Identity Resolution Daily

By Mike Shultz, Infoglide Software CEO

It’s been quite awhile since we’ve addressed the challenge of balancing security and privacy. As authors of the software used more times every day than all other identity resolution software combined (video: Who Is Infoglide Software?), we are extremely conscious of how critical it is to strike a balance every day that ensures the security and protects the privacy of U.S. citizens.

As fusion centers proliferate, the tension between those who protect us from physical harm and those who protect our right to privacy plays out in public meetings. In Austin, for example, every meeting about the new Austin Regional Intelligence Center is well attended by law enforcement agencies who are challenged daily to keep citizens safe and by groups like the ACLU who point out the dangers of invading the privacy of citizens that fusion centers are meant to protect.

Although fusion centers highlight the privacy/security clash in a public way, any use of powerful identity resolution technology to catch people with bad intent must be weighed against the rights to privacy and confidentiality that we all enjoy. In every instance that the technology is applied – detecting money laundering, solving lottery ticket theft, monitoring retail merchandise exchange, uncovering workers’ comp employer cheating, and other uses – care must be taken to apply it judiciously and only in ways needed to achieve narrow objectives while always protecting individual liberties.

I have always believed that the back and forth between all of the stakeholders is healthy for our society and I continue to believe that today.  At Infoglide Software we are proud to be the “Gold Standard” for entity and identity resolution software and we are mindful of the balance that is required in the application of our technology.

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By Robert Barker, Infoglide Senior VP & Chief Marketing Officer

In a recent post, Jonathan McDonald quotes one definition of entity resolution:

According to Gartner, entity resolution is “the capability to resolve multiple labels for individuals, products or other noun classes of data into a single resolved entity when pseudonyms, alias names or other synonym-style constructs exist. This is especially true in cases wherein there exists intentional falsification of information or the creation of false identities. While most prevalent in detecting perpetrators of criminal or illegal activity, more-commercial applications exist as well.

While the definition nicely captures the value of “first degree” entity resolution, it falls short by omitting non-obvious relationship detection.

Basic entity resolution determines “who’s who” by sifting through massive amounts of noun/attribute data in multiple disparate data sources. Cutting through ambiguity caused by missing attributes, pseudonyms, aliases, and obvious efforts to deceive, it mines and resolves the essential elements of identity to form an unambiguous picture that greatly enhances business decisions and reduces risk.

However, in many application domains, pinpointing “who knows whom” is equally valuable. In detecting insider trading, for example, it’s important to resolve identity information to achieve an unambiguous picture of a person of interest, but to expose fraudulent activity, it’s critical to identify second and third degree linkages between suspects and their friends, relatives, and business associates.

More examples abound. In insurance, fraudsters change roles each time they stage a car accident and also intentionally modify their identities in accident reports. Fraudulent employers who want to reduce their workers’ compensation premiums will close their company and start a new one with modified identities of corporate officers. In retail, non-receipted returns of merchandise are often linked to store employees and the customers they enlist to act as their confederates. The list goes on and on.

In each case, entity resolution finds hidden connections by evaluating multiple ambiguous attributes with the same algorithms used to resolve identities. A retail employee who takes a customer’s winning lottery ticket (while telling the customer he didn’t win!) can be traced through address and phone information to other suspiciously connected people, e.g. frequent lottery winners and lottery commission employees.

With apologies to the experts at Gartner, here’s a suggested addition to the definition that acknowledges the other half of entity resolution:

The capability to (a) resolve multiple labels for individuals, products or other noun classes of data into a single resolved entity when ambiguity from pseudonyms, alias names or other synonym-style constructs exists, and (b) to expose hidden connections between entities that are two or more degrees of separation apart. This is especially true in cases where there exists intentional falsification of information or the creation of false identities. While most prevalent in detecting perpetrators of criminal or illegal activity, more-commercial applications exist as well.

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On 9/11/2001, the day terrorists destroyed the World Trade Center, a state trooper in Texas pulled over a Middle Eastern man driving a rental van. The officer noted that the van was full of baby formula. Later, the police realized the driver was a known terrorist linked to an organized retail crime (ORC) ring that traveled the nation stealing baby formula. And the money made from reselling this particular truck load was wired to the Middle East and never seen again.

This story comes from a 2005 story in the Christian Science Monitor that reported retailers suffered through $30 billion in theft that year and stolen baby formula made up approximately $7 billion of that total.

Seven billion dollars in stolen baby formula?

Where is all that money going? Has the problem grown worse since 2005? And where’s the mainstream media on this story? You’d think the juxtaposition between terrorists and baby formula would draw Dateline and 60 Minutes — or at least Geraldo Rivera.

