LAPD, US Customs battle counterfeit goods market, multi-billion dollar industry more lucrative than drugs
(video on site)
by DAVID WRIGHT and BRANDON BAUR
In an era when terrorism and illegal narcotics pose a clear and present danger in urban America, why should U.S. law enforcement spend precious resources policing luxury handbags?
Because, authorities say, those fake handbags -- and other counterfeit goods -- are practically an ATM machine for organized crime.
"More than likely it's going to finance some other illicit activity, whether it be terrorism, human trafficking, drugs or some such," said Customs and Border Protection (CBP) supervisor Bryan Nahodil as he surveyed some 16,000 fake Hermes bags seized in Los Angeles.
Counterfeit goods are more lucrative than drugs, according to officers with the Los Angeles Police Department's Vice Division and the CBP, who allowed "Nightline" to embed with them to see firsthand the efforts to combat the problem.
Counterfeit goods account for nearly 10 percent of worldwide trade, an estimated $500 billion annually, according to the World Customs Organization.
U.S. Customs officers said the black market for fake handbags, shoes, purses and other luxury goods helps fund other crime rings, including drugs and human trafficking.
The Port of Los Angeles in Long Beach is the first stop for almost everything the U.S. imports from China, Japan and South Korea. More goods come through L.A. and Long Beach than the other major U.S. maritime seaports combined.
"We're the largest seaport in the country by far," said Todd Owen, the director of field operations in L.A. for U.S. Customs. "Approximately 40 percent of all the maritime cargo that enters the United States does so through this complex here."
With a tsunami of goods coming into the U.S. every day, it is a significant challenge to find contraband. On average, a container arrives in L.A. every six seconds, on massive ships that take days to unload.
Before a vessel can set sail from China, a manifest describing the contents of each of the dozens of containers it has onboard arrives in Los Angeles. Ken Price, a senior import specialist with CBP, has the task of searching for the needle before the haystack reaches American shores.
"I look at container freight coming into the U.S. to make sure it is what they say it is," Price said.
Armed with a computer monitor and 20 years experience, Price has a good eye for things that are out of the ordinary just on the paperwork.
Days, even weeks, before the cargo ship arrives in Los Angeles, Price and other officers comb through shipping records, looking for anything that seems amiss and cross reference the import manifests against familiar crime patterns.
When the ships finally arrive, U.S. immigration agents clear the captain and crew's credentials and customs officers do preliminary searches of the cargo.
Among the most urgent priorities are checking for items that might pose a health or safety threat.
How FBI brought down cyber-underworld site Silk Road
A behind-the-scenes look at the federal agents' digital detective work
by Donna Leinwand Leger, USA TODAY
Criminals who prowl the cyber-underworld's "darknet" thought law enforcement couldn't crack their anonymous trade in illegal drugs, guns and porn. But a series of arrests this month, including the bust of the black market site Silk Road, shows the G-men have infiltrated the Internet's back alley.
Computer experts suspect the government simply beat the cyber-pirates at their own game: hacking.
The Silk Road website, which has a customer-friendly electronic storefront that displayed bricks of cocaine as deftly as Amazon displays books, was the cyber-underworld's largest black market, with $1.2 billion in sales and nearly a million customers. Beyond illegal drugs, the site served as a bazaar for fake passports, driver's licenses and other documents, as well as illegal service providers, such as hit men, forgers and computer hackers.
FBI Agent Christopher Tarbell of the FBI's cyber-crime unit in New York called Silk Road "the most sophisticated and extensive criminal marketplace on the Internet today."
Silk Road used an underground computer network known as "The Onion Router" or "Tor" that relays computer messages through at least three separate computer servers to disguise its users. Customers conducted business using a virtual currency called bitcoin. The site repeatedly assured its users that their illegal transactions were wrapped in layers of privacy.
But the FBI's seizure of Silk Road's servers allowed agents to unwrap the website's innards, exposing the vendors' and customers' private accounts to law enforcement scrutiny.
Court papers show that federal agents used the full bag of traditional investigatory tricks as well as high-tech cyber-sleuthing to dismantle Silk Road. The site's alleged operator made critical missteps that allowed agents to locate the website and link him to it, court papers show.
FBI, DEA, IRS and Customs agents located six of Silk Road's supposedly off-the-grid computer servers hidden around the world, in places including Latvia and Romania, copied their contents and watched as buyers and sellers completed their illegal transactions. It shut down the website, seized its assets, including 26,000 bitcoins worth about $4 million, and arrested Ross Ulbricht, the alleged operator, in San Francisco on Oct. 1.
The FBI estimates that Silk Road's operator made $80 million in commissions from the site's users, court papers say.
Ulbricht is charged in federal court in New York with money laundering, drug dealing and conspiring to murder a witness. A second indictment filed in a federal court in Baltimore charges Ulbricht with drug dealing and attempting to have a former employee murdered.
Ulbrict will be extradited to New York to face the charges. His court-appointed attorney, assistant federal defender Brandon LeBlanc, who said his client denied the charges at a court hearing Oct. 4, did not return phone messages left at his office.
The investigation into the cyber-underworld swept up suspected drug dealers and buyers in the USA, Britain, Australia and Sweden with alleged ties to Silk Road.
"These arrests send a clear message to criminals: The hidden Internet isn't hidden, and your anonymous activity isn't anonymous. We know where you are, what you are doing and we will catch you," Keith Bristow, director of Britain's National Crime Agency, said after the arrest Oct. 8 of four men for alleged drug offenses.
The criminals, he said, "always make mistakes."
The FBI hasn't said how it found Silk Road's servers or compromised them. Members of the FBI's cyber-crimes unit were not available, FBI spokesman Peter Donald said.
"That is the $64,000 question. They have not explained how they did it," says Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley, Calif., who specializes in network security and underground economics.
Weaver suspects from reading the court papers that federal agents found weaknesses in the computer code used to operate the Silk Road website and exploited those weaknesses to hack the servers and force them to reveal their unique identifying addresses. Federal investigators could then locate the servers and ask law enforcement in those locations to seize them.
Federal judges extend Gov. Brown's prison crowding deadline - again
by Paige St. John
SACRAMENTO -- A panel of federal judges has given Gov. Jerry Brown an additional 28 days to come up with long-term solutions to the state's prison crowding problems.
In an order issued Monday, the judges moved the deadline for California to remove about 9,600 inmates from state lockups to Feb. 24, adding almost a month to their last deadline of Jan. 27. It previously was Dec. 31.
They also ordered the state to continue negotiating for solutions with lawyers representing California's 134,000 prisoners.
Monday was the deadline for a state appeals judge, Peter Siggins, who was assigned to mediate those confidential talks, to report on the two sides' progress. Based on Siggins' confidential update and recommendations, the federal panel ordered the negotiations to continue, with another update due Nov. 18, the jurists said in their signed order.
The judges extended their first deadline and ordered the discussions after Brown asked them last month for three more years in which to reduce inmate numbers.
He and the Legislature had to come up with a plan to fund rehabilitation services, hoping to lower the odds that offenders will commit more crimes and end up back in prison after they return to society.
After dramatic declines two years ago, when the Brown administration ordered thousands of felons to be confined in county jails rather than sent to state prisons, California's inmate population is again climbing.
An Oct. 16 report by corrections officials puts the number of prisoners within the state at 125,000, an increase of more than 700 from a year ago.