The Art of the Steal (21 page)

In my view, these one-time use cards for Internet buying are a good thing. We need them, because there’s no faith in the security of online transactions.

If you’re going to give your credit card number over the Internet, at least make sure that the site uses S.S.L., or secure sockets layer, encryption technology. The way to tell is if the screen shows either a closed lock or an unbroken key icon. Another sign is if the merchant’s web address shifts from “http” to “https” when it processes a transaction. This is far from a secure site, but it’s better than a site that doesn’t have encryption technology.

WHAT TO DO

Computer crime can be so much harder to track down than traditional criminal activity, and I find that you need to approach it differently. As soon as fraud is suspected, it’s important to call in an expert before the evidence can be hidden. That means don’t let anyone touch the computer system. What the security experts will do is undertake a forensic investigation of a computer, using a technique known as imaging, where experts take a copy of the contents so they can be studied without disturbing the original.

Sophisticated crackers know how to shred electronic files and create self-destructing e-mail, but forensic experts have their own ways of finding data, no matter how many times it’s been deleted. There are file undeleting programs that often will catch rookie thieves, more elaborate tools like hex editors that enable you to view even deleted data, and magnetic sensors and electron microscopes that seize on the fact that every file deposits magnetic traces on the disk. Measuring changes in magnetic fields allows experts to reconstruct deleted files or overwritten areas.

Security experts also use things like a “honey pot” or “goat file,” which is a collection of phony files meant to lure a hacker. If he bites and tries to steal them, the system is alerted so he can be traced.

As I’ve mentioned, things you yourself can do to prevent electronic theft include using encryption tools, firewalls, virus scanners, Trojan Horse cleaners, and intrusion detection programs. There are e-mail filters to block messages from known spammers. You can also subscribe to an e-mail filtering service that will scan e-mail for spam because they’re endlessly tricky—sometimes their ruse is even an invitation: “If you don’t want future mailings from us, reply to this address.” You think they’re being considerate. They’re not. If they get a reply, the scammers know you’re a live address and they’ll sell it to endless other scam artists. But spammers keep creating new addresses, so it’s a constant battle. And there are so-called Tiger Teams, computer experts, some of them reformed hackers, who come in and try to penetrate your system and then suggest ways to secure it. Just keep in mind that there is no such thing as an invincible system.

The FBI says if it had one tip to share to help catch cyberthieves, it would be to make certain your computer’s internal clock is synchronized to national standards, because that helps agents trace a thief’s steps.

Employees also need to do a better job of protecting their passwords into their systems. A common scam is for hackers to call employees, identify themselves as part of the company’s technology staff, and say they’re doing a routine check of passwords. Needless to say, if you receive one of these calls, always check with your company before divulging information. You need to choose a difficult password, a mix of letters and numbers, and you ought to change it every six months. Hackers have their own password-cracking software that tests words from lists of commonly used passwords—ordinary names, cartoon characters, rock bands. You wouldn’t believe how many people, for simplicity’s sake, use “password” as their password. Many others unimaginatively use their first name, or actually use none at all but have the “enter” key be their password.

Above all, consumers have to be smarter. When you go online, blind faith doesn’t work. Know who you’re dealing with. Don’t be deceived by some highly-professional looking website. That doesn’t mean it’s legitimate. And no matter how you pay for something, you need to keep records of purchases, because they’re your best defense against fraud.

It’s obvious to me that electronic theft will only get worse, and cyberthieves will become even craftier at stealing and covering their tracks. There’s a familiar saying in the computer underground: if you’re a good hacker, everyone knows your name, but if you’re a great hacker, no one knows who you are. A lot of criminals haven’t even moved online yet, and you can bet they will. Electronic commerce is still growing at a dizzying pace. So as criminals see more opportunity, they’ll be logging on looking for their cut.

9

[WHEN THE
LABEL LIES
]

I
t’s hard to know what you’re getting when you buy something today. And I mean anything. Just ask men in India. Indians, particularly those with money, have a fondness for buying foreign goods. They figure the quality far exceeds domestic brands. And so it’s no surprise that there’s been good business in brand-name, supposedly high-quality prophylactics “imported” from the United States and Singapore. Wealthier Indians don’t mind paying the substantial premiums they command.

