Recession Could Pave Way for Retail Crime Law

The impact of the recession on retailers and consumers, coupled with health and safety concerns associated with goods stolen for resale, may help bring about passage of federal legislation addressing organized retail crime, according to executives at the National Retail Federation. Looking at the current economic situation, we have a better story to tell moving forward, especially

WASHINGTON — The impact of the recession on retailers and consumers, coupled with health and safety concerns associated with goods stolen for resale, may help bring about passage of federal legislation addressing organized retail crime, according to executives at the National Retail Federation here.

“Looking at the current economic situation, we have a better story to tell moving forward, especially the safety issues with stolen baby formula,” said Jonathan Gold, NRF's vice president of supply chain and customs policy, in a conference call with reporters last week.

Infant formula stolen by ORC rings is vulnerable to spoilage and loss of nutritional value before it is re-sold, Joseph LaRocca, NRF's vice president of loss prevention, said in the conference call. Other targeted items, like diabetic test strips, may also degrade. ORC rings “leave products by the bulk load in storage facilities, garages or vans in parking lots where they are not properly maintained,” he added.

Gold and LaRocca addressed the ORC issue last week the day before three separate pieces of ORC legislation were introduced in the U.S. House of Representatives and Senate: the Combating Organized Retail Crime Act of 2009, sponsored by Senate Majority Whip Richard J. Durbin, D-Ill.; the Organized Retail Crime Act of 2009, sponsored by Rep. Brad Ellsworth, D-Ind.; and the E-Fencing Enforcement Act of 2009, sponsored by Rep. Bobby Scott, D-Va., chairman of the House Judiciary Committee's Crime, Terrorism and Homeland Security Subcommittee. The measures are similar to legislation first introduced last summer.

While the bills offer different approaches to combating ORC, taken together they would define ORC as a federal crime for the first time, amend federal sentencing guidelines for criminals convicted of ORC, require operators of online auction sites to cooperate with retailers and law enforcement officials in ORC investigations, and, in some cases, hold auction sites responsible for the sale of stolen merchandise that could have been prevented.

“ORC legislation will help give the federal government the resources and authority to pursue ORC criminals,” said Gold. The bills will ultimately be pulled together into a single “strong piece of federal legislation once the Obama administration signs off on it,” said LaRocca, who added that states are also pursuing ORC laws, including recent laws passed in Ohio and New Hampshire.

The Food Marketing Institute also welcomed the new legislation. “The introduction of three bills on the same day by prominent lawmakers shows that Congress is serious about legislating a solution to these costly crimes that threatens the safety of Americans,” said FMI President and Chief Executive Officer Leslie G. Sarasin, in a statement. “Too often these criminals are charged with petty shoplifting and receive minimal fines, probation or jail time. Complicit wholesalers, flea market operators, pawn shops and Internet auctioneers cannot be easily prosecuted.” FMI is a member of the Coalition Against Organized Retail Crime, which also praised the new legislation.

LaRocca said online e-fencing has become ORC thieves' preferred method for disposing of stolen retail merchandise because they can receive as much as 70% of its retail value, compared with 30% on a street corner or at a pawn shop. The anonymity of the Internet also reduces the chances of apprehension. LaRocca said measures specific to the Internet are necessary because online auction operators don't do enough to cooperate with retailers to stop ORC, typically working with police only after an incident is reported and not taking sufficient proactive steps to keep stolen merchandise off their sites.

However, a number of Internet groups are vigorously opposing ORC legislation targeting online commerce. “These bills, while ostensibly aimed at organized retail crime, are really about decimating the competition that big retailers face from small businesses that use the Internet to level the playing field,” said Steve DelBianco, executive director of NetChoice, a coalition of trade associations, e-commerce businesses and online consumers that includes eBay and The Wine Institute. “Unfortunately, the people that these bills would hit the hardest are not the criminals; they are the American consumers who have come to rely on Internet-based small businesses to find good products at great prices, which in this difficult economy, is needed now more than ever.”

BETTER BARGAINS

The bad economy is fueling ORC, noted LaRocca, because hard-pressed people “looking for bargains” can find them in the secondary channels such as flea markets, swap meets, street corners and online sites supplied by ORC rings. “A woman with a child may have shopped at a grocery store through a [Women, Infants and Children benefits] program, but she can buy at an even lower price at these secondary sources,” he said.

Moreover, the proliferation of massive discounts by conventional retailers makes it easier to “mistake an illegal resource for a legitimate retail entity,” LaRocca said. But retailers are not reporting an uptick in thefts by individual shoppers adversely affected by the economy, he added.

In an NRF survey conducted with 116 retailers across retail sectors last year, 85% of respondents said that their companies were victims of ORC activity in the previous 12 months and 63% saw a rise in e-fencing. “A major factor is the aggressive nature of the crimes,” said LaRocca. “People resisted arrests, which led to violent acts like stabbing loss-prevention personnel, police chases and manhunts.”

Last year, NRF tracked 446 ORC incidents involving at least $5,000 in merchandise in its LERPnet (law enforcement retail partnership network), to which retailers across sectors contribute data on ORC. The FBI estimates annual ORC crime in the U.S. costs the industry between $15 billion and $30 billion.

Retailers are fighting ORC by leveraging technology such as video surveillance, electronic article surveillance and GPS tracking devices, and hiring investigative loss-prevention teams, LaRocca said. But ORC gangs are also becoming more sophisticated, “watching stores for vulnerabilities, checking out the security equipment and looking for ways in and out.”