Rita Estwick is ready for battle. The manager of corporate security at Canada Post was recruited in January by the Retail Council of Canada (RCC) to organize the war on retail organized crime (ROC) in Canada. Much like a fictional crime fighter, she has been leading a double life, continuing her day job with Canada Post while serving as co-chair of the organized crime task force, struck to tackle a problem experts say is out of control in this country.

But Estwick isn’t alone in her fight. Loss prevention professionals from across the country are part of an army rallying behind her in the quest to get a handle on a problem that ranges from container theft, in-store fraud, corruption of sales associates and professional shoplifting rings that can become violent with store clerks.

When asked to quantify the problem, Greg Switzer, Staples Business Depot director, loss prevention, describes the problem as “epidemic.” Retailers warn that it is not only doing damage to the retail sector, but the economy as a whole, and it’s threatening the safety of Canadians, especially when it comes to counterfeit products making their way into the hands of consumers. Last year the RCMP helped U.S. law enforcement agents arrest individuals linked to selling counterfeit Viagra to support Hezbollah — just one example that these aren’t petty thieves, but well-connected individuals, often supporting causes in other countries.

Everywhere they turn these days retailers find links to organized crime — uncovering scams that continue to siphon money out of their cash registers and ultimately, will have an impact on con-sumers. It’s a battle retailers have been fighting from a grass roots level, but their goal this year is to engage law enforcement, raise public awareness and lobby government.

The RCC is focused primarily on three areas: identifying specific organized crime groups working in Canada, determining best practices retailers can use to combat the problem and developing recommendations that can be introduced to various levels of government for poten-tial regulatory and legislative changes. They have created six sub-committees, focusing on: government relations, organized crime rings, fi-nancial crimes, investigators’ information sharing network, education and research and communications.

“Towards the end of the year, we want to say ”˜this is what it looks like’ and to include best practices and recommendations and to go back to government for regulatory and legislative changes. In the U.S., they were successful in making retail organized crime part of a crime bill,” says Estwick.

On Jan. 5, 2006, U.S. Congress signed into legislation the Violence Against Women and Department of Justice Reauthorization Act of 2005. In essence, the Act requires the U.S. Attorney General to establish a retail organized crime task force within the FBI, creating a greater investigative focus in the U.S.

“This legislative change was as a result of retailers collaborating with law enforcement and government to raise the level of awareness asso-ciated with retail organized criminal activities,” says Estwick.

Ever since Congress authorized a crackdown on organized retail crime, “booster rings” of shoplifters and other retail crimes involving groups of individuals have been showing up north of the border. Retail organized crime has been pegged at $40 billion annually in North America and growing every day. Credit card fraud in Canada resulted in losses of just over $201 million to major credit card organizations and retailers are also feeling the brunt of those losses too. Fraud related to point-of-sale transactions also extends to debit fraud — in 2005 it resulted in losses of $70 million in Canada. And it doesn’t stop with plastic — in 2005, more than 422,000 counterfeit bank notes were passed and seized in Canada.

The numbers, says Estwick, speak to the severity of the problem. “We are finding large scale operations. Search warrants are being executed and police are finding the technology and infrastructure to create counterfeit credit cards and debit cards, fraudulent identification, cargo theft, counterfeiting products — evidence that they are broadening their perspective,” says Estwick.

Estwick says these groups collaborate with each other and use their individual skill sets, such as in a booster ring where one acts as the decoy, another steals the goods while someone else is waiting outside. Ultimately, another group fences the goods to a flea market or other black market distributor. When it comes to financial organized crimes, the goal is to obtain consumer data and sell it on the street.

“So they’re using one group to steal the cards, another to manufacture them and another to counterfeit them, but they’re all working together,” says Estwick.

Historically, organized financial crimes have been limited to large urban centres, but increasingly electronic fraud is penetrating the smaller markets. “We started hearing from smaller merchants saying they were being affected by PIN pads being comprised,” says Estwick.

In part, smaller areas were targeted because staff in the retail outlets haven’t been educated about how to spot a problem. “There’s a lack of knowledge and training and a lack of technology in smaller areas,” says Patrick Jandard, Country Security Manager with clothing retailer H&M in Toronto. “With a big box retailer you make sure practices are in place, but many small independent retailers don’t have the revenue to invest in the technology or aren’t even aware it’s a problem. Even small strip malls in urban centres are affected by this,” he says.

It’s something George Majkut of The Source by Circuit City has seen before. Majkut, senior director of loss prevention at The Source, used to conduct counterfeit investigations when he was in the commercial crime division of the RCMP. “Larger crimes were targeted by the larger police forces and the smaller retailers were left to do their own forensic investigations,” says Majkut. The concern is that, because the crime rings are well-organized, the volume of damage done is growing rapidly. “What we’re seeing is them banding together, in my opinion, and they are purchasing or stealing the credit-card making machines and duplicating devices and hiring individuals in the market to skim and purchase the numbers,” he says.

Individuals involved in organized crime are said to be paying retail employees a set rate per credit card — the going rate is believed to be $500 on the street — a temptation many find difficult to resist. For many large retailers, PIN pad tampering has become a significant problem in which customer credit cards are compromised. Tampering generally involves insertion of a ”˜bug’ into a PIN pad to capture credit or debit card account numbers, magnetic stripe data, and con-sumer PINs. A common tactic has been for a criminals to purchase a similar model of PIN pad device used by a targeted merchant on the resale market, and insert a ”˜bug’ into that device and swap them out when a clerk is not watching. This tampered device is then installed in place of the merchant’s PIN pad device. It is then used to fraudulently gather consumer information. In some cases, the devices are equipped with a transmitter which allows the criminals to remotely download the data from a location outside the store.