In that 2005 story, the Monitor noted that there were more than 1,000 offers of Enfamil baby formula available on eBay. Two years later, and despite the fact that many states now require buyers to purchase baby formula from licensed wholesalers, you can find 2,634 offers for Enfamil on eBay.

Mark Clayton of the Monitor wrote

“Operation Blackbird, as Texas investigators dubbed their multistate baby-formula investigation, has since led to felony charges against more than 40 suspects, about half illegal immigrants. Authorities have seized some $2.7 million in stolen assets, including $1 million worth of formula.

“Blackbird was just the beginning. In the nearly four years since 9/11, police have uncovered and dismantled a growing number of regional and national theft rings specializing in shoplifted infant formula, over-the-counter medicines, and personal-care products. At least eight of the major baby-formula cases have involved ‘fences’ who are of Middle Eastern descent or who have ties to that region, according to a Monitor review of congressional testimony, news accounts, and a study by the National Retail Federation released Tuesday.

“The Federal Bureau of Investigation has traced money from these infant-formula traffickers back to nations where terrorist groups, such as Hamas and Hizbullah, are active, investigators say. Then, the trail usually goes cold. Once funds enter such countries, there’s often no way to track them.”

Is this a growing trend?

Here’s a 2003 story about a trafficker in baby formula who stood to may make a profit of $4 million but was caught by the Canadian Mounties. Mohamad S. Mostafa had been in reselling baby formula since 1994, but he wasn’t caught till a month after 9/11.

Recently, there’s been lots of baby formula thefts in the news:

Two held in formula thefts
Grocer reaches plea deal in theft ring case (for laundering $70 million)

And just this week, a federal judge agreed to let Ali Kareem Aladimi withdraw his guilty plea and go to trial over the “63 original charges of conspiracy to distribute dangerous drugs, money laundering, bank fraud and dealing in stolen goods,” according to the Middletown Journal. Federal prosecutors alledge that Mr. Aladimi sold stolen baby from 1993-2002 and in a raid in 1999 they found $54,000 worth of stolen Gerber baby formula and $760,000 in cash packed in shrink-wrapped Clairol hair-coloring kits.

Finally, there’s this scary news in FrontPage Magazine’s story, Terror Criminal Links Growing

“The former International Monetary Fund (IMF) managing director, Michel Camdessus, estimated that money laundered worldwide 1999, totaled between 2% and 5% of combined gross domestic product (GDP)—or approximately $1.8 trillion. By April 2006, the IMF’s World Economic Outlook estimate of the world economy was $65.174 trillion. Considering the rise of radical Muslim terrorist groups, and the dramatic increase in ‘ordinary’ crime, as well as major technological advances, it is now estimated that at least $5 trillions are being laundered annually, 70% are thought to be generated from the illegal drug trade.”

In the very last line of of “Terror Criminal Links Growing” authors Dr. Rachel Ehrenfeld and Alyssa A. Lappen suggest, “it would seem prudent for law enforcement to take a closer look at the identities and profiles of each and every ‘ordinary’ criminal seized, be it drug dealers, car thieves, or ‘white collar’ criminals.”

Sounds like a recommendation for widespread adoption of identity resolution solutions to us and we’d have to agree. Back on August 13th, our post Baby Formula: Out of the Mouths of Babes and into the Coffers of Terrorists recommended that retailers should assist the FBI’s LERPnet program to track down organized retail crime rings “by organizing and analyzing in-house retail data with the implementation of an identity resolution solution.”

With terror funding rising nearly $3 trillion dollars since 1999, and as we’ve seen up above, possibly $7 billion comes from organized retail crime gangs in the U.S. stealing baby formula, where’s the outrage? Where’s Congress on this issue? Where’s the press?

This is a serious issue and action needs to be taken immediately.

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There’s a very interesting study out last week from the Loss Prevention Research Council (LPRC) that Progressive Grocer featured in Retailers Misperceive Extent of Their Own Shrink. In the article there were two factoids that we’d like to call to your attention.

First, the report found that

“86 percent of respondents said they spend the most or second-most time working on loss problems related to internal product theft. Some 62 percent said they spend the most or second-most time working on loss problems related to internal cash theft. And 32 percent said that they spend the most or second-most time working on external theft, including organized retail crime.”

Clearly, internal theft from employees is the largest problem that retail loss prevention professionals face. “Entire retail chains have gone out of business,” writes Ronald Bond for Entrepreneur.com, “due to their inability to control losses from theft. The biggest threat facing storeowners is employee theft, which accounts for nearly half of inventory shrinkage–more than shoplifters, more than administrative error and more than vendor fraud.” [Emphasis added.]

