who steal merchandise from retail stores according to a predetermined strategy. They often work in pairs, one nabbing the items while the other acts as a lookout or distractor. Boosters use tactics such as modified clothing or shopping bags to avoid setting off electronic surveillance, or may simply load up a shopping trolley and exit the store with it.
Boosters report to the crew boss, who work off lists of wanted items provided by a fencer, which is the next level up. The crew boss also communicates with the fencers on logistics and pricing.
Fencers typically take the role of middleman between the ground crew and other individuals such as the diverter, cleaner, professional money launderer, and the so-named ORChestrator (styled as such in the report). Fencers, the report notes, will usually “own a wholesale front company or a warehouse that employs cleaners, and may sell the merchandise either through a store front, at a flea market, or through an online marketplace”. In more complex operations, fencers will clean the merchandise, package it, and ship it in bulk to a wholesale retailer who will sell the package to diverters.
Cleaners remove all retail anti-theft stickers from the stolen goods, often at repackaging facilities. They also disguise the origins of the stolen goods by attaching counterfeit batch numbers, packaging, and shipping labels. Cleaners may also issue new, higher-priced labels. They will then ship the product to the diverter.
Diverters handle secondary sales. They typically own warehouses, and often set up legitimate-appearing shell companies with vague, opaque names to layer the illicit proceeds from stolen goods. These businesses may themselves supply small, medium, or even large retail chains. They also tend to interact with the formal banking sector through e-commerce, shell companies, and transaction laundering, using the shell company bank accounts.
In more complex organisations, professional money launderers are used to disguise any suspicious financial activity and co-mingle illicit funds.
The ORChestrator is the leader of the OTG or several OTGs, especially in complex set-ups – the fencer or a diverter might head a less complex theft group. The ORChestrator may own brick-and-mortar stores that sell stolen merchandise at discounted prices. ORChestrators may have international links and may ship their goods transnationally through free trade zones like Dubai.
They may be involved other criminal activity such as counterfeiting, drug/weapons/human trafficking, cybercrime, or terrorism, and may use their ill-gotten ORC proceeds to fund these criminal activities.
For instance, investigations have found that people are often trafficked to other countries to be the boosters – this is especially common if the trafficked person is trying to reach another country but cannot afford it. They will be taken to the new country in return for their thieving services, until the debt is considered settled – if it ever is.
Partnerships are key to combating ORC
Finding and following the trails of money as it flows through legal and illegal channels is critical to identify the networks, build the cases, and ultimately dismantle ORC operations.
ACAMS says that besides involving retailers and law enforcement, financial institutions are a crucial part of ORC investigations, because criminals need ways of getting rid of their dirty money – amounting to nearly $70-billion annually in the US alone. They will exploit the formal financial sector as well as unregulated payment processors, and online marketplaces, including Amazon and Facebook, which allow them to sell stolen goods anonymously from anywhere.
“Illicit proceeds stemming from ORC are laundered through the formal financial sector by both basic money laundering techniques – like structuring bulk cash and interstate funnel accounts, leveraging straw buyers, and account takeovers – and more multifaceted schemes, such as trade-based money laundering and complex third-party money laundering typologies involving straw buyers, stolen gift cards, front and shell companies, and transnational OTGs.”
For this reason, says ACAMS, the global financial sector must become more aware of ORC and be able to effectively detect and report suspicious activity. “Increasing awareness across the financial sector is imperative in strengthening investigations relating to ORC and transnational OTGs.”
Furthermore, public-private partnerships and information sharing between law enforcement agencies, financial institutions, retailers, and other relevant or interested parties are also crucial parts of fighting this type of organised crime. These arrangements, says ACAMS, will be the most effective way to combat ORC and dismantle OTGs both domestically and internationally.