Switzer says there are typically three or four people involved in a PIN pad scheme. “They arrive at a store with equipment ready for installation,” he says. “They need 15 or 20 seconds to do their thing and get them in each location. The person who is the mule and in-stalls the equipment is well paid. When the data is transferred, those people are successful in creating credit cards that they sell. The final person who receives the card is then successful in purchasing highly-saleable, highly”“desirable goods.”

For other retailers, card fraud of another kind has become an overwhelming problem. “What we see is the use of gift card conversion as another method of theft,” says H&M’s Jandard. “People steal a large quantity of merchandise and try to return it and because they don’t have the original receipt they take a gift card in exchange and for us that is a critical issue. That’s where we experience the most losses. You can track that through exception reporting, but it’s really challenging to nail down every one of them.”

Many retailers see gift cards used as a means of converting credit dollars into hard cash. Fraudulent or stolen credit cards are used to buy gift cards and the gift cards are used to buy products, or the card is sold for 10 per cent off the face value on Ebay.

Similar to H&M’s experience, Danier Leather says it has also seen fraudulent credit cards being used to buy gift cards. Danier Leather director of loss prevention, Steve Waldron, says crimes involving credit and debit cards will eventually impact retailers deeply. “Customers lose confidence in the use of plastic and there will be an impact eventually on sales — particularly debit cards,” says Waldron.

Retailers have contracts with the major credit card companies that stipulate that, once the card is swiped and the sales associate has an authorization number, the retailer is not charged back. Failure to meet those requirements, however, could result in the amount being charged back to the retailer.

“These guys can be very suave. Sometimes they can get the store clerk to enter the card manually and before you know it they are out of the store and they have charged $5,000 to the card. In that case Danier is going to get the charge back,” says Waldron. “We try to remind the store associates often of the procedure and process.”

Even though retailers try to train employees to spot bogus cards, many cards look legitimate to the average employee so it gets scanned and the financial institutions pass it as legitimate, but down the road it is eventually discovered and there is a charge back to the credit card company.

Stolen credit cards are also used to buy goods that have a high resale value. One example is postage stamps, On the street an unscru-pulous person could purchase them at a 10 to 15 per cent discount. “They have a very good conversion rate for organized crime. So where they used to take a stolen credit card and buy a product and sell it at 25 to 30 per cent of value on the street — instead, they take highly desirable, low discount goods and sell to other businesses or on the street for 85 per cent of value and, in that way, they’re maximizing their efforts,” says Switzer.

Beating them at the game

Retailers know they have to work smarter to combat the infiltration of organized crime and many are ramping up their efforts. Waldron stresses pre-employment screening as the best tactic, followed by education for employees on how to spot a problem. “You need to create relationships with your employees. Organized crime is about identifying and placing propositions with people. The people engaged in organized crime are well-trained at doing this,” he says.

“Once it’s worth the risk for an employee, they’ll go for it, and I think you’ll see that becoming epidemic. For that reason, pre-employment screening becomes that much more important.”

Danier administers an integrity test, which Waldron says is basically an honesty test. “We are reviewing that process right now in terms of upgrading or enhancing the test to spot other predictors. A poor work ethic, for example, is a predictor for deviance. We’re looking to broaden that assessment and one of the products we’re looking at offers 29 predictors. I think it’s justifiable for a LP director to take it to management because you’re stopping the problem before you get through the door,” says Waldron.

Majkut says he favours exception reporting, regular store visits and training to combat losses. Like Waldron, Estwick says many Canadian retailers are moving to employment engagement strategies at the corporate level. Recently, the RCC hosted its annual human resource conference with 285 HR professionals. They explored the direct link between employment engagement strategies and theft reduction.

“You can measure it — depending on how engaged you are with your workforce — you can reduce your theft by 12 to 25 per cent,” she says. The RCC is also developing a web-based information-sharing portal for members where they can upload information about financial crimes in a privacy-compliant environment. It will roll out in the fall, and provide trend information for the retailers to better protect them-selves and serve as a platform to share information. Better still, the portal can also be submitted to law enforcement to support the investigation process.

The RCC knows it must present the problem of retail organized crime not just as a hit to their bottom line, but as an issue that touches consumers as well.

“You need to personalize it,” says Estwick. “You don’t say it is $40 billion dollar issue to retailers, you say it’s a health and safety issue for the public. Even as retailers start to harden their systems, the demand for stolen product is still there and now the criminals think they have to go in with a gun or go in and threaten or coerce the sales associate or get them hooked on speed so they will steal for them. We will see more and more of that and that’s when you have a safety issue develop, because it is becoming violent, it is becoming aggressive. It’s upping the ante.”



The Retail Council of Canada’s Organized Crime Task Force is hosting a series of Round Table Workshops to discuss the specific regional issues associated with Retail Organized Crime. Retailers, government officials, the financial community, manufacturers and law enforcement is encouraged to attend. For more info on locations and times, visit www.retailcouncil.org or email Rita Estwick at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

August 22, 2007:    Winnipeg
August 23, 2007:    Edmonton
August 24, 2007:    Calgary
October 18, 2007:   Moncton