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Written by Chelsea Barry, July 19th, 2016.
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What it Takes to Be Made Whole
By Garett Sievold, Contributing Writer
Imagine you’re a retailer with a major theft problem of a product at one of your stores (probably not hard to do). You start to poke around and discover the product is not only disappearing from one store, but it’s going missing across an entire region. You analyze theft data from store locations and by times of day. You study incident reports and other relevant information. Before long, your investigation points to a troubling realization—an organized ring of thieves is hitting your stores and your dollar losses are mounting. What now?
Identifying the bad guys is perhaps the easiest part of the process for loss prevention departments and retailers—successful civil recovery is typically more elusive. In one recent study citing liability, administrative burden, and the potential for bad publicity, several retailers admitted they don’t bother with recovery. Even some involved in civil recovery said they perceive limitations. “It’s not worth it,” said one retailer flatly (Retail Loss Prevention in Perspective, Gill, PCRI, 2016).But you’ve got a million-dollar case on your hands and you want your money back. You’ve got to do something.
Less experienced loss prevention departments may not know where to start, others are just learning to deal with organized retail crime (ORC), and others handle cases in any number of unique ways. But since recovery tends not to be a core competency, all retailers face significant obstacles to success.
It’s common for even the most competent loss prevention departments to lack skill in navigating the intricacies of the judicial system, and to lack confidence in knowing to which agency they should direct their case. They may be unsure who to engage to undertake related work, and they often lack the time and manpower to follow up on judgments. And while a retailer’s legal department may be masterful at negotiating leases, it is often not as comfortable working criminal cases, and may lack an understanding of the range of powerful legal tools that can be used to pursue civil recovery.
Whether you will be successful in recouping losses in your million-dollar ORC case depends on a complex series of interrelated activities. One of the first is to assess whether your investigation is sufficiently complete to pitch the case to an agency, according to William Ramos, director of ORC recovery, a new service from The Zellman Group, a leader in civil recovery and loss prevention investigations. “We look to see if they have any missing information, fill in the blanks, and work with clients to put a complete case together,” he said.
A critical aspect of information gathering in this initial stage is to obtain details on the assets of persons of interest—before arrests are made. As a vetted authorized user of Thomson Reuter’s CLEAR, an invaluable yet costly intelligence tool, Ramos says they’re able to identify co-conspirators and get a clear picture of what recovery might be possible. This benefits a retailer in future restitution negotiations because it demonstrates upfront that the retailer is fully aware of the money that is available to be recouped—and that it intends to go after it. “It puts the retailer in a better position when they take the case to law enforcement and beyond,” said Ramos.
Also paramount to successful recovery is a retailer’s ability to navigate the complex legal environment that surrounds ORC cases. The ORC recovery service assists with documentation for presentation to law enforcement, prosecutors, and courts, and helps guide retailers to select the most effective path forward, such as whether to pursue the case on a local, state, or federal level, or whether to pursue civil litigation. The program also frees loss prevention departments to get back to conducting investigations rather than having to track cases and enforce court orders.
One essential document for successful civil recovery is a victim impact statement, according to Stuart Levine, President and CEO of The Zellman Group. “It’s a tool to make sure the retailer’s interests are represented as the case moves forward, so that judges are aware that they need to make the retail victim whole again,” he said. “We identify at the outset that the real victim in the case is our client and that we want our money back.”
An overlooked piece of a recovery effort—but perhaps one of the most important of all—are relationships. Although law enforcement and judicial system connections aren’t typically an important part of ordinary civil recovery cases, they are vital in cases of organized retail theft, according to Levine. Just about every case will come up against a brick wall—or several of them—and having experienced people that can break them down is vital, adds Lauren Bridgeo, vice president of operations at The Zellman Group. ORC recovery has a big hitter on its team in the form of John Shanks, Zellman’s manager of law enforcement relations. With 30 years of experience in civilian and military law enforcement, Shanks has forged relationships with a variety of stakeholders that prove priceless in ORC recovery cases.
As the above discussion suggests, successful civil recovery requires overcoming obstacles and jumping through hoops. However, there are some encouraging signs for retailers. The 27th Annual Retail Theft Survey by Jack L. Hayes International, of large retailers showed that they recovered 7.5 percent more from shoplifters in 2014 than the year before. And that retailers now have for the first time a service to help them manage ORC cases—ORC recovery—suggests that the retail industry no longer needs to cede the proceeds from seizures to law enforcement agencies and provides retail victims a much-needed voice in the recovery process.
