CALL IT I-WAY ROBBERYHijacking is the high-tech industry's latest plague
The thieves had done their homework. A little after midnight on June 9, 1995, three men sliced through the chain-link fence surrounding Overnite Transportation Co.'s Waynesboro (Va.) truck yard. Then they hot-wired the ''yard horse,'' a tractor used to maneuver trailers around the lot, and quickly towed two big trailers so they would shield a large part of the truck yard from the road outside. Their main target: a trailer containing hundreds of thousands of dollars worth of Lexmark computer printers.
Barking orders into a walkie-talkie, one of the criminals ordered two others outside the unguarded lot to drive a pair of Ryder rental trucks to the front gate. A sixth member of the crew remained outside the truck yard as a lookout and monitored police band radio. The men inside the lot broke the lock to the front gate, waved the Ryder trucks in, and rechained the gate with their own lock. Then the team drove the Ryders next to the treasure trove of printers and started to unload.
CRIME WAVE. The robbers belonged to a loosely knit nationwide criminal syndicate that is believed to have committed hundreds of high-tech thefts over the past two years. Made up mostly of Ecuadoreans, Peruvians, and Colombians, the syndicate is known as the South American Group and is renowned, among other things, for its uncanny ability to detect police sting operations. But on this night, recently convicted crew leader Luis Piedra was off his game. Waiting in the woods outside the truck yard were more than 60 police officers, including two separate SWAT teams. After allowing the criminals to load about $250,000 worth of contraband, the police moved in on the six men. In January, they all pleaded guilty to the theft and received jail terms of 21 to 48 months.
So far, those convictions are the leading law enforcement victory against a major new crime wave: high-tech cargo theft. The South American Group and a growing contingent of Korean, Indian, Pakistani, and American gangs are ripping off printers, chips, disk drives, and monitors from trucks, warehouses, seaports, and airports at an unprecedented rate. Last year, law-enforcement authorities say, there were more than 500 major heists worldwide. Total worldwide cargo theft losses climbed by 24% in 1996, to $1.4 billion, according to Asset Management Technologies Inc., a Raleigh (N.C.) consultancy.
Since Jan. 1, there have been at least 15 major cargo heists in the Silicon Valley and Los Angeles areas alone, accounting for $3 million in losses, according to the California Highway Patrol. On Mar. 5, a trucker presented fraudulent paperwork at a South San Francisco distribution yard and drove off with $637,000 worth of Seagate Technology Inc. disk drives. On Mar. 8, thieves in the Southern California town of Fontana took two trailers containing $500,000 worth of keyboards, monitors, and software destined for Hewlett-Packard Co. Fujitsu Ltd. lost $110,000 worth of disk drives on Mar. 11.
Now, even executives that in the past downplayed the problem as insignificant are owning up. In early March, Western Digital Corp. Chief Executive Charles A. Haggerty called Seagate CEO Alan F. Shugart and Quantum Corp. CEO Michael A. Brown to discuss ways to fight cargo theft. ''We've all agreed we need to do something,'' says Haggerty, whose company has been hit 10 times over the past year for more than $7 million in losses. ''It's turning into a major concern.''
The cargo crime epidemic is forcing technology executives to recognize that theft could very well become a systemic problem for the industry. High-end components such as Pentium chips can be worth more by weight than gold, yet they are rarely as well-protected. And fencing them is a cinch. A worldwide black market has developed that can swallow up millions of dollars of stolen parts without a trace.
In fact, microprocessors, memory chips, and disk drives are in such high demand that their street value is 50% of their retail value--in contrast to 10% for most stolen goods, according to MaryLu Korkuch, executive director of the Technology Theft Prevention Foundation in Warren, N.J. Korkuch estimates that component theft, including cargo heists and other types of robbery, adds $150 to the cost of the average computer. And that's not to mention the human cost. Foremost, lives are put at risk. But additionally, suppliers can't fill orders, and customers miss deadlines.
Until recently, most high-tech companies have been too busy enjoying success to pay much attention to these developments. But that's changing. Last fall, the American Electronics Assn. and the International Electronics Security Group hired the Santa Monica (Calif.) research organization RAND Corp. to develop the industry's first computer- and component-theft reporting system. The two groups, worried that the crimes are underreported, plan to use the data to lobby for more law enforcement and tougher penalties for high-tech crooks.
Technology companies started noticing a surge in cargo heists in late 1995. The timing isn't surprising. In 1994 and 1995, record prices for memory chips and a computer-parts shortage set off a wave of armed robberies at computer-parts factories worldwide--56 in the first five months of 1995 in Silicon Valley alone. Those incidents prompted companies to hire more guards, install new video cameras, tighten hiring, and take other steps to boost factory security. That, in turn, has led a new generation of crooks to attack the goods in transit.
Because law-enforcement authorities are still new to the war against high-tech cargo theft, they don't know much about the criminals behind it. ''When we look at organized crime in this area, we can't yet say, 'This group controls Chicago; that group works in San Diego' as we can in other areas such as the drug trade. We just don't have the data yet,'' says Edward Badolato, chairman of the National Cargo Security Council in Washington.
Nonetheless, authorities believe that the vast majority of the heists are being committed by ethnic gangs and that these gangs include large numbers of illegal immigrants. The most active of these criminal organizations is the South American Group. Philip Povey, a sergeant in the Irvine (Calif.) Police Dept.'s Economic Crimes unit who has investigated dozens of its heists, says the South American Group is not a traditional hierarchical criminal organization like, say, the Cali drug cartel. Rather, it is a nationwide group of criminals who frequently collaborate. ''I don't consider them a gang but a loose-knit syndicate of affiliated criminals,'' Povey says.
ROOTS IN SHOPLIFTING. The South American Group traces its roots to gangs that focused on shoplifting in the New York City area in the early 1980s and eventually graduated to cargo theft, according to Lieutenant Joseph J. Rogalski, supervisor of the New Jersey State Police's cargo theft unit. Over the past two years, the South American Group is believed to have spun off cells in Los Angeles, San Francisco, and Miami, Rogalski says. He estimates that the syndicate has 30 to 50 active members in New Jersey. An additional 100 or so are operating in California, according to law enforcement authorities. ''These guys only trust each other. They won't work with Americans. That's why it's so tough to get 'em,'' says Kevin Fairchild, a Santa Clara (Calif.) private detective.
The members of the South American Group are surprisingly adept at eluding the authorities. During heists, they will frequently switch drivers so that prosecutors can't be sure which one to drag into court. ''One minute the driver is wearing a red baseball cap, and the next minute he's got a blue shirt,'' says Marc S. Zavala, of the Los Angeles Police Dept.'s cargo theft unit. The syndicate also keeps a kitty so members can post bail for one another and hire high-priced defense attorneys. Because property crimes are lightly punished, they usually receive sentences of two years or less even if convicted. ''These guys...know the judicial system doesn't really put the screws to them,'' Zavala says.
The South American Group's methods are typical of sophisticated cargo theft gangs everywhere. Attacks are frequently preceded by diligent surveillance. A week before the Waynesboro theft, for example, police watched surreptitiously as three men cased the site at 1 a.m. on Sunday. After driving around the isolated neighborhood looking for guards and finding none, the three men shook the truck yard's wire fence to see if it had any alarms. Then they broke inside and examined the locks on the trailers. Next, they yelled--just to see if anyone would come running. On other occasions, members of the South American Group have videotaped loading docks to study product delivery patterns and pretended to apply for jobs while actually studying a plant's video camera locations, law-enforcement officials say.
Unlike the Waynesboro incident, the South American Group frequently attacks trucks in transit. On Feb. 21, for example, five suspects who are believed to be members of the syndicate followed a truck as it was leaving Western Digital's factory in Irvine, Calif., Povey says. When the driver stopped at a strip mall to make a phone call, the men jumped out of their van and attempted to break into the truck. (A passerby with a cellular phone alerted police to the attack, and the men were arrested.) Armed attacks, once rare, are becoming increasingly common as companies improve their cargo security efforts.
POPULAR PLOYS. Other groups, meanwhile, use different techniques. Some gangs bribe truck drivers with a few thousand bucks to leave their loads in a vulnerable location--say, a remote corner of a fast-food parking lot late at night. Another popular method is to forge loading dock papers and drive off with the load in broad daylight.
Once thieves have obtained high-tech contraband, selling it is easy. A vast network of computer-parts brokers are willing to shell out cash for sought-after components--just read the classifieds in many computer magazines. While most of these resellers are honest, ''there are some who will buy from somebody out of the back of their car--no questions asked,'' says Richard J. Bernes, a special agent with the FBI's high-tech task force in San Jose. These dishonest brokers generally forge paperwork to make it look as if they have purchased the parts legitimately, then ''a hundred faxes go out, and a hundred distributors see a decent price,'' says Harry J. Bidleman, a sergeant with the Scotts Valley (Calif.) Police Dept. who works on high-tech crime cases.
Since shady brokers often list legitimate products with stolen goods, it can be hard for customers to tell the difference. Once parts enter the chain of commerce, they are resold several times in rapid succession, acquiring a thick paper trail. ''The third or fourth broker down the line has no idea the parts were originally stolen,'' Bernes says.
A typical example of the type of ''high-end'' fence who introduces stolen parts into the market is Nathan Loeb, a Brooklyn (N.Y.) man who is alleged to have received stolen computer parts from Piedra's crew, says Scott Jenkins, a detective with the New Jersey State Police's cargo theft unit. Loeb pleaded guilty to possession of stolen property last year, though his lawyer, New York-based Michael Bachner, denies he was a major fence.
According to Jenkins, Piedra frequently sold stolen computer parts to Jose Coello, a North Bergen (N.J.) man who was indicted last year for receiving stolen property. A onetime restaurant owner, Coello was an all-purpose fence ''who could move anything,'' Jenkins says. Coello has pleaded not guilty to the charges. Neither his lawyer, nor Piedra's, returned calls for comment.
Coello, in turn, frequently sold computer parts to Loeb, who ran a legitimate computer-parts store in lower Manhattan. But he also allegedly had a fencing operation on the side, selling approximately $1.5 million in stolen components to customers in Israel and South America, Jenkins says. Unlike many other alleged fences, Loeb does not appear to have sold contraband directly through his store, Jenkins says.
As long as there are plenty of fences around, law-enforcement authorities say, there will be no shortage of thieves to supply them with stolen goods. While a few high-tech companies are now taking expensive steps to thwart the problem, such as hiring guards to tail their delivery trucks, the FBI's Bernes thinks the problem won't really be going away until the high-tech industry has a fundamental change in outlook. ''What I think the industry is going to have to realize is that they have to treat this product like cash,'' he says. Chipmakers in Malaysia already transport their wares in armored cars. It could happen here, too--sooner than we think.
By Mike France in Warren, N.J., and Peter Burrows in San Mateo, Calif.
Updated June 15, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.