When is credit-card theft a good thing? When the culprits might otherwise be killing you.
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The Federal Bureau of Investigation says national gangs like the Bloods and Crips are becoming more sophisticated, turning to white-collar financial crime and cyber attacks that threaten Corporate America and, well, everyone.
The evolving criminal schemes, which include mortgage fraud, counterfeiting, bank and credit card fraud and identity theft, are attractive because they are much less risky than traditional gang-related crimes such as murder, drug trafficking and robbery, and have the potential to yield much greater profits, according to a new national gang threat assessment from the FBI.
“In sort of a macro-sense, if they are hacking into people’s computers rather than killing them in cold blood, that’s a good thing, in some respects,” said Jonathan Armstrong, a partner at Duane Morris who practices Internet law.
However, these gangs, which also include the Latin Kings, Aryan Brotherhood and Texas Syndicate, are growing in size, with membership up 30% to 1.4 million compared with 2009, and the FBI says they are becoming more dangerous.
“Gangs are more adaptable, organized, sophisticated, and opportunistic, exploiting new and advanced technology as a means to recruit, communicate discretely, target their rivals, and perpetuate their criminal activity,” the FBI said.
This heightened threat among U.S. gangs brings to light the increased volume of financial crimes and hacking seen across all industries over the last few years, which have already cost corporations, retailers and innocent people billions of dollars.
“It’s an issue and I think it’s one that’s definitely accelerating,” Armstrong said. “I think we ought to be worried.”
Financial crime has picked up significantly over the last few years amid financial turmoil and technological advances. Ponzi and other high-yield investment fraud schemes surged when the Dow Jones Industrial Average plunged from a high of 14,164 in October 2007 to 6,547 in March 2009, the FBI said in its 2009 Financial Crimes Report.
While authorities have cracked down, the development of new schemes, such as securities market manipulation via cyber intrusion, has put fraud on the rise, the FBI said. From 2004 through 2009, fraud investigations increased by 33%, bringing losses associated with those schemes into the billions of dollars.
Of course, U.S. street gangs aren’t at the crux of financial crime in the U.S. just yet, which is typically led by professionals and swindlers within the banking system or high-tech cyber hackers.
However, the gangs’ sophistication offers yet another impediment to authorities trying to suffocate white-collar crime and a sign these groups may continue to evolve into high-yielding complex schemes, forming much more lucrative enterprises.
The Underworld Banking System
Gangs such as the Bloods, Crips and La Nuestra Familia that are undertaking white-collar crime are recruiting members that possess the necessary high-tech skill sets, according to the FBI.
“Some that run these criminal gangs could run corporations,” Armstrong said. “They push out less profitable businesses and build up the more profitable (ones), just as a corporation would.”
The FBI says gang members are exploiting vulnerabilities in the banking and mortgage industries for profit. They are turning to counterfeit and identity theft, using methods such as skimming to steal account numbers from ATMs or retail card readers.
Mortgage fraud is also on the rise, and gangs, such as the Gangster Disciples, are purchasing properties with the intent to receive seller assistance loans, only to retain proceeds from the loans or co mingle illicit funds through mortgage payments.
In April 2009, members of the Bloods in San Diego were charged with mortgage fraud, and in August 2010, members of the Black Guerilla Family in Maryland used pre-paid retail debit cards as virtual currency inside Maryland to buy drugs and further the gangs’ interests, according to the FBI.
“Wall Street has a brilliant system for pushing money around the world. So does organized crime,” Armstrong said, liking the underground profit-driving activities to an “underworld banking system.”
Earlier this month, authorities in New York arrested more than 100 service-sector employees in the city and dismantled five separate criminal enterprises operating out of Queens in a multi-million dollar counterfeiting scheme. New York Police Commissioner Raymond Kelly had said that while those crimes weren't holdups at gunpoint, the impact on victims was just as bad.
Robert Rebhan, a former Los Angeles Police Department officer who later directed a credit card fraud prevention program for American Express (NYSE:AXP), notes that those are the kind of stunts, which are less risky and more profitable than traditional street crimes, that gangs are likely pursuing.
“If I have dirty money from a drug steal I need the underwater market to clean it up, so I might only get 20% return,” Armstrong said. “But if I can make it credit card fraud, then I can probably get better than a 20% return rate, particularly if I can use the compromised credit card to buy real goods and turn over those goods on an auction site.”
Cyber criminals typically steal a smaller amount of money from a large number of victims. Since, credit card companies and banks aren’t reporting minor counterfeiting cases to the Federal Trade Commission, it becomes the responsibility of victims.
Rebhan, who is a financial crimes expert, says 95% of those are never reported – making web-based fraud tougher to identity.
“It’s not a critical step in recovering your identity - it’s a pain,” he said. “So when you hear crime is down – don’t believe that’s true of financial crimes.”
From the Streets to Cyber Space
U.S street gangs are likely a ways off from operating botnets and siphoning massive funds from corporations, Rebhan said, noting the FBI is probably using “cyber crime” in a broader sense.
However, criminal groups are becoming increasingly savvy and embracing advanced technology to enhance operations, according to the FBI.
“The proliferation of social networking websites has made gang activity more prevalent and lethal—moving gangs from the streets into cyber space,” the FBI said.
Many also use the Internet to carry out crimes such as computer hacking, cyber attacks and phishing schemes, which are used to illegally acquire personal information such as usernames, passwords and credit card information.
But besides the attractive profits, gangs are also finding the web more enticing because of the less-stringent punishment faced by cyber criminals, at least compared with robbery and murder.
Where a robbery can lead to a seven-year sentence, counterfeiting or identity fraud using the web could lead to just a few months of jail time, Rebhan said.
Of course, there are some exceptions, including Tien Truong Nguyen, who was sentenced last year to more than 12 years in prison for his role in a phishing scam that impacted more than 38,000 victims, and Albert Gonzalez, who was sentenced to 20 years for the Heartland Payment Systems (NYSE:HPY) data breach.
But for the most part, catching and punishing cyber criminals takes a certain skill set that many in law enforcement and judiciaries just don’t have yet, the experts say. Because of that, white-collar crime is slated to grow among street gangs.
“There’s no formal education given to the judiciary on cyber crimes – the jury is perplexed by these crimes and the judge is also – (they) don’t have a clue of bytes, bits or how malware is written,” Rebhan said.
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