Don’t Leave Money on the Table
By Garett Sievold, Contributing Writer
Houston had a problem. For that matter, so did the rest of Texas and neighboring states. Boosters were hitting retailers hard, “waltzing in…and brazenly walking out with stolen products of all kinds, from medicine and baby formula to health and beauty supplies,” according to the FBI. The ring of thieves shipped stolen merchandise (using phony accounts) to a shell company’s warehouse in Houston. The goods were then stripped of stickers and anti-theft tags, shipped to wholesalers, and put back in circulation. Every year from 2008 to 2012, this one shoplifting operation swiped an estimated $10 million worth of products.
But in March 2012 the jig was up. Ringleader Sameh Khaled Danhach was placed under arrest. Executing a warrant on the Houston warehouse turned up more than $300,000 worth of merchandise, as well as a ledger revealing that in just over one year Danhach paid $1.8 million for stolen merchandise that he turned around and sold for $2.8 million. In 2014, it took a federal jury in Houston just one hour to find Danhach guilty, and he was sentenced to serve 12-plus years in prison. Danhach appealed, filing a motion to suppress the evidence found in the warehouse search, but a few months ago, on March 9, the Fifth Circuit US Court of Appeals affirmed the conviction.The case is exactly the kind of crackdown on organized retail crime (ORC) that gives retailers hope and that law enforcement loves to tout. Indeed, the Danhach case was featured in the agency’s 2013 edition of The FBI Story, an annual compilation of successful major investigations and operations. “It all came to an end thanks to a multi-agency investigation by the FBI, the Houston Police Department, and the Harris County Sheriff’s Office, with the help of victim merchants,” the report trumpeted (“Organized Retail Theft—Major Middle Eastern Crime Ring Dismantled”).
But what, exactly, is the “end” of cases like these? They certainly have a feel-good conclusion—everyone enjoys seeing bad guys put behind bars—but Stuart Levine, president and CEO of The Zellman Group, questions whether retailers truly receive justice (or even adequate pay back) for their cooperation. “The retailer isn’t represented,” says Levine. “They just see that they never get their money back.”
Levine believes retailers need to be mindful of the unique interest that law enforcement has in such cases—to build as big a case as possible—which does not usually well serve individual retail victims of ORC. Additionally, the law typically allows for local and state law enforcement to liquidate assets from the crime rings they bust, which they are keen to do, so restitution for retailer victims is not (to put it nicely) high on their agenda. Finally, unless courts are pushed on the issue of restitution for retailers from the outset, they, too, typically neglect it.
Providing retailers an opportunity for their interests to be represented in ORC cases is exactly what The Zellman Group is after with its new ORC recovery program. Through the program, the first of its kind in the industry, retailers get help building strong cases and navigating the complex judicial environment to finally start getting back what they’re owed.
The need for a strategy to recoup losses from ORC is made clear by the latest industry data from the 2015 Organized Retail Crime Survey from the National Retail Federation. Nearly all retailers surveyed—a whopping 97 percent—reported being victims of ORC activity in the previous 12 months. More than 4 out of 5 retailers said ORC activity had increased in the previous year, with 48.5 percent reporting a “significant increase” in ORC activity. It’s a $30 billion-dollar problem annually, according to the data, and the attitude toward risk among the criminal element hasn’t significantly changed. “It’s still seen as an easy crime and that it’s treated lightly,” said William Ramos, director of The Zellman Group’s ORC recovery program. “A professional shoplifter may have 30 arrests before they see 6 months in jail.”
To be sure, progress has been made in the fight against ORC. Some 30 states now have ORC legislation on their books, up from 25 from a year ago. Surveys also indicate a greater awareness and understanding of ORC among law enforcement. But these developments only help retailers indirectly in their fight against ORC, according to Lauren Bridgeo, vice president of operations at The Zellman Group. ORC laws aim to hold professional shoplifters more accountable, they aren’t focused on making retailers whole again. And awareness among law enforcement—although it has made them a more valuable source of support for loss prevention departments—has chiefly resulted in police becoming savvy enough to seize assets for themselves. “The changes in laws are helpful for prosecutions but when it comes to recovering retailers’ losses they haven’t made much of a difference,” said Bridgeo. “To this point, it’s law enforcement that has reaped the benefit of proceeds from successful ORC cases.”
Given that the deck is stacked against retailers to recover money from ORC cases—and because the problem of ORC isn’t going away—it’s important for retailers to proactively define a strategy for managing it. To that end, retailers need to objectively assess whether they have the expertise, connections, bandwidth, and desire to manage cases—or whether partnering with professionals whose primary business is asset recovery is a better option for complex and time-consuming ORC cases. In Part II of our report, we’ll examine exactly what this alternative approach to ORC management looks like.