In Employee Screening: An Ounce of Prevention is Worth a Pound of Lobsters, we pointed out that 75 percent of all employee thefts go unnoticed, according to U.S. Department of Commerce.

So if internal theft takes up most of an LP pros’ day, what’s the solution? According to the LPRC survey, here’s a second finding of interest:

“Almost two-thirds (65.5%) of respondents think implementing new technology is very important for their companies’ loss prevention endeavors.”

Hardware-wise, Closed Circuit Television (CCTV) can be a good deterrent. But if 75 percent of internal thieves are never caught, wouldn’t it be easier to not hire high risk employees in first place than to catch them in the act?

With software — specifically identity resolution software — retailers can get a clear comprehensive, composite depiction of current employees and potential new hires. Identity resolution solutions aggregate information from existing negative databases, uncovering convictions, bad debt, driving histories, lawsuits and more.

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Loss prevention professionals are worriers. It’s part of the job, losing sleep while figuring out shrinkage issues and finding solutions.

Below is our list of the Top Ten Things that Keep LP Pros up at Night. Special thanks to Jeff Stein, president of Executive LP Services and MonitorClosely.com, for contributing some of the issues that have kept him awake over the last 20 years in LP.

The Top Ten Things that Keep LP Pros up at Night

1. The budget for loss prevention, or lack thereof

2. Shrink numbers

3. Staffing (recruiting, hiring, firing, laying off due to downsizing, merger, chapter 11). Finding good entry-level security officers, loss prevention auditors, and store detectives to directors, VPs of loss prevention and CSO’s is always an issue. (Our friend Jeff Stein can help out. Please visit LP-Securityjobs.com, Jeff’s new recruiting site for loss prevention and security professionals, where he’s offering the opportunity to post three job listings for free.)

4. Serious incidents like a fatality in one of the stores or a major catastrophe (hurricanes, fire, string of armed robberies, terrorist attack, etc.)

5. Having a large loss out of one store due to internal or external theft or fraud that is so bad that you have to report it to the CEO/CFO. Then there would be the questions that follow: Why didn’t we catch it sooner? How come we weren’t able to deter it?

6. Waiting for inventory results

7. Balancing quality of life between work and home

8. Lack of a coherent anti-theft policy and program that (a) formally lays out the consequences of employee theft and (b) is widely distributed among the entire work force. For more, see Professor Richard Hollingier’s paper on Deterrence in the Workplace: Perceived Certainty, Perceived Severity, and Employee Theft (free trial subscription).

9. Having all the data needed to the job — it’s either (a) all there but can’t be accessed because it’s spread across different systems, departments or stores, or (b) the data points being collected are not sufficient. See our post on So, you’ve got all that data. Now how are you going to use it? for more.

10. Figuring out dishonest employee dynamics and developing statistical models to predict shrinkage — paraphrased from this article from Loss Prevention Magazine that outlines problems uncovered by the Loss Prevention Research Council (LPRC).

If you’re an LP professional, what keeps you awake at night? Please leave us a comment below…

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What’s one percent off the top-line to a retailer? If you’re Wal-Mart (and so few of us are), 1% is somewhere in the neighborhood of $3 billion, and it turns out that’s around what the retail supergiant will lose this year as a result of shoplifting and - increasingly - employee fraud. Wal-Mart is notoriously secretive about their losses, but recent analysis suggests that the $3 billion mark is accurate and that it’s an increase from last year (according to the AP’s Anne D’Innocenzio and Marcus Kabel).

Several analysts attribute the increase to Wal-Mart’s decision last year to not prosecute minor shoplifting cases, choosing instead to focus on organized shoplifting rings and employee fraud. In fact, those two - organized shoplifters and employee fraud - often go hand-in-hand since the former regularly depends on the latter. Combined, they cost the entire retail industry roughly $41.6 billion last year, according to a joint study by the National Retail Federation and the University of Florida (from BloggingStocks.com).

The BloggingStocks article goes on to say that “employees stole about 47% of the dollars and customers swiped about 32%.” The problem has become so serious that

“the NRF and the Retail Industry Leaders Association teamed up with the Federal Bureau of Investigation to launch a central database designed to track and share data on organized shoplifting to help law enforcement spot and stop such crimes” (from BNet.com)

And that database isn’t one of the three FBI databases we wrote about yesterday. Still, the FBI evidently thinks that employee fraud and theft is significant enough to maintain a dedicated data store, and it did cost retailers around $19.5 billion last year alone.

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