The trouble is, many of the condoms are actually imported from no farther away than Calcutta and Bombay. They carry foreign labels and colorful packaging, but they’re decidedly inferior counterfeits, far worse than the cheapest Indian brands. Laboratory tests have concluded that 90 percent of them leak or are of such poor quality that they give dubious protection. Thousands of men have bought the fraudulent condoms, possibly bringing on unwanted pregnancies and exposing themselves to HIV.

But don’t think that counterfeit birth control products are an entirely male issue. Fakery is not a sexist industry. In Brazil, counterfeit Microvlar, the country’s most popular birth control pill, has been actively marketed by thieves. The well-disguised fakes, made out of flour rather than active ingredients, have resulted in a number of women becoming pregnant and/or developing unusual bleeding.

IS IT REAL OR IS IT . . . ?

When you buy something at the mall, the supermarket, or the corner deli today, you really don’t know if you’re getting what you paid for. Is it real or is it fake? Often the experts themselves don’t know. Fake products are hitting store shelves by the bushel, tripling in magnitude in the last decade and costing American companies on the order of $350 billion a year. It’s become a sweet business for scam artists. Dozens of counterfeit wholesalers are said to work in New York alone, with some of them making as much as $3 million a year.

Estimates are that at least 5 percent of all products are phony, and in some industries, the percentage runs much higher. Something like 22 percent of all apparel and footwear is estimated to be counterfeit. No brand has been spared: Lacoste, Armani, Calvin Klein, Tommy Hilfiger, Polo, Donna Karan, Nautica, and so on. Counterfeit leather products have long been popular with tourists, who load up on fake Louis Vuitton, Gucci, and Charles Jourdan bags and wallets. The better the brand awareness, the greater the likelihood of counterfeiting. We all love Swiss watches, and so it’s no wonder that an estimated ten million counterfeit Swiss watches are sold each year. More than a quarter of the computer software being run on computers in the United States is said to be fraudulent, and in some countries, 90 percent of it is fake. I’ve heard that the counterfeit golf equipment business is larger than the real golf equipment business. Hours after the Taylor Made Golf Company introduced a new $300 driver at the Professional Golfers’ Merchandise Show in Orlando not long ago, counterfeiters were selling their own fake replicas for half the price—at the same trade show.

Pretty much anything that sells gets counterfeited these days. Counterfeiters deal in mundane items like ball-point pens, correction fluid, socks, perfume, adhesive tape, stereo speakers, as well as more esoteric products like cargo hold covers for ships. I’ve even heard of counterfeit butterscotch candy.

The problem is not merely a cosmetic one, or one of phony denim that doesn’t fit or wear quite as well as the genuine label. Pharmaceuticals consistently lead the list of counterfeited products, because while medicine is expensive to develop, it’s relatively cheap to reproduce. There is also widespread counterfeiting of automotive and aircraft parts—there are actually decent odds that when you board any commercial plane it contains a few counterfeit parts. These can result in lethal consequences. It’s one thing to be stuck with counterfeit shampoo, deodorant, or talcum powder. It’s quite another to be ingesting fake prescription drugs: fake anti-malarial tablets, fake decongestants, fake aspirin. It’s one thing to be fooled into buying fake athletic socks. It’s quite another to have counterfeit brake pads installed in your new car.

There’s a lot of shoddy counterfeiting of products, and simple side-by-side comparisons generally will separate the genuine from the fraudulent. But, as with other areas of fraud, counterfeiting has improved enormously. Again, technology has been a tremendous boon to the scofflaw. With the work of the best counterfeiters, not only are the products perfect replicas, but so are the labels and the packaging. Even people who work in the industry can’t tell that they’re fakes.

A few years ago, Alfred Dunhill, the British luxury goods and tobacco company, was experiencing highly sophisticated counterfeiting of its purses and billfolds. A seizure of the products took place in Oregon, and a chain of counterfeiters was brought to trial. Naturally, the prosecution needed to demonstrate in court that the seized goods were in fact fake, or else there was no case. But the goods were so precisely counterfeited that prosecutors had to trot out an entire team of experts to testify. The fakes, which were being made in Asia, were so good that it took forensic analysis to identify them. Despite this, the result was a hung jury. The jury may have been sending any number of messages, including that it was utterly confused, but I suspect that one of them was that they weren’t entirely convinced that the counterfeits were truly counterfeits.

These days, the counterfeiter often uses the same machinery that the genuine manufacturers do, as well as the same packaging. Unilever came across a group of thieves in Chicago who were counterfeiting brands of their liquid detergent. They were ordering bottles from the same place Unilever got them in Canada. Then they filled them with cheaper soap and sold them to bodegas. Counterfeiting liquid detergent hardly seems worth the effort, but they were doing it with gusto.

Allied Domecq, a big wine and spirits distributor, found that a large proportion of its Fundador Brandy sold in the Philippines was counterfeit. It had been going on for so long, in fact, that local residents had come to believe there was a Philippine version of the product. The counterfeit bottles were perfect imitations, and in fact, were often empty Fundador bottles that were refilled. The only way you could tell the difference was when you tasted the brandy. There were actually different levels of the counterfeit brandy, some better tasting than others. Counterfeiters pretty much put anything in the bottle, as long as it had the same color and general flavor of brandy, but a few were more artful. But none of it truly tasted like brandy, since the thieves used sugar cane and flavors like rum.

Determined to put a stop to the counterfeiting, Allied Domecq changed the look of its bottles. It designed a new, hard-to-counterfeit label and it added a plastic cap and a guala, which is a plastic ball inside the neck that prevents the bottle from being refilled. The counterfeiting declined significantly.

IT’S NOT JUST FAKE FUR

To a large extent, counterfeiting is ruled by organized crime syndicates. Like other forms of fraud, it is growing so rapidly because penalties are inadequate and rarely enforced. There are extremely high profits and low risk, a combination that will always attract criminals. A number of years ago, the former head of the Born to Kill gang in New York said he made $13 million a year selling counterfeit Rolex and Cartier watches. Think about it. Low-grade quartz watches were shipped in from Hong Kong that cost $3.00. Fake trade names and logos were slapped on for an additional 50 cents. Then the watches were sold on the street for thirty dollars.

Dunhill pens sell for one hundred twenty dollars or so. Counterfeiters sell them for half that. And they look great, pretty much indistinguishable from the real thing. How do they do it? Well, they’re selling you virtually the real thing. Counterfeiters go to the same factory in Korea that makes the plastic barrel for Dunhill and buy the same barrel. Then the crooks go to the company that makes the cap for Dunhill and buy that. Well, then isn’t it the same pen? Just about. Dunhill’s clip that allows you to attach the pen to your pocket is 18-karat gold. The counterfeit pen has a gold-plated clip. And since the counterfeiters don’t have anything like the overhead and marketing budget that Dunhill has, they can settle for much less markup.

With organized crime involved, there’s enough money available that counterfeiters establish factories that rival those of legitimate manufacturers. I heard about a counterfeit coffee facility in Dagestan, a Russian republic, that can churn out 1.2 million units of coffee a month. An Asian facility making counterfeit athletic shoes is said to employ more than a thousand workers.

Counterfeiting often plays a significant role in money laundering, because laundering always works best when there’s a product involved. Authorities believe that the reason inexpensive items like correction fluid and trash bags are counterfeited is to wash money from other criminal activities like weapons smuggling and loan-sharking. Police using trained drug dogs have found heroin stuffed inside counterfeit Chanel and Louis Vuitton handbags. Criminals were doubling up, importing counterfeit products and drugs all at once. You have to realize, crime syndicates are business operations, and their executives sit around and make strategic decisions just like executives in Fortune 500 companies. One day, at the weekly marketing meeting, some guy probably spoke up and said, “Look, we’re bringing in these counterfeit purses and we’re bringing in drugs, why not combine the two? It’ll be more cost-effective.” The idea probably got him employee of the month.

The money is so good in counterfeit products, that terrorists are believed to often fund their activities by trafficking in fake goods. Terrorists in Northern Ireland are thought to have supported their violence by selling counterfeit veterinary products, perfume, video games, and computer software. The FBI believes the bombing of the World Trade Center was financed by the sale of counterfeit T-shirts and sportswear.

“MADE IN CHINA” MORE THAN YOU KNOW

Counterfeiters live all over, but a great deal of the merchandise originates in places like China, Korea, and Vietnam. China may well be the leading supplier of counterfeit products to the world, and just about anything the Chinese consumer buys is quite likely not real. You go to the store in China and there’s fake Skippy peanut butter, fake Gillette razor blades, fake Knorr chicken soup, fake Hellmann’s mayonnaise, fake Kellogg’s Corn Flakes, fake Lux soap, fake Rejoice shampoo, fake Huggies diapers, fake fertilizer, fake liquor, fake motor oil, fake chewing gum, fake cell phone batteries, even fake toilet paper. The goods are probably rung up on a counterfeit cash register and packed in counterfeit grocery bags.

Procter & Gamble began selling its products in China in 1991, and that same year counterfeits were already on shelves. The soap company says counterfeiters make fraudulent copies of their shampoo bottles and fill them up with the cheapest blend of raw ingredients. Then they’ll top off the product with a touch of the real shampoo to make it look and smell authentic. Each year, the problem worsens.

Royal Philips Electronics has said 40 percent of counterfeit Philips light bulbs in the Philippines come from China. Volkswagen said two-thirds of the car parts sold in China under its brand name are fakes. Hitachi has the same problem with counterfeit electronic products. The Chinese press wrote up some thieves who put together an entire car from used and counterfeit parts that they tried to sell as a new Audi.

China has begun cracking down on the problem, under pressure from foreign companies. But some pretty major cultural shifts have to take place. Local governments have been famous for protecting factories churning out counterfeit goods. Philips said that the prime counterfeiter in Zhangzhou in the Fujian province was even given an “outstanding youth” award by the local government.

All these cheap Asian fakes serve as fodder for all types of little scams. You know when you take transatlantic flights and the airline crews come around with little trolleys of duty-free items you can buy? Some dishonest crew members on British Airways figured out a way to augment their income. They bought counterfeit products like Raymond Weil watches, Chanel perfume, and Gucci sunglasses while on layovers in Hong Kong and Singapore. Then they substituted the fakes for the genuine products on the trolleys they wheeled around, and passengers unwittingly bought them. The crew members then sold the legitimate goods back in England to stores or on the black market. They would take watches to jewelers and tell them they had gotten them as unwanted gifts, and the jewelers would gladly buy them.

A big part of the problem is that most consumers don’t care if something is fake, as long as it looks like the real thing and it costs less. And it’s not just penny-pinchers who buy phony Gucci and Fendi bags. One counterfeiter said he had a steady client who was a neurosurgeon’s wife. Some rich people, he said, buy fake handbags and luggage from him for trips, so they don’t have to worry if they get stolen in hotels. Then they had the real thing for dinner parties and local use. The business has become very open. Counterfeit items are easily obtained on the streets of all large American cities. In Italy, they’re sold by street peddlers known as
“Vu cumpra,”
which means “wanna buy.” They even take out ads in the local papers. In Sweden, there was a mail order catalogue that sold all manner of counterfeit merchandise. It was called, “Fake.”

SALTING TALES

In few areas of fraud have technological advances been more welcome than among counterfeiters. “Cyberfakes” is the name that the garment industry has given to computer-generated logos and designs. The counterfeiter scans a real logo into his computer. Then he transfers it to a computerized embroidery machine. Using the image as a master, it recreates the design on just about any garment he chooses. Counterfeiters can buy an embroidery machine small enough to fit inside a suitcase for just three thousand dollars. Label-making machinery can be acquired in the same way, but it is much more expensive. More commonly, counterfeiters will farm out the work of counterfeit labels to factories in developing